<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TRANSACTION INFORMATION SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7389 13-3662147
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
TRANSACTION INFORMATION SYSTEMS, INC.
115 BROADWAY
NEW YORK, NEW YORK 10006
(212) 962-1550
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JEFFREY NAJARIAN
CHIEF EXECUTIVE OFFICER
TRANSACTION INFORMATION SYSTEMS, INC.
115 BROADWAY
NEW YORK, NEW YORK 10006
(212) 962-1550
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ERIC S. KAMISHER, ESQ. JOHN A. BURGESS, ESQ.
ASHER S. LEVITSKY, ESQ. PHILIP P. ROSSETTI, ESQ.
GREGORY K. MARKS, ESQ. HALE AND DORR LLP
ESANU KATSKY KORINS & SIGER, LLP 60 STATE STREET
605 THIRD AVENUE BOSTON, MASSACHUSETTS 02109
NEW YORK, NEW YORK 10158 TELEPHONE: (617) 526-6000
TELEPHONE: (212) 953-6000 TELECOPY: (617) 526-5000
TELECOPY: (212) 953-6899
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
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,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par value per share $69,000,000 $18,216.00
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
as amended.
(2) Calculated pursuant to Rule 457(a) based on the estimate of the proposed
aggregate offering.
------------------------
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> 2
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 we are not soliciting an offer
to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 15, 1999
PROSPECTUS
- ----------------
SHARES
[LOGO]
TRANSACTION INFORMATION SYSTEMS, INC.
COMMON STOCK
This is an initial public offering of common stock by Transaction
Information Systems, Inc. All of the shares of common stock are being sold by
us. We anticipate that the initial public offering price will be between
$ and $ per share.
------------------
Prior to this offering, there has been no public market for our common
stock. We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol TISW.
------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Transaction Information Systems, before
expenses.................................................. $ $
</TABLE>
We have granted the underwriters an option for a period of 30 days to purchase
up to additional shares of common stock to cover over-allotments.
------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HAMBRECHT & QUIST ROBERTSON STEPHENS
, 2000.
<PAGE> 3
[PICTURES AND CAPTIONS FOR INSIDE FRONT COVER.]
Inside Front Cover
- - Top of page: Our logo with the words "Global 1000 Clients" centered below it
- - Center of page: The names of key clients organized in linear columns,
segmented by primary industries: Financial Services,
Manufacturing, Media, Professional Services, Technology and
Retail
- - At bottom of page: Our company tag line: "Proven E-Business Architects
Delivering Innovative E-Business Solutions for Global
1000 Companies"
GATEFOLD:
- - Left side of gatefold page contains text reading: "FLITE lab, founded by TIS
in 1997, provides an innovative approach for prototyping, developing and
implementing e-business solutions. Examples include trading and 401(k)
systems, knowledge management portals and market research extranets.
At FLITE, we provide a comprehensive range of integrated services, which span
from business strategy and development through training and support. Clients
visit the lab to explore ways in which technology can help them meet their
e-business needs. FLITE also provides the resources we need to build scaleable
and reliable e-business solutions, including:
- - PROCESS. FLITE's proprietary e-business methodology ensures efficient
implementation of technology to meet our clients' business goals and
strategies.
- - HARDWARE AND SOFTWARE. FLITE provides a wide array of industry-standard and
emerging technologies ranging from touch screen kiosks, biometrics equipment
and powerful servers to latest-version databases, applications and networking
software tools.
- - QUALITY ASSURANCE. Application testing and debugging is done at our FLITE lab
to ensure performance, resiliency and integrity.
- - RESEARCH AND DEVELOPMENT. By working closely with our industry-leading FLITE
members, FLITE engineers continually seek innovation through R&D efforts."
- - To the right of the text, there are 3 photographs lined up vertically. The
text next to the top photo is "Hardware" and "Software;" the middle photo is
"FLITE Members;" the bottom photo is "Testing" and "Research and Development."
To the right of the photos is the word "Resources," which is part of a graphic
pointing to a vertical diagram on the right side of the page.
- - Right side of gatefold page: A vertical diagram has our FLITE lab logo on top.
Below it are the words "Clients' Needs," which have graphics behind it
pointing to a vertical rectangle that contains the text, "E-Business
Methodology." Below are individual rectangles stacked to show the services our
FLITE lab provides to our clients, "Business Strategy," "Project Management,"
"Interactive Studios," "Development," "Testing," "Infrastructure,"
"Implementation," "Training," "Support," and "Software Assets." An arrow
leading outside the vertical rectangle leads to the conclusion, "The
combination of our methodology, FLITE lab resources and skilled technology
professionals enables us to develop and implement e-business solutions that
meet our clients' needs.
To the right of the diagram is the text "Supply Chain," which is part of a
graphic of an arrow pointing to the list of FLITE services. There is a
photograph next to that text, which is captioned "Recruiting Engine."
Text on the far right side of the page, next to the "Recruiting Engine" photo
reads, "At TIS, we have provided our clients with technology professionals since
1992. As a result, we have developed a recruiting engine that helps us identify
and recruit the talented candidates we need. It contains:
<PAGE> 4
over 85 in-house recruiters; a time-proven process; and a proprietary
recruitment system that includes an extensive database."
- - Bottom of page: Spread across the bottom of the gatefold is the text
"Traveling Through Time With TIS." On top of the text is a time line,
delineating the years " '92-2000." There is text on top of each year,
describing milestones we have achieved, as follows:
'92 -- "Opened New York headquarters," '93 -- "Entered Transactional
Development Market," '94 -- "Launched our Packaged Software Implementation
Business," '95 -- "Opened New Jersey Office, First Collaborative Technology
Project, Inc. 500 #103," '96 -- "Opened Boston Office, Inc. 500 #103,"
'97 -- "Opened Dallas, Philadelphia Offices, FLITE Lab Opening (NY),
NetIntegrator Launched, Inc. 500 #55," '98 -- "Goldman Sachs Invests $50M,
Opened Charlotte, San Francisco Offices, Inc. 500 #408," '99 -- "Opened Los
Angeles, Washington, D.C., San Diego Offices, NetCollaboration Launched, Inc.
500 #471, Inc. Hall of Fame," 2000 -- "FLITE On-Site Launch, FLITE Lab Opening
(San Francisco)."
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 7
Cautionary Note Regarding Forward-Looking Statements and
Market Data............................................... 17
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 30
Management.................................................. 42
Certain Transactions........................................ 49
Principal Stockholders...................................... 51
Description of Capital Stock................................ 53
Shares Eligible for Future Sale............................. 55
Underwriting................................................ 57
Legal Matters............................................... 59
Experts..................................................... 59
Where You Can Find More Information......................... 59
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------------
FLITE is our registered trademark, and TIS, FLITE On-Site,
NetCollaboration, NetIntegrator and NetPublisher are our trademarks. This
prospectus also contains trademarks and trade names of other companies which are
the property of their respective owners.
3
<PAGE> 6
PROSPECTUS SUMMARY
This summary may not contain all of the information that is important to
you. You should read the entire prospectus, including our consolidated financial
statements and related notes appearing elsewhere in this prospectus, before
making an investment decision.
TRANSACTION INFORMATION SYSTEMS, INC.
Transaction Information Systems is a leading provider of e-business
solutions services. We provide a comprehensive range of services to our Global
1000 clients that focuses on the strategy, design, development and deployment of
highly transactional e-business solutions. Through our original focus on the
financial services industry, we have developed the critical expertise that
enables us to create sophisticated e-business solutions. These solutions help
our clients improve enterprise-wide communication and facilitate electronic
commerce. We have leveraged this expertise into a growing number of industries,
such as manufacturing, professional services, retail, media and high technology.
We also provide information technology specialists to our clients on a
project-by-project or long-term basis. This information technology consulting
business complements our e-business solutions services by providing a
recruitment process that enables us to identify and hire experienced e-business
professionals.
The dramatic growth of the Internet and the resulting sophisticated
e-business solutions that companies require have fostered the need for
independent service providers to design, develop and maintain their intranets,
extranets, web sites and e-business applications. As a result, hiring and
retaining information technology professionals is becoming increasingly
difficult. According to International Data Corporation, the demand for
outsourced e-business services is projected to increase on a worldwide basis
from $7.8 billion in 1998 to $78.6 billion in 2003.
We focus on architecting reliable and scaleable end-to-end solutions for
our clients. These services include e-business strategy, solutions architectures
and development, creative design and interactive marketing software,
implementation, testing and training. We have also developed certain proprietary
Internet software tools that we incorporate into our e-business solutions to
enhance the services we offer to our clients.
Through FLITE lab, our innovative development center, our clients
participate interactively in the process of creating mission-critical e-business
solutions. This development center has attracted more than 15 leading technology
vendors to our FLITE alliance program. The leading-edge technologies of these
companies combined with our technology skills enable us to more effectively
produce innovative e-business solutions. We also plan to leverage our approach
to delivering advanced e-business solutions by packaging the FLITE lab concept
for use by our clients at their own sites. This program is called FLITE On-Site.
Since our inception in 1992, we have developed long-term relationships with
such companies as Chase Manhattan Bank, Citigroup, Dow Jones, Merrill Lynch,
NECX and Prudential Insurance. From 1994 through 1998, our revenues increased
from $11.5 million to $84.7 million and our net income increased from $598,000
to $2.7 million. During this period, our client base increased from 63 to 240.
We currently serve clients through 11 offices that are strategically located
throughout the United States.
4
<PAGE> 7
CORPORATE INFORMATION
Our principal executive office is located at 115 Broadway, New York, New
York 10006, and our telephone number is (212) 962-1550. Our Internet web site is
located at www.tisny.com. NEITHER THE INFORMATION CONTAINED IN OUR WEB SITE NOR
THE INFORMATION CONTAINED IN ANY INTERNET WEB SITE LINKED TO OUR WEB SITE IS A
PART OF THIS PROSPECTUS.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Transaction Information Systems.... shares
Common stock to be outstanding after this offering......... shares
Use of proceeds............................................ Repayment of debt, research and
development expenses, marketing expenses,
general corporate purposes, including
working capital and possible acquisitions.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol..................... TISW
</TABLE>
The number of shares of our common stock that will be outstanding after
this offering is based on the number outstanding as of September 30, 1999. It
excludes 2,395,550 shares subject to outstanding options under our stock plans
at a weighted average exercise price of $5.86 per share and 504,450 additional
shares available for issuance under those plans.
------------------------------
Unless otherwise indicated, all information in this prospectus
- gives effect to the conversion of all outstanding shares of preferred
stock into shares of common stock upon completion of this offering; and
- assumes that the underwriters will not exercise their option to purchase
additional shares in this offering.
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables summarize the financial data for our business. The pro
forma as adjusted column in the balance sheet data reflects the sale by us of
shares of common stock offered by us, at an assumed initial public
offering price of $ per share, and the application of the net proceeds
therefrom, after deducting underwriting discounts and commissions and offering
expenses payable by us.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ------- ------- ------- ----------- -------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue................... $11,510 $17,294 $33,350 $55,264 $84,731 $60,790 $76,579
Gross profit.............. 4,687 5,727 11,670 19,600 30,888 22,697 27,907
Income from operations.... 715 513 2,963 4,031 4,680 3,721 2,689
Net income................ $ 598 $ 458 $ 2,676 $ 3,591 $ 2,687 $ 2,116 $ 1,177
======= ======= ======= ======= ======= ======= =======
Basic net income per
share................... $ 0.03 $ 0.02 $ 0.13 $ 0.18 $ 0.15 $ 0.11 $ 0.08
======= ======= ======= ======= ======= ======= =======
Diluted net income per
share................... $ 0.03 $ 0.02 $ 0.13 $ 0.18 $ 0.13 $ 0.10 $ 0.05
======= ======= ======= ======= ======= ======= =======
Weighted average shares of
common stock
outstanding............. 20,000 20,000 20,000 20,000 18,057 19,411 14,140
Weighted average shares of
common stock and common
stock equivalents....... 20,000 20,000 20,000 20,000 20,457 20,274 22,072
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 4,175 $
Working capital............................................. 6,025
Total assets................................................ 33,042
Short-term debt............................................. 11,433
Long-term debt, less current portion........................ 571
Stockholders' equity........................................ 8,934
</TABLE>
6
<PAGE> 9
RISK FACTORS
This offering involves a high degree of risk. You should consider carefully
the following risks before you decide to buy our common stock. If any of the
following risks actually occur, our business, financial condition, results of
operations or cash flows could be materially and adversely affected, the market
price of our common stock could decline, and you could lose all or part of your
investment.
RISKS RELATED TO OUR FINANCIAL CONDITION AND OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY IN E-BUSINESS SOLUTIONS SERVICES, AND IT MAY
BE DIFFICULT FOR YOU TO ASSESS OUR PROSPECTS FOR SUCCESS.
Although we were founded in December 1992, until 1996 our principal
business was information technology consulting, from which we derived 58% of our
revenue in 1998 and 55% of our revenue for the nine months ended September 30,
1999. We did not generate a significant portion of our revenue from the design
and development of e-business solutions services until 1996. We use technologies
and sell services that are themselves part of a relatively new industry known as
the e-business services market. Accordingly, we cannot predict future results of
operations as a provider of e-business solutions services, and we cannot assure
you that we have accurately identified all the risks that relate to this
business.
OUR FAILURE TO IDENTIFY AND ENGAGE QUALIFIED INFORMATION TECHNOLOGY
PROFESSIONALS WILL ADVERSELY AFFECT OUR BUSINESS.
Both our e-business solutions services business and our information
technology consulting business are dependent upon our identifying, hiring and
retaining qualified information technology professionals. If we fail to identify
a sufficient number of qualified professionals, our business will be materially
and adversely affected. We may have difficulty in meeting our staffing
requirements and in identifying and placing professionals for a number of
reasons, including the following:
- information technology professionals are in high demand worldwide, and
the demand for such professionals is increasing;
- turnover in our industry is very high compared with other industries; and
- the information technology services market is characterized by rapid
technological change, evolving industry standards, changing client
preferences and new product and service introductions, which may increase
the difficulty in identifying, hiring and retaining qualified
professionals.
Because of the specialized nature of the placement market for information
technology professionals, we are highly dependent upon our ability to identify
and place professionals possessing the technical skills and experience required
by employers. If we fail to do so, our information technology consulting
business will be adversely affected.
BECAUSE A SIGNIFICANT PORTION OF OUR REVENUE IS DERIVED FROM CLIENTS IN THE
FINANCIAL SERVICES INDUSTRY, OUR OPERATING RESULTS MAY SUFFER FROM A DOWNTURN IN
BUSINESS AFFECTING THIS MARKET.
Clients in the financial services industry accounted for approximately 96%
of our revenue in 1997, 87% of our revenue in 1998 and 78% of our revenue in the
nine months ended September 30, 1999 and continue to represent our greatest
concentration of clients. Our business may suffer from any economic or other
trends that have the effect of reducing business or profits in the financial
services industry.
7
<PAGE> 10
OUR OPERATING RESULTS IN FUTURE PERIODS MAY VARY FROM QUARTER TO QUARTER, AND,
AS A RESULT, WE MAY FAIL TO MEET THE EXPECTATIONS OF OUR INVESTORS AND ANALYSTS,
WHICH MAY CAUSE OUR STOCK PRICE TO FLUCTUATE OR DECLINE.
Our revenue and operating results have fluctuated significantly in the
past, and we expect that they will continue to fluctuate significantly in the
future due to a variety of factors, many of which are outside of our control.
These factors include, among others:
- the demand for our services;
- our ability to attract and retain clients;
- the timing and significance of new services and products introduced by us
and our competitors;
- the level of services provided and prices charged by us and our
competitors;
- unexpected changes in operating expenses;
- changes in our mix of services offered, including the relative
contribution of e-business solutions services and information technology
consulting to our revenue and gross profit; and
- general economic factors.
A substantial portion of our operating expenses is related to personnel
costs, marketing programs and overhead which cannot be adjusted quickly and,
therefore, is relatively fixed in the short term. Our operating expense levels
are based, in significant part, on our expectations of future revenues on a
quarterly basis.
Due to all of these factors and the other risks discussed in this
prospectus, you should not rely on period-to-period comparisons of our results
of operations as an indication of future performance. Furthermore, if our
results of operations fall below the expectations of public market analysts or
investors, the market price of our common stock is likely to decline.
OUR REVENUE COULD BE MATERIALLY AND ADVERSELY AFFECTED IF WE LOSE A MAJOR CLIENT
OR SIGNIFICANT PROJECT.
We derive a significant portion of our revenue from a relatively few major
clients. Our five largest clients accounted for 26.0% of our revenue in 1996,
38.3% of our revenue in 1997, 35.2% of our revenue in 1998 and 25.4% of our
revenue for the nine months ended September 30, 1999. Because our contracts are
generally short term, the five largest clients varied from period to period. If
we lose a major client or large project, our results of operations could be
materially and adversely affected.
WE WILL INCUR ADDITIONAL EXPENSES AS WE CONTINUE THE DEVELOPMENT OF OUR
E-BUSINESS INFRASTRUCTURE.
We intend to continue to develop new services and product lines to address
our clients' diverse needs. As a result, we will need to increase our research
and product development, sales and marketing, client support and administrative
functions to support anticipated increased levels of operations from these new
services and products. We may not be successful in creating this infrastructure,
and we may not realize any increase in the level of our revenue and operations
to offset the additional expenses that we incur. As a result, our past results
and rates of growth may not be meaningful, and any assessment of our prospects
based on our historical operations may prove inaccurate.
FAILURE TO MANAGE OUR GROWTH MAY ADVERSELY AFFECT OUR BUSINESS.
We have grown rapidly and expect to continue our growth, both by hiring new
employees and by opening new offices, including a FLITE lab in San Francisco
early next year. When we expand
8
<PAGE> 11
an existing office or open a new office, we incur incremental capital and
operating expenses. There is always a delay before a new office reaches full
productivity. During this period expenses will exceed revenues generated by the
new office for at least several months, resulting in initial losses. Our growth
has placed, and will continue to place, a significant strain on our management
and our operating and financial systems. The number of our employees has grown
from 143 as of January 1, 1997 to 621 as of September 30, 1999. We do not
believe this historical growth rate in the number of employees is sustainable
for the long term.
Our personnel, systems, procedures and controls may be inadequate to
support our future growth. In order to accommodate the increased business that
we anticipate, we will need to hire, train and retain the appropriate personnel
to manage our operations.
FAILURE TO SUCCESSFULLY MANAGE OUR EXPANSION STRATEGY MAY ADVERSELY AFFECT OUR
BUSINESS.
We may fail to successfully implement our expansion strategy because of a
number of factors, including our failure:
- to identify new markets for expansion;
- to establish new offices in locations required by our clients and
prospective clients;
- to meet growth and profitability objectives within expected time frames,
if at all;
- to improve our financial and management controls, reporting systems and
operating systems; and
- to implement our proposed FLITE On-Site program.
WE PLAN TO DEVOTE SIGNIFICANT RESOURCES TO THE DEVELOPMENT AND MARKETING OF OUR
PROPOSED FLITE ON-SITE PROGRAM, AND OUR EFFORTS MAY ADVERSELY AFFECT OUR
BUSINESS.
Our proposed FLITE On-Site program is designed to enable clients to use the
techniques and methodologies of our FLITE lab at their own facilities. We cannot
assure you that this program can be developed or marketed successfully.
Initially, we will devote significant resources to develop and market the
program. We may suffer a downturn in our business from these efforts in the
event that:
- we are unable to develop a program which meets our clients' needs to
develop e-business solutions in-house;
- our marketing efforts are not successful and our clients do not accept
FLITE On-Site;
- we devote resources to the FLITE On-Site program at the expense of our
e-business solutions services business; or
- our clients accept FLITE On-Site, but significantly reduce their use of
our e-business solutions services, thus reducing both our revenue and
income.
WE WILL NEED TO EXPAND OUR SALES AND DISTRIBUTION CAPABILITIES IN ORDER TO
INCREASE MARKET AWARENESS OF OUR NAME AND INCREASE OUR REVENUES.
We will need to expand our marketing efforts both to increase awareness in
the business community of our name and to generate increased revenues. Our
services require a sophisticated sales effort targeted at the senior management
of prospective clients, and new employees require extensive training, in terms
of both time and resources, before they become productive. We may not be able to
hire enough qualified individuals in the future and our new employees may not
achieve necessary productivity levels.
9
<PAGE> 12
BECAUSE MOST OF OUR ENGAGEMENTS ARE NOT LONG TERM IN DURATION AND CAN BE
TERMINATED WITH MINIMAL NOTICE, OUR OPERATING RESULTS COULD SUFFER IF CONTRACTS
ARE TERMINATED OR IF WE DO NOT GENERATE NEW BUSINESS.
Our clients generally retain us for specific projects, which typically
require our services for a period of a few months. In addition, our clients
generally have the right to reduce the scope of our engagement or terminate the
contract without penalty on little or no advance notice. We project our staffing
requirements based upon existing and anticipated contracts. If the scope of
contracts is reduced, contracts are terminated or new engagements are not
obtained, our results of operations could be materially and adversely affected.
Consequently, you should not predict or anticipate our future revenue based on
our existing client base or recent operating results.
OUR FAILURE TO MEET OUR CLIENT EXPECTATIONS COULD RESULT IN LOSSES AND NEGATIVE
PUBLICITY.
Our client engagements involve the creation, implementation and maintenance
of e-business systems and other applications that are often critical to our
clients' businesses. Any defects or errors in these systems or failure to meet
clients' expectations could result in:
- delayed or lost revenues;
- increased costs in correcting any problems or errors;
- negative publicity regarding us and the quality of our services;
- claims for substantial damages against us, regardless of our
responsibility for such failure, which claims may exceed our insurance
coverage; and
- our inability to attract or retain clients.
OUR BUSINESS IS DEPENDENT UPON MARKET ACCEPTANCE OF E-BUSINESS BY BOTH
BUSINESSES AND THEIR CLIENTS.
The market for information technology consulting and particularly
e-business solutions services is relatively new and is evolving rapidly. The
demand for and market acceptance of these services is uncertain. The market for
our services is and will continue to be dependent upon a number of factors,
including the following:
- the growth of business interest in Internet technology for both
intra-organizational communications and communications with clients and
customers;
- the growth in consumer access to and acceptance of the Internet to
conduct business transactions;
- the development of technologies that facilitate two-way communication
between businesses and their targeted audiences;
- the development of security protection to reduce the risk of unauthorized
access to confidential business or personal information; and
- the ability of businesses and their customers to obtain access to
reliable and user-friendly Internet service at a reasonable cost.
Industry analysts and others have made many predictions concerning the
growth of the Internet as a business medium. The growth of the Internet as a
business medium may not develop as expected. As a result, the market for our
services may not develop as we expect, we may not be engaged to perform
Internet-based e-business services, and computer users in business or at home
may not use the Internet or other interactive media for commerce and
communication to the extent predicted.
10
<PAGE> 13
OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WE DO NOT KEEP UP WITH THE INTERNET'S
RAPID TECHNOLOGICAL CHANGE, EVOLVING INDUSTRY STANDARDS AND CHANGING CLIENT
REQUIREMENTS.
Existing and future competitors may develop or offer Internet services that
provide significant technological, creative, performance, price or other
advantages over the services we offer. Our future success will depend, in part,
on our ability to meet these challenges in a timely and cost-effective manner.
Among the most important challenges facing us are the need to:
- develop or obtain rights to use leading technologies as they become
available;
- continue to develop our strategic and technical expertise;
- influence and respond to emerging industry standards and other
technological changes;
- enhance our current services;
- develop new services that meet changing client needs; and
- implement an effective marketing program for our services.
We cannot assure you that we will succeed in effectively meeting these
challenges, and our failure to do so could materially and adversely affect our
business.
THE ABILITY OF COMPETITORS TO SUCCEED IN THE INTERNET SERVICES MARKET AND TO
LEVERAGE THEIR RELATED BUSINESSES COULD IMPAIR OUR ABILITY TO COMPETE
SUCCESSFULLY.
Although the market for Internet professional services is relatively new, a
number of major hardware, software and consulting companies have the managerial
resources, qualified professionals and financial ability to dominate the market.
These competitors include major companies, such as:
- Internet service firms and interactive architects: including iXL,
Proxicom, Scient, Viant and USWeb/CKS;
- System integrators: including IBM, Andersen Consulting, Cambridge
Technology Partners, Cap Gemini, EDS, Ernst & Young and Sapient; and
- Advertising and interactive agencies: including Ogilvy & Mather, Grey
Advertising, Bates, McCann-Erickson and DDB Needham, AGENCY.COM, Modem
Media . Poppe Tyson, Organic Online and Razorfish.
Most of these competitors are significantly larger and have greater
resources and name recognition than we, and they may be in a better position to
address new technology developments, which could have a material and adverse
effect upon our business. We cannot assure you that we will be able to compete
successfully with existing or new competitors in the market for e-business
solutions services or information technology consulting, or that competition in
either market will not have a material adverse effect on our operating results
and financial condition.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY INTENSE COMPETITION FOR BOTH CLIENTS
AND INFORMATION TECHNOLOGY PROFESSIONALS.
The placement industry, particularly firms focused on the placement of
information technology professionals, is extremely competitive and there are
few, if any, barriers to entry. We compete with national, regional and local
placement firms for access to both hiring employers and candidates. As we
attempt to expand into new geographic markets, we expect to compete with
additional firms. Many of these national and regional firms have greater
financial, technical and marketing resources than we have. We expect increased
competition from placement, staffing and consulting firms that are adopting the
Internet to solicit both employers and job candidates as well as to post job
openings and candidate profiles. Currently, hundreds of web sites offer these
services and more can be expected to emerge.
11
<PAGE> 14
THERE ARE RELATIVELY LOW BARRIERS TO ENTRY INTO THE E-BUSINESS SOLUTIONS
SERVICES MARKET, WHICH MAY ALSO AFFECT OUR ABILITY TO COMPETE SUCCESSFULLY.
There are relatively low barriers to entry into the Internet services
market. New companies can and do offer e-business solutions services and
information technology consulting services with little difficulty. These
companies may compete with us for business and may be able to respond to new
technical developments faster than we could. As a result, we may lose business
to any of the numerous and growing number of small and medium size companies
which offer services comparable to ours on terms which may be more favorable to
the end user.
THE LOSS OR IMPAIRMENT OF OUR INTELLECTUAL PROPERTY RIGHTS WOULD MATERIALLY AND
ADVERSELY AFFECT OUR BUSINESS.
Our future success will depend on our ability to develop proprietary
e-business solutions and operate without infringing on the proprietary rights of
others. We have only limited legal protection for our proprietary software and
other proprietary information, principally our non-disclosure agreements with
our employees and consultants. Third parties, including former employees, may
attempt to disclose, obtain or use our solutions or technologies or may develop
comparable technology independently. In developing new software or e-business
solutions, we may infringe upon the proprietary rights of others. Even if we
ultimately prevail against any claim of infringement, we may incur significant
expenses in defending any action.
WE DEPEND ON OUR KEY PERSONNEL, AND THE LOSS OF ANY KEY PERSONNEL MAY ADVERSELY
AFFECT OUR BUSINESS.
We believe that our success will depend on the continued employment of our
senior management team, particularly Mr. Jeffrey Najarian, our Chairman and
Chief Executive Officer, and Mr. Robert Gold, our President. Neither Mr.
Najarian nor Mr. Gold has an employment agreement with us. If one or more
members of our senior management were unable or unwilling to continue in their
present positions, we would have difficulty replacing them, and our business
could suffer. Furthermore, clients or other companies seeking to develop
in-house e-business capabilities may hire some of our key employees, which may
result in a loss of business from the client.
WE MAY NEED ADDITIONAL FINANCING FOR OUR FUTURE CAPITAL NEEDS, WHICH MAY NOT BE
AVAILABLE ON ACCEPTABLE TERMS, IF AT ALL.
We may need additional financing within the next year if:
- our cash flow is not sufficient to fund our continuing operations and
growth;
- we increase our proposed rate of expansion;
- we require funds to develop or acquire new technology; or
- we acquire other businesses, products or technologies.
If we raise additional funds through the sale of equity or convertible debt
securities, your percentage ownership will be reduced. In addition, these
transactions may dilute the value of the common stock outstanding. We may have
to issue securities that may have rights, preferences and privileges senior to
our common stock. We cannot assure you that we will be able to raise additional
funds on terms acceptable to us, if at all. If future financing is not available
or is not available on acceptable terms, we may not be able to fund our future
needs which could have a material adverse effect on our results of operations
and financial condition.
WE MAY FACE LIABILITY CLAIMS FROM EMPLOYERS AND PLACEMENT CANDIDATES.
Our business may expose us to liability with respect to the placement of
candidates with employers. An employer could assert a claim against us for
referring a candidate who proves to be
12
<PAGE> 15
unsuitable for the position filled. A liability claim, even one without merit,
could result in significant legal defense costs and expenditure of executive
time, thereby increasing expenses, lowering earnings and possibly resulting in
operating losses. Any failure in an employer's computer system which is the
result of an act or omission by a candidate referred by us could result in a
claim for substantial damages against us regardless of the merit of the claim.
We generally do not conduct candidate reference checks unless requested by a
particular employer. In addition, a candidate could assert an action against us
for failure to maintain the confidentiality of his or her employment search, or
for discrimination or other violations of employment laws by us or an employer
with whom the candidate was placed. Our professional liability insurance may not
provide adequate coverage for any claim or continue to be available on
acceptable costs and terms.
FUTURE ACQUISITIONS OR INVESTMENTS COULD DISRUPT OUR ONGOING BUSINESS, DISTRACT
OUR MANAGEMENT AND EMPLOYEES, INCREASE OUR EXPENSES AND MATERIALLY AND ADVERSELY
AFFECT OUR RESULTS OF OPERATIONS.
We anticipate that from time to time we will consider the acquisition of
complementary businesses or technologies. The success of any acquisition will
depend upon, among other things, our ability to:
- identify and evaluate the proposed acquisition of businesses or
technologies;
- complete the acquisition on reasonable terms;
- obtain any necessary financing;
- effectively integrate the acquired personnel, operations or technologies;
- retain and motivate key personnel; and
- retain clients of acquired firms.
Our failure to do any of the above could result in the disruption of our
ongoing business, a distraction of our management and employees, an increase in
our expenses, the assumption of additional debt and the issuance of equity that
could be dilutive to existing stockholders, all of which could materially and
adversely affect the results of our operations.
OUR BUSINESS COULD BE AFFECTED BY YEAR 2000 ISSUES.
Year 2000 issues could materially and adversely affect our business and our
clients' businesses. Many currently installed computer systems and software
products are coded to accept only two-digit year entries in the date code field.
Consequently, on January 1, 2000, many of these systems could fail or
malfunction because they may not be able to determine whether the first two
digits of a year are 19 or 20. As a result, computer systems and software used
by many companies, including us, our clients and our potential clients, may need
to be upgraded to comply with such Year 2000 requirements. Any failure on the
part of our principal internal systems or the systems that we create for our
clients or systems of third parties who provide utilities and other services to
us could seriously harm our business, financial condition and operating results.
For a more detailed description of our Year 2000 assessment, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Compliance."
RISKS RELATED TO OUR INDUSTRY
WE ARE DEPENDENT ON THE CONTINUED GROWTH AND DEVELOPMENT OF THE INTERNET AND ITS
INFRASTRUCTURE.
Our future success will depend on the continued growth of the use of the
Internet. We cannot assure you that this growth will continue or that a
sufficient number of businesses will use the Internet and related technologies
as part of their business. If businesses do not use the Internet as a vehicle
for communicating both internally and to clients and prospects, our business
could be
13
<PAGE> 16
adversely affected. Internet usage may be inhibited for a number of reasons,
including concerns as to the adequacy of Internet security, an inconsistent
quality of services from Internet service providers and difficulties in
obtaining cost-effective, high-speed service.
OUR FUTURE SUCCESS WILL DEPEND ON THE CONTINUED DEVELOPMENT OF A MARKET FOR
E-BUSINESS SOLUTIONS SERVICES.
We cannot be certain that a viable market for e-business solutions services
will continue to develop. If a viable and sustainable market for our e-business
solutions services does not develop, we will fail to achieve a significant
component of our strategy for growth. Even if a market for e-business solutions
services develops, we may not be able to differentiate our services from those
of our competitors. If we are unable to differentiate our services from those of
our competitors, our revenue growth and operating margins could decline.
BREACHES OF SECURITY ON THE INTERNET MAY ADVERSELY AFFECT OUR BUSINESS BY
SLOWING THE GROWTH OF E-BUSINESS.
The need to transmit confidential information, such as credit card and
other personal information, securely over the Internet has been a significant
barrier to e-business. Any well-publicized compromise of security could deter
more people from using the Internet or from using information technology to
conduct transactions that involve transmitting confidential information over the
Internet. Furthermore, decreased traffic and e-business sales as a result of
general security concerns could cause companies to reduce their spending on
Internet-based solutions.
WE FACE RISKS ASSOCIATED WITH GOVERNMENT REGULATION OF AND LEGAL UNCERTAINTIES
SURROUNDING THE INTERNET.
Any new law or regulation pertaining to the Internet, or the application or
interpretation of existing laws, could increase our cost of doing business or
otherwise have a material adverse effect on our business, results of operations
and financial condition. Laws and regulations directly applicable to Internet
communications, commerce and advertising are becoming more prevalent. The law
governing the Internet, however, remains largely unsettled, even in areas where
there has been some legislative action. Information technology may take years to
determine whether and how existing laws governing intellectual property,
copyright, privacy, obscenity, libel and taxation apply to the Internet. In
addition, the growth and development of e-commerce may prompt calls for more
stringent consumer protection laws, both in the United States and abroad.
RISKS ASSOCIATED WITH THIS OFFERING
WE WILL HAVE BROAD DISCRETION AS TO THE USE OF THE PROCEEDS FROM THIS OFFERING,
WHICH WE MAY NOT USE EFFECTIVELY.
Except for the payment of debt, research and development and marketing for
our FLITE On-Site program, we have no specific plans to allocate the use of the
net proceeds of this offering, and we have not committed these proceeds to any
particular purpose. Therefore, our management will have significant flexibility
in applying the net proceeds of this offering and may use the proceeds in ways
with which our stockholders disagree. We may not be able to invest these funds
effectively.
THE FUTURE SALE OF SHARES OF OUR COMMON STOCK MAY NEGATIVELY AFFECT OUR STOCK
PRICE.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, including shares issued upon the exercise
of outstanding options, the market price of our common stock will likely fall. A
depressed stock price may make it more difficult for us to sell equity
securities in the future at a time and price that we deem appropriate. After
this
14
<PAGE> 17
offering, we will have outstanding shares of common stock. Of these
shares, the shares being offered in this offering will be freely tradable.
FUTURE ISSUANCE OF PREFERRED STOCK MAY DILUTE THE RIGHTS OF OUR COMMON
STOCKHOLDERS.
Our board of directors will have the authority to issue up to 10,000,000
shares of preferred stock and to determine the rights, privileges, preferences
and other terms of such shares. The board of directors may exercise this
authority without the approval of the stockholders. The rights of the holders of
common stock may be adversely affected by the rights of the holders of any
preferred stock that may be issued in the future.
WE HAVE VARIOUS MECHANISMS IN PLACE TO DISCOURAGE TAKEOVER ATTEMPTS.
Certain provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a change in control of our company that you as a
stockholder may consider favorable. These provisions include:
- authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
- a classified board of directors with staggered, three-year terms, which
may lengthen the time required to gain control of our board of directors;
- a prohibition on cumulative voting in the election of directors, which
could otherwise allow less than a majority of stockholders to elect one
or more directors;
- a requirement for super-majority voting to effect certain amendments to
our certificate of incorporation and bylaws;
- a limitation on who may call special meetings of stockholders;
- a prohibition on stockholder action by written consent, which requires
all actions to be taken at a meeting of the stockholders; and
- advance notice requirements for nominations of candidates for election to
the board of directors or for proposing matters that can be acted upon by
stockholders at stockholder meetings.
Any of these provisions, if used by our management to delay or deter a
takeover attempt, may impact our stock price.
In addition, Section 203 of the Delaware General Corporation Law Statute
may discourage, delay or prevent a change in control of our company. For more
information see "Management" and "Description of Capital Stock -- Delaware Law
and Certain Charter and By-law Provision."
WE EXPECT THE PRICE OF OUR COMMON STOCK WILL BE SUBJECT TO SIGNIFICANT
FLUCTUATIONS.
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering, and the market price could fall below the initial
public offering price. The initial public offering price may bear no
relationship to the price at which the common stock will trade upon completion
of this offering. The initial public offering price will be determined through
negotiations between us and the representatives of the underwriters, based on
factors that may not be indicative of future market performance.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert
15
<PAGE> 18
management's attention and resources, which could have a material adverse effect
on our results of operations and financial condition.
OUR PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS WILL HAVE
SUBSTANTIAL CONTROL OVER OUR AFFAIRS.
Our executive officers and directors and certain entities affiliated with
them will beneficially own approximately % of our common stock following
this offering. In particular, entities affiliated with Goldman, Sachs & Co. will
own approximately % of our outstanding common stock. These stockholders
acting together will have the ability to exert substantial influence over all
matters requiring approval by our stockholders. These matters include the
election and removal of directors and any merger, consolidation or sale of all
or substantially all of our assets. In addition, they may dictate the management
of our business and affairs. This concentration of ownership could have the
effect of delaying, deferring or preventing a change in control, or impeding a
merger or consolidation, takeover or other business combination.
YOU WILL SUFFER SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK VALUE OF THE
COMMON STOCK YOU PURCHASE.
The initial public offering price will be substantially higher than the
book value per share of our common stock. Based on an assumed initial public
offering price of $ per share, if you purchase shares of common stock in
this offering you will suffer immediate and substantial dilution of $
per share. See "Dilution."
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<PAGE> 19
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA
Many statements made in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere are
forward-looking statements that are not based on historical facts. Because these
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements, including those
discussed under "Risk Factors."
This prospectus contains market data related to our business and the
information technology consulting and Internet services industry. This market
data includes projections that are based on a number of assumptions. If these
assumptions turn out to be incorrect, actual results may differ from the
projections based on these assumptions. As a result, our markets may not grow at
the rates projected by these data, or at all. The failure of these markets to
grow at these projected rates may have a material adverse effect on our
business, results of operations and financial condition, and the market price of
our common stock.
The forward-looking statements made in this prospectus relate only to
events as of the date on which the statements are made. We undertake no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events.
USE OF PROCEEDS
The net proceeds we will receive from the sale of the shares of common
stock offered by us are estimated to be $ million, after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by us. If the underwriters' over-allotment option is exercised in full, we
estimate that the net proceeds will be million.
We intend to use the proceeds to pay our line of credit, which was $7.9
million at September 30, 1999 and to pay $3.0 million of notes payable to our
founding stockholders. A portion of the net proceeds will be used initially for
research and development expenditures and subsequently for marketing for our
FLITE On-Site program. As of the date of this prospectus, except for the payment
of debt, research and development and marketing for our FLITE On-Site program
and general corporate purposes, including working capital, we have no specific
plans to allocate the use of the net proceeds of this offering, and we have not
committed these proceeds to any other particular purpose. Accordingly, our
management will have significant flexibility in applying the net proceeds of
this offering. We may use a portion of the proceeds to acquire other businesses,
products or technologies, although we are not currently a party to any
contracts, letters of intent, commitments or agreements and are not currently
engaged in active negotiations with respect to any acquisitions. Our management
will have broad discretion over the use and investment of the net proceeds of
this offering. Pending use of the net proceeds, we intend to invest these
proceeds in short-term, investment grade, interest-bearing instruments.
DIVIDEND POLICY
To date, we have neither declared nor paid any cash dividends on shares of
our common stock. We currently intend to retain our earnings for future growth
and, therefore, do not anticipate paying any cash dividends in the foreseeable
future.
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<PAGE> 20
CAPITALIZATION
The following table sets forth:
- our actual capitalization as of September 30, 1999; and
- our pro forma capitalization as adjusted to give effect to the conversion
of our outstanding series A convertible preferred stock, which will
automatically occur on consummation of this offering, and as to give
effect to the sale of the shares offered hereby and the
application of a portion of the proceeds of this offering to pay debt.
This table should be read in conjunction with our Consolidated Financial
Statements and the related notes which appear elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Line of credit.............................................. $ 7,852 $
Notes payable -- stockholders............................. 3,000
Current portion of long-term capital lease obligations.... 581
-------- --------
Total short-term debt............................. $ 11,433 $
======== ========
Long-term debt, less current portion........................ $ 571 $
-------- --------
Stockholders' equity:
Preferred stock, $0.01 par value; 10,000,000 shares
authorized of which 8,000,000 shares are designated as
series A convertible preferred stock; 6,549,788 shares
issued and outstanding as of September 30, 1999, none
issued or outstanding pro forma as adjusted............ 49,161
Common stock, $0.01 par value; 75,000,000 shares
authorized; 20,100,000 shares issued and 14,139,692
shares outstanding as of September 30, 1999,
shares issued and shares
outstanding pro forma as adjusted...................... 201
Additional paid-in capital............................. 526
Retained earnings......................................... 3,457
Treasury stock, at cost: 5,960,308 shares.............. (44,411)
-------- --------
Total stockholders' equity........................ 8,934
-------- --------
Total capitalization.............................. $ 9,505 $
======== ========
</TABLE>
Common stock outstanding after this offering excludes 2,395,550 shares issuable
upon exercise of currently outstanding stock options at a weighted average
exercise price of $5.86 per share.
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<PAGE> 21
DILUTION
The pro forma net tangible book value of our common stock as of September
30, 1999 was $ , or $ per share. Pro forma net tangible book value per
share before the offering is determined by dividing pro forma net tangible book
value (our total tangible assets less total liabilities) by the pro forma number
of shares of common stock outstanding as of September 30, 1999. After giving
effect to the sale of common stock pursuant to this offering at an assumed
initial public offering price of $ per share, and after deducting the
underwriting discounts and commissions and estimated expenses payable by us, the
adjusted pro forma net tangible book value as of September 30, 1999 would have
been $ , or $ per share.
This offering will result in an increase in pro forma net tangible book
value per share of $ to existing stockholders and dilution in pro forma
net tangible book value of per share of $ to new investors who purchase
shares in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
September 30, 1999........................................ $
Increase per share attributable to new investors..........
-----
Pro forma net tangible book value per share after this
offering..................................................
----
Pro forma dilution per share to new investors............... $
====
</TABLE>
The following table summarizes, on a pro forma net basis as of September
30, 1999, the difference between the total consideration paid and the average
price per share paid by existing stockholders and by new investors with respect
to the number of shares of common stock purchased from us:
<TABLE>
<CAPTION>
SHARES TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 21,510,518 % $49,887,141 % $3.48
New investors...............
---------- ----- ----------- ------
Total............. 100.0% $ $100.0%
========== ===== =========== ======
</TABLE>
The consideration paid by the existing stockholders does not reflect the $44.4
million paid by us to our founding stockholders to purchase a portion of their
stock in September 1998.
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<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data set forth below as of December 31,
1997 and 1998 and September 30, 1999 and for the years ended December 31, 1996,
1997 and 1998 and the nine months ended September 30, 1999 is derived from our
consolidated financial statements which have been audited by
PricewaterhouseCoopers LLP, independent public accountants, and are included
elsewhere in this prospectus. The selected consolidated financial data as of and
for the years ended December 31, 1994 and 1995 is derived from unaudited
consolidated financial statements not included in this prospectus. The selected
consolidated financial data for the nine months ended September 30, 1998 is
derived from unaudited consolidated financial statements which are included
elsewhere in this prospectus and which include, in our opinion, all adjustments,
consisting of only normal recurring adjustments, that are necessary for a fair
presentation of our consolidated results of operations for that period.
Operating results for the nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1999 or any future period. This data should be read in
conjunction with our consolidated financial statements and related notes
included elsewhere in this prospectus and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ------- ------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue............................. $11,510 $17,294 $33,350 $55,264 $84,731 $60,790 $76,579
Cost of revenue..................... 6,823 11,567 21,680 35,664 53,843 38,093 48,672
------- ------- ------- ------- ------- ------- -------
Gross profit........................ 4,687 5,727 11,670 19,600 30,888 22,697 27,907
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing............. 2,973 3,509 4,397 8,673 13,718 9,779 14,070
General and administrative...... 999 1,705 3,761 5,800 11,116 8,196 10,007
Research and development........ 0 0 549 1,096 1,374 1,001 1,141
------- ------- ------- ------- ------- ------- -------
Total operating expenses... 3,972 5,214 8,707 15,569 26,208 18,976 25,218
------- ------- ------- ------- ------- ------- -------
Income from operations.............. 715 513 2,963 4,031 4,680 3,721 2,689
Interest expense, net............... 8 30 (73) (218) (253) (189) (263)
Loss from equity investment......... -- -- -- -- -- -- (192)
------- ------- ------- ------- ------- ------- -------
Income before income taxes.......... 723 543 2,890 3,813 4,427 3,532 2,234
Provision for income taxes.......... 125 85 214 222 1,740 1,416 1,057
------- ------- ------- ------- ------- ------- -------
Net income.......................... $ 598 $ 458 $ 2,676 $ 3,591 $ 2,687 $ 2,116 $ 1,177
======= ======= ======= ======= ======= ======= =======
Basic net income per share.......... $ 0.03 $ 0.02 $ 0.13 $ 0.18 $ 0.15 $ 0.11 $ 0.08
======= ======= ======= ======= ======= ======= =======
Diluted net income per share........ $ 0.03 $ 0.02 $ 0.13 $ 0.18 $ 0.13 $ 0.10 $ 0.05
======= ======= ======= ======= ======= ======= =======
Weighted average shares of
common stock...................... 20,000 20,000 20,000 20,000 18,057 19,411 14,140
Weighted average shares of common
stock and common stock
equivalents....................... 20,000 20,000 20,000 20,000 20,457 20,274 22,072
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
----------- ----------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.... $ 206 $ 199 $ 774 $ 665 $ 2,432 $ 4,175
Working capital.............. 1,101 1,717 2,699 4,105 10,185 6,025
Total assets................. 3,705 4,126 10,658 14,910 25,951 33,042
Short-term debt.............. 521 200 3,210 3,192 3,371 11,433
Long-term debt............... -- -- -- 590 4,003 571
Stockholders' equity......... 1,149 1,822 2,935 4,502 7,508 8,934
</TABLE>
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<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with "Selected
Consolidated Financial Data" and our financial statements and the related notes
appearing elsewhere in this prospectus. In addition to historical information,
this discussion contains forward-looking information that involves risks and
uncertainties. Our actual results could differ significantly from those
anticipated by the forward-looking statements due to competitive factors and
other factors discussed under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We provide the strategy, design, development and support of advanced
e-business solutions that improve communications and commerce on an
enterprise-wide basis. We provide highly transactional, mission-critical and
time-sensitive e-business solutions using leading-edge technologies. As an
integral part of our solutions, we provide the services of information
technology specialists to our clients on a project-by-project or long-term
basis. We initially focused on the financial services industry, and we have
recently diversified into other industries.
Our e-business solutions services business is supported by our information
technology consulting services. We have developed a recruiting process which
enables us to identify information technology professionals. We engage these
professionals both internally for our e-business solutions services business and
we provide these professionals to clients for our information technology
consulting business. Our revenue has increased for each period presented, from
$33.4 million in 1996 to $55.3 million in 1997, $84.7 million in 1998 and $76.6
million for the nine months ended September 30, 1999.
Investment by Institutional Investors. On September 4, 1998, we underwent
a recapitalization pursuant to which we issued shares of series A convertible
preferred stock to a group of institutional investors for $50.0 million and we
purchased shares of common stock from our founding stockholders for $44.4
million, including $3.0 million of notes payable by us to the founding
stockholders.
Revenue. More than 90% of our revenue is derived from time and materials
contracts, where the clients are charged for the time, materials and expenses
incurred on a particular project. These contracts relate to both e-business
solutions services and information technology consulting services. A small
portion of our revenue from e-business solutions services is derived from fixed
fee contracts. In addition, we derive a portion of our information technology
consulting revenue from fees for the permanent placement of information
technology and other technical professionals. Such fees represented
approximately 5% of our total revenue in 1997, 1998 and the first nine months of
1999.
We recognize revenue from our time and materials contracts as the services
are provided. We recognize revenues from fixed-fee contracts using the
percentage-of-completion method, based on the ratio of costs incurred to total
estimated costs. Revenue excludes reimbursable expenses charged to clients.
Our revenue from e-business solutions increased from 38% of total revenue
in 1996 to 40% in 1997, 42% in 1998 and 45% in the nine months ended September
30, 1999, and our revenue from information technology consulting has declined
from 62% in 1996 to 60% in 1997, 58% in 1998 and 55% in the nine months ended
September 30, 1999.
Our revenue has increased during each period presented. This increase in
revenue reflects both general increases in billing rates, primarily for our
e-business solutions services, and the employment of more specialized
information technology professionals. In addition, our revenue has increased due
to both an increase in e-business solution projects and from an increase in the
scope
21
<PAGE> 24
and duration of these projects. The trend toward greater project length has
enabled us to improve our utilization rate.
Clients in the financial services industry accounted for approximately 96%
of our revenue in 1997, 87% of our revenue in 1998 and 78% of our revenue in the
nine months ended September 30, 1999. Although we have been expanding our
services to other industries, our business may suffer from any economic or other
trends which result in a decline in business or profits in the financial
services industry.
We derive a significant portion of our revenue from relatively few major
clients. Our five largest clients accounted for 26.0% of our revenue in 1996,
38.3% of our revenue in 1997, 35.2% of our revenue in 1998 and 25.4% of our
revenue for the nine months ended September 30, 1999. Our largest client in
1997, 1998 and the nine months ended September 30, 1999 was Chase Manhattan
Bank, which accounted for 18.3% of our revenue in 1997, 12.6% in 1998 and 8.5%
in the nine months ended September 30, 1999. The Chase Corporation, the parent
of Chase Manhattan Bank, acquired Hambrecht & Quist, one of our managing
underwriters, on December 8, 1999. No other client accounted for more than 10%
of our revenue in 1996, 1997, 1998 or the nine months ended September 30, 1999,
except for Citibank, N.A., which accounted for 11.7% of our revenue in 1998.
Most of our contracts may be terminated by the client with little or no advance
notice. If we lose a major client or large project or if a major project is
terminated early, our revenue could be materially and adversely affected.
Since our revenue is derived principally from the services of our
professionals, the utilization of our technical professional staff has a direct
effect upon our operating results. Our professional staff includes both
employees and independent contractors. Most of the independent contractors
provide information technology consulting services. In addition, a majority of
our operating expenses, particularly personnel and related costs, depreciation
and rent, are relatively fixed in advance of any particular quarter. As a
result, the underutilization of our technical personnel may cause significant
variations in our operating results in any particular quarter and could result
in losses for the quarter. Factors which could cause such underutilization
include any reduction in size, delay in commencement, interruption or
termination of one or more major projects; the completion of one or more
significant projects during a quarter; the miscalculation of resources required
to complete a project; the timing and extent of training, weather-related
shutdowns, vacations and holidays; and changes in the economic climate for one
or more industries, including the financial services industry, that represents a
significant portion of our revenue.
Gross Profit. Our principal direct costs are our personnel-related
expenses, including salaries, associated employee benefits and ongoing training
for professionals directly assigned to client projects, as well as project
administration and management, consulting fees and other non-reimbursed direct
expenses incurred to complete projects. Our independent contractors generally
receive a higher rate of pay than our employees, but we do not provide them with
any benefits.
Our cost of revenue is affected by the compensation we pay to our
professional staff and the benefits we pay our employees. Because of the
increasing demand for information technology specialists, the compensation which
we pay our personnel has been increasing, and we expect this trend to continue.
Operating and Other Expenses. Our operating costs consist of sales and
marketing, general and administrative and research and development expenses.
Sales and marketing expenses consist of salaries, sales commissions and
related employee benefits of employees engaging in sales and marketing
activities and operations. We anticipate that these expenses will increase
significantly as we commence marketing our FLITE On-Site program.
General and administrative expenses consist of compensation for selected
executives, finance and administrative groups and associated employee benefits,
facility costs, including depreciation
22
<PAGE> 25
and amortization, computer and office equipment operating leases, travel and
other branch and corporate costs.
Research and development expenses consist of compensation and employee
benefits for employees associated with non-billable activities which develop the
internal knowledge and expertise of our business. We expect that our research
and development expenses will increase significantly, both in terms of dollars
spent and as a percentage of revenue, in the future as a result of our
anticipated development of our FLITE On-Site program. This program enables us to
offer our clients the ability to establish in-house development facilities based
on our FLITE model.
We regularly review our fee structure, compensation and overhead costs in
an effort to remain competitive within our industry as to both the fees we
charge our clients and the compensation we provide our employees. As part of our
project management, we review the progress of projects with our clients'
technical personnel and senior management on a regular basis. Most of our
projects can be terminated by the clients on short notice without penalty.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of revenue, our statements
of operations information for the years ended December 31, 1996, 1997 and 1998
and the nine months ended September 30, 1998 and 1999:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- --------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue...................... 65.0 64.5 63.5 62.7 63.6
----- ----- ----- ----- -----
Gross profit......................... 35.0 35.5 36.5 37.3 36.4
----- ----- ----- ----- -----
Operating expenses:
Sales and marketing................ 13.2 15.7 16.2 16.1 18.4
General and administrative......... 11.3 10.5 13.1 13.5 13.1
Research and development........... 1.6 2.0 1.6 1.6 1.4
----- ----- ----- ----- -----
Total operating expenses........ 26.1 28.2 30.9 31.2 32.9
----- ----- ----- ----- -----
Income from operations............... 8.9 7.3 5.6 6.1 3.5
Other income (expenses).............. (0.2) (0.4) (0.4) (0.3) (0.6)
----- ----- ----- ----- -----
Income before income taxes........... 8.7 6.9 5.2 5.8 2.9
Provision for income taxes........... 0.7 0.4 2.0 2.3 1.4
----- ----- ----- ----- -----
Net income........................... 8.0% 6.5% 3.2% 3.5% 1.5%
===== ===== ===== ===== =====
</TABLE>
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998
Revenue. Revenue increased by $15.8 million, or 26.0%, to $76.6 million
for the nine months ended September 30, 1999 from $60.8 million for the nine
months ended September 30, 1998. Revenue from both e-business solutions and
information technology consulting increased from the 1998 period to the 1999
period. Our revenue from e-business solutions increased at a higher rate than
the revenue from information technology consulting as a result of increased
billing rates and more professionals performing services for a larger number of
engagements.
Gross Profit. Gross profit increased by $5.2 million, or 23.0%, to $27.9
million in the 1999 period from $22.7 million in the 1998 period. Gross margin
decreased to 36.4% in the 1999 period from 37.3% in the 1998 period. The
decrease resulted from higher professional costs in this period in the
information technology consulting business, which we were not able to offset
fully with
23
<PAGE> 26
increases in our billing rates for these services because of competition. In
addition, our revenue from the permanent placement of technical personnel
decreased as a percentage of information technology consulting revenue, which
also had the effect of lowering our gross margin. Our gross margin for our
e-business solutions services increased from the 1998 period to the 1999 period
because we were able to increase our billing rates for our e-business solutions
professionals, and we were able to utilize these professionals more efficiently
as a result of larger contracts with a longer duration, which more than offset
higher levels of compensation paid to our professionals. The increased gross
margin from e-business solutions was not large enough to offset the reduced
gross margin from our information technology consulting services.
Sales and Marketing Expenses. Sales and marketing expenses increased by
$4.3 million, or 43.9%, to $14.1 million in the 1999 period from $9.8 million in
the 1998 period. As a percentage of revenue, sales and marketing expenses were
18.4% in the 1999 period as compared to 16.1% in the 1998 period. The increase
in sales and marketing expenses represents a significant increase in both our
marketing and sales personnel as part of our expanded marketing efforts
supporting our e-business solutions business. In addition, during 1998 and the
first nine months of 1999, we opened six new offices, each of which includes two
managers for information technology consulting services. Until these offices are
established, the compensation for these sales managers represents a
disproportionately high percentage of revenue generated from these offices.
General and Administrative Expenses. General and administrative expenses
increased by $1.8 million, or 22.1%, to $10.0 million in the 1999 period from
$8.2 million in the 1998 period. General and administrative expenses were 13.1%
of revenue in the 1999 period and 13.5% of revenue in the 1998 period. The
largest component of this increase was compensation to our new chief financial
officer and his assistant and a non-recurring charge of $349,000 from the
forgiveness of a note issued by our chief financial officer in connection with
his purchase of common stock in December 1998. We had no similar expenses in
1998, since both of these individuals were hired during the fourth quarter of
1998. In addition, the increase in our general and administrative expenses
reflected increases in our bad debt expense, rent resulting from the opening of
five new offices in 1998 and the first nine months of 1999, information
technology support services and professional fees. General and administrative
expenses for the 1998 period included $1.4 million in compensation expenses
resulting from our purchase of employee stock options. Under the agreement with
our preferred stockholders, dated September 4, 1998, we were required to
purchase the options in order to preserve the preferred stockholders'
proportionate share in our equity on a fully-diluted basis. Excluding the
repurchase of stock options, general and administrative expenses constituted
11.5% of revenue for the 1998 period.
Research and Development Expenses. Research and development expenses
increased by $140,088, or 14.0%, to $1.1 million in the 1999 period from $1.0
million in the 1998 period. As a percentage of revenue, research and development
expenses were 1.5% in the 1999 period as compared to 1.6% in the 1998 period.
The increase resulted from increases in compensation to our research and
development personnel.
Other Income (Expenses). Interest expense increased by $73,582, or 38.9%,
to $262,594 in the 1999 period from $189,012 in the 1998 period. Interest
expense represented interest on our line of credit and the interest component of
our capitalized lease obligations, net of interest income which was not
significant in either period. During the 1999 period, we made an investment of
$231,050 in a newly formed limited liability company engaged in the development
of wireless data services. The $191,838 loss from the equity investment
represents our share of the limited liability company's loss for the period.
Income before Income Taxes. As a result of the factors described above,
our income before income taxes decreased by $1.3 million, or 36.7%, to $2.2
million in the 1999 period from $3.5 million in the 1998 period.
24
<PAGE> 27
Income Taxes. Our income taxes were $1.1 million for the 1999 period,
representing 47.3% of our income before income taxes. In the comparable period
of 1998, our income taxes were $1.4 million. During 1999 and the last four
months of 1998, we were taxed as a C corporation, and paid taxes at the
corporate rate. The tax rate for the 1999 period, which is in excess of the
statutory tax rate, results from travel and entertainment expenses, a portion of
which are not deductible for tax purposes.
Net Income. As a result of the foregoing, our net income decreased by
$938,477, or 44.4%, to $1.2 million, or $0.08 per share (basic) and $0.05 per
share (diluted), in the 1999 period from $2.1 million, or $0.11 per share
(basic) and $0.10 per share (diluted), in the 1998 period.
1998 Compared to 1997
Revenue. Revenue increased by $29.5 million, or 53.3%, to $84.7 million
for the year ended December 31, 1998 from $55.3 million for the year ended
December 31, 1997. This increase in revenues was attributable to increased
revenue from both information technology consulting and e-business solutions
services. The increase in revenue from e-business solutions reflects increases
in both billings rates and personnel, while the increase in revenue from
information technology consulting resulted primarily from an increase in the
number of professionals engaged by us.
Gross Profit. Gross profit increased by $11.3 million, or 57.6%, to $30.9
million in 1998 from $19.6 million in 1997. This increase represents an increase
in gross margin to 36.5% in 1998 from 35.5% in 1997. The increase in gross
margin resulted primarily from an increase in engagements for e-business
solutions services, higher billing rates for our e-business solutions
professionals and more efficient utilization of these professionals.
Sales and Marketing Expenses. Sales and marketing expenses increased by
$5.0 million, or 58.2%, to $13.7 million in 1998 from $8.7 million in 1997. As a
percentage of revenue, sales and marketing expenses were 16.2% in 1998 and 15.7%
in 1997. The increase in sales and marketing expenses resulted from a
significant increase in the number of marketing and sales personnel as part of
our expanded marketing efforts directed at our e-business solutions business. In
addition, during 1997 and 1998, we opened five new offices, each of which
included two managers for information technology consulting services.
General and Administrative Expenses. General and administrative expenses
increased by $5.3 million, or 91.7% to $11.1 million in 1998 from to $5.8
million in 1997. As a percentage of revenue, general and administrative expenses
were 13.1% in 1998 and 10.5% in 1997. This increase was attributable primarily
to $1.4 million in compensation expense resulting from our purchase of employee
stock options, rent and other expenses relating to the expansion of our New York
office and the opening of five new offices and the continued expansion of our
administrative infrastructure. Under our agreement with our preferred
stockholders, we were required to purchase the options in order to preserve the
preferred stockholders' proportionate share in our equity on a fully-diluted
basis. Excluding the repurchase of stock options, general and administrative
expenses constituted 11.5% of revenues in 1998.
Research and Development Expenses. Research and development expenses
increased by $278,654, or 25.4%, to $1.4 million in 1998 from $1.1 million in
1997. As a percentage of revenue, research and development expenses were 1.6% in
1998 and 2.0% in 1997. The increase resulted from the engagement of additional
personnel for research and development.
Other Income (Expenses). Interest expense, which was $252,650 in 1998 and
$217,997 in 1997, represented interest on our line of credit and the interest
component of our capitalized lease obligations, net of interest income.
Income before Income Taxes. As a result of the factors described above,
our income before income taxes increased $613,804, or 16.1%, to $4.4 million in
1998 from $3.8 million in 1997.
25
<PAGE> 28
Income Taxes. Our income taxes were $1.7 million in 1998, representing
39.3% of our income before income taxes. In 1997, our income taxes were
$222,120, representing 5.8% of income before income taxes. The increase in taxes
and the effective tax rate resulted from our conversion from an S corporation
during 1997 and the first eight months of 1998 to a C corporation effective in
September 1998. In connection with the conversion to a C corporation, we
recognized a tax expense related to an election to convert our basis of
accounting for tax purposes from cash basis to accrual basis.
Net Income. Net income decreased by $903,656, or 25.2% to $2.7 million, or
$0.15 per share (basic) and $0.13 per share (diluted), in 1998 from $3.6
million, or $0.18 per share (basic and diluted), in 1997. The decrease is
attributable to the increase in tax rates.
1997 Compared to 1996
Revenue. Our revenue increased by $21.9 million, or 65.7%, to $55.3
million for the year ended December 31, 1997 from $33.4 million for the year
ended December 31, 1996. This increase in revenues was attributable to an
increase in revenue from both information technology consulting and e-business
solutions. The increase in revenue from e-business solutions reflects an
expansion of service offerings and increased personnel, and information
technology consulting resulted primarily from an increase in the number of
professionals performing these services.
Gross Profit. Gross profit increased by $7.9 million, or 68.0%, to $19.6
million in 1997 from $11.7 million in 1996. This increase represented an
increase in our gross margin to 35.5% in 1997 from 35.0% in 1996. The increase
in gross profit resulted from the combination of an increase in the number of
engagements and a more efficient utilization of our professionals.
Sales and Marketing Expenses. Sales and marketing expenses increased by
$4.3 million, or 97.2%, to $8.7 million in 1997 from $4.4 million in 1996. As a
percentage of revenue, sales and marketing expenses were 15.7% in 1997 as
compared to 13.2% in 1996. The increase in sales and marketing expenses
represents a significant expansion of our sales force related to the expansion
of New York operations and the opening of a new office.
General and Administrative Expenses. General and administrative expenses
increased by $2.0 million, or 54.2%, to $5.8 million in 1997 from $3.8 million
in 1996. General and administrative expenses were 10.5% of revenue in 1997
period and 11.3% of revenue in 1996. The increase in general and administrative
expenses in 1997 resulted from equipment leases relating principally to the
opening of our FLITE lab in September 1997, the opening of a new office and the
expansion of our administrative infrastructure.
Research and Development Expenses. Research and development expenses
increased by $547,059, or 99.7%, to $1.1 million in 1997 from $548,814 in 1996.
Research and development expenses were 2.0% of revenue in 1997 period and 1.6%
of revenue in 1996. The increase resulted from additional personnel to staff our
FLITE lab.
Other Income (Expenses). Interest expense increased by $145,666, or
201.4%, to $217,997 in 1997 from $72,331 in 1996. Interest expense represented
interest on our line of credit and the interest component of our capitalized
lease obligations, net of interest income.
Income before Income Taxes. As a result of the factors described above,
our income before income taxes increased 31.9%, to $3.8 million in 1997 from
$2.9 million in 1996.
Income Taxes. During both 1997 and 1996, we were an S corporation and were
taxed at the stockholder level rather than at the corporate level for federal
income taxes. Accordingly, in 1997 we had income taxes of $222,120, an effective
tax rate of 5.8%, as compared with taxes of $214,531, an effective tax rate of
7.4% in 1996.
Net Income. Net income increased to $3.6 million, or $0.18 per share
(basic and diluted), for 1997 from $2.7 million, or $0.13 per share (basic and
diluted), in 1996, an increase of 34.2%.
26
<PAGE> 29
QUARTERLY RESULTS
The following tables set forth certain statement of operations data for
each quarter of 1998 and the first three quarters of 1999, as well as such data
expressed as a percentage of our total revenues for each quarter. This
information has been presented on the same basis as the financial statements
appearing elsewhere in this prospectus and, in our opinion, includes all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary to present fairly the unaudited quarterly results. You should read the
following tables together with our consolidated financial statements and related
notes appearing elsewhere in this prospectus. The operating results for any
quarter are not necessarily indicative of results for any future period.
STATEMENT OF OPERATIONS DATA
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1998 1998 1998 1998 1999 1999 1999
--------- --------- ------------- ------------ --------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue......................... $17,848 $20,524 $22,418 $23,941 $23,498 $26,987 $26,093
Cost of revenue................. 11,217 12,769 14,107 15,750 14,695 17,304 16,673
------- ------- ------- ------- ------- ------- -------
Gross profit.................... 6,631 7,755 8,311 8,191 8,803 9,683 9,420
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing........... 2,943 3,444 3,392 3,939 4,457 5,049 4,564
General and administrative.... 2,067 2,126 4,003 2,920 3,076 3,462 3,468
Research and development...... 320 313 368 373 397 370 375
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 5,330 5,883 7,763 7,232 7,930 8,881 8,407
------- ------- ------- ------- ------- ------- -------
Income from operations.......... 1,301 1,872 548 959 873 802 1,013
Other income (expenses)......... (62) (64) (63) (64) (56) (186) (211)
------- ------- ------- ------- ------- ------- -------
Income before income taxes...... 1,239 1,808 485 895 817 616 802
Provision for income taxes...... 62 91 1,264 323 413 244 400
------- ------- ------- ------- ------- ------- -------
Net income (loss)............... $ 1,177 $ 1,717 $ (779) $ 572 $ 404 $ 372 $ 402
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
(AS A PERCENTAGE OF REVENUE)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue.................. 62.8 62.2 62.9 65.8 62.5 64.1 63.9
----- ----- ----- ----- ----- ----- -----
Gross profit..................... 37.2 37.8 37.1 34.2 37.5 35.9 36.1
----- ----- ----- ----- ----- ----- -----
Operating expenses:
Sales and marketing............ 16.5 16.8 15.1 16.5 19.0 18.7 17.5
General and administrative..... 11.6 10.4 17.9 12.2 13.1 12.8 13.3
Research and development....... 1.8 1.5 1.6 1.5 1.7 1.4 1.4
----- ----- ----- ----- ----- ----- -----
Total operating
expenses.............. 29.9 28.7 34.6 30.2 33.8 32.9 32.2
----- ----- ----- ----- ----- ----- -----
Income from operations........... 7.3 9.1 2.5 4.0 3.7 3.0 3.9
Other income (expenses).......... 0.4 0.3 0.3 0.3 0.2 0.7 0.8
----- ----- ----- ----- ----- ----- -----
Income before income taxes....... 6.9 8.8 2.2 3.7 3.5 2.3 3.1
Provision for income taxes....... 0.3 0.4 5.6 1.3 1.8 0.9 1.5
----- ----- ----- ----- ----- ----- -----
Net income (loss)................ 6.6% 8.4% (3.4)% 2.4% 1.7% 1.4% 1.6%
===== ===== ===== ===== ===== ===== =====
</TABLE>
Our revenue is principally derived from the services of our professionals.
During the fourth quarter and, to a lesser extent, during the third quarter of
each year, our revenue and net income are affected by holidays and vacations,
which results in a reduction of billable hours by our professionals. Our largest
concentration of business for both e-business solutions and information
technology consulting is in the financial services industry. To the extent that
this industry is affected by economic or regulatory factors, our revenue and net
income may be adversely affected.
27
<PAGE> 30
The decline in our revenue in the first quarter of 1999 from the fourth quarter
of 1998 resulted from the carryover effects of a downturn in the stock market
during the fourth quarter of 1998 as clients and potential clients reduced the
scope of both e-business solutions projects and information technology
consulting requirements. The decline in revenue from the second to third quarter
of 1999 resulted from the completion of information technology consulting
service engagements for the financial services industry which were not replaced
by new engagements at the same rate. The decline in net income in the third
quarter of 1998 is a result of the increase in tax expense. The tax increase is
attributable to our conversion to a C corporation and the election to convert
our basis of accounting for tax purposes from cash to accrual which resulted in
a related one time tax expense.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our operations primarily through cash
generated from operations and from bank borrowings. As of September 30, 1999, we
had $6.0 million in working capital, of which $4.2 million was cash or cash
equivalents.
Net cash provided (used), by our operating activities was ($792,412) for
1996, $2.3 million for 1997, ($785,830) for 1998 and $154,635 for the nine
months ended September 30, 1999. The increases in accounts receivable was $5.2
million for 1996, $3.7 million for 1997, $7.2 million for 1998 and $3.7 million
for the nine months ended September 30, 1999. In each period, our increase in
accounts receivable exceeded net income, resulting in a use of cash from
operations to fund accounts receivable. The use of funds from operations in 1998
included $1.4 million used to purchase options from certain of our
non-management employees in connection with the investment by the preferred
stockholders.
Net cash (used) in investing activities was ($97,336) in 1996, ($109,095)
in 1997, ($383,104) in 1998, and ($2.6) million for the nine months ended
September 30, 1999. Net cash used in investing activities consisted primarily of
purchases of computer equipment, software and furniture.
Net cash provided (used) by financing activities was $1.5 million for 1996,
($2.3) million for 1997, $2.9 million for 1998 and $4.1 million for the nine
months ended September 30, 1999. Net cash provided by financing activities in
1998 was derived primarily from the $49.6 million net proceeds from the sale of
series A convertible preferred stock. We used $41.4 million of the proceeds from
the sale to purchase common stock from our stockholders and an additional $4.7
million to make distributions to our stockholders. In addition, we issued notes
payable to stockholders of $3.0 million. The balance was used for working
capital. The distribution to stockholders represented a distribution of income
to the stockholders resulting from our status as an S corporation for U.S.
federal income tax purposes until September 1998. The change in status from an S
corporation to a C corporation resulted from our issuance of preferred stock to
institutional investors in September 1998.
In 1997, the ($2.3) million net cash used from financing activities
reflects a $2.0 million distribution to our stockholders. In 1996, our net cash
flow from financing operations reflected bank borrowings of $3.0 million under
our line of credit, offset by distributions to stockholders of $1.6 million.
We have a line of credit with Merrill Lynch Business Financial Services,
Inc. for a maximum availability equal to the lesser of $10.0 million or 80% of
our eligible accounts receivable. We pay interest on advances under the line of
credit equal to 2.5%, plus the 30-day commercial paper rate. We had outstanding
borrowings under the line of credit of $2.8 million at an interest rate of 7.6%
on December 31, 1998 and $7.9 million at an interest rate of 7.8% on September
30, 1999. Our obligations under the line of credit are collateralized by a first
lien on all of our assets. The line of credit is personally guaranteed by
certain of our stockholders. We intend to repay all outstanding amounts under
our line of credit from the proceeds of this offering.
28
<PAGE> 31
We believe that our cash flow from operations and available credit under
our line of credit will be sufficient to meet our anticipated operating cash
requirements for the next twelve months.
YEAR 2000 COMPLIANCE
The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able to
determine whether "00" means 1900 or 2000, which may result in computer and
other failures or the creation of erroneous results.
Our services relating to the development of e-business solutions are
performed pursuant to contracts with our clients. The project specifications
generally include a determination that the software we provide our clients is
Year 2000 compliant. We believe that any changes which may be required to
software which we have delivered in the past would be made pursuant to new
contracts with the clients. Our information technology consulting services are
performed under the client's direction, and we have no responsibility with
respect to Year 2000 compliance on these engagements.
We have largely completed all phases of our plan, except for contingency
planning, with respect to the current versions of all of our products. As a
result, the current versions of each of our products are Year 2000 compliant, as
described below, when configured and used in accordance with the related
documentation, and provided that the underlying operating system of the host
machine and any other software used with or in the host machine are also Year
2000 compliant. Certain of our products may require patches in order to function
optimally after December 31, 1999. We require all users of these affected
products to install these patches. We will respond to customer questions about
prior versions of our products on a case-by-case basis.
We have defined Year 2000 compliant as the ability to:
- correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
- function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
- where appropriate, respond to two-digit date input in a way that resolves
the ambiguity as to century in a disclosed, defined and predetermined
manner;
- if the date elements in interfaces and data storage specify the century,
store and provide output of date information in ways that are unambiguous
as to century; and
- recognize year 2000 as a leap year.
We have completed an assessment of our material internal systems, including
both our own software products and third party software and hardware technology.
We have substantially completed testing of our systems. We have upgraded or
substantially completed modifications required to make these systems Year 2000
compliant. Related costs have been immaterial to date, and we expect that future
costs will not be material. To the extent that we are not able to test the
technology provided by third-party vendors, we have obtained written assurance
from vendors of our primary hardware and software systems, including production
server systems, accounting software and groupware products, indicating that they
are Year 2000 compliant. Although we are not currently aware of any material
operational issues or costs associated with preparing our internal systems for
the Year 2000, we may experience material unanticipated problems and costs
caused by undetected errors or defects in the technology used in our internal
systems.
We have not yet fully documented a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations. The cost of developing and implementing such a plan may itself be
material.
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BUSINESS
OVERVIEW
Transaction Information Systems is a leading provider of e-business
solutions services to Global 1000 companies who seek to capitalize on
Internet-related opportunities to improve and expand their businesses. We
provide the strategy, design, development and support of advanced e-business
solutions that improve enterprise-wide communication and facilitate electronic
commerce. We work with our clients in developing highly transactional,
mission-critical and time-sensitive e-business solutions. As an integral part of
our e-business solutions, we provide the services of information technology
specialists to our clients on a project-by-project or long-term basis. Our
experience in delivering e-business solutions to banking, brokerage and
insurance companies is now being applied to a broader range of markets including
manufacturing, professional services, retail, media and high technology.
FLITE lab, our innovative development center, plays a critical role in
creating, marketing and implementing our e-business solutions. Working with our
engineers at FLITE lab, clients participate interactively in each stage of the
process, from the design of systems architectures to the development of the
total solution. Through this process, we have developed advanced e-business
solutions, such as frameworks for rapidly implementing group benefit programs,
stock option web sites and online trading systems. More than 15 leading
technology vendors have joined our FLITE alliance program, which we initiated in
order to enable the alliance members to collaborate and to more effectively
produce innovative e-business solutions.
Since our inception in 1992, we have developed a sophisticated information
technology consulting business which complements and enhances our e-business
solution services. As a result of having placed thousands of information
technology specialists with clients, we have developed a proprietary recruiting
system that enables us to identify and recruit high-level information technology
personnel. Our recruitment capability has been crucial in identifying and hiring
experienced professionals for our internal use and meeting the needs of our
clients.
The continuity of our experienced management team has facilitated the
development of long-term relationships with our clients. From 1994 through 1998,
our revenues increased from $11.5 million to $84.7 million and our net income
increased from $597,821 to $2.7 million. During this period, our client base
increased from 63 to 240. A sampling of the clients who have engaged us on
multiple projects since January 1, 1994 includes Chase Manhattan Bank,
Citigroup, Dow Jones, Merrill Lynch, NECX and Prudential Insurance. We currently
serve clients through 11 offices that are strategically located throughout the
United States.
INDUSTRY BACKGROUND
The dramatic growth of electronic commerce is changing the global landscape
for business. International Data Corporation estimates that revenue generated
from electronic commerce transactions will increase from approximately $50.4
billion in 1998 to approximately $1.3 trillion in 2003. This increase is a
direct result of the increasing acceptance of the Internet as a revolutionary
way for companies to interact, both within and outside the enterprise.
While the Internet was initially used by companies for advertising and
promotion, companies now recognize the Internet's potential for providing
significant new business opportunities. As a result, the Internet is evolving
from an information delivery medium to an interactive platform through which
companies market, operate and manage their businesses, conduct transactions and
provide information to customers. This new way of doing business, known as
e-business, integrates the commercial use of the Internet with advances in
technology to enable companies to improve
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communications with customers, employees, distributors and business partners. In
addition, e-business enables companies to:
- develop new revenue opportunities;
- reduce costs and improve operating efficiencies;
- manage distribution relationships to shorten selling or manufacturing
cycles;
- identify new products and services which extend or complement core
markets; and
- communicate and share information throughout the organization by using
intranets and extranets.
While there are numerous benefits associated with e-business, to gain or
maintain a competitive advantage companies must fully understand the
enterprise-wide implications of proposed solutions and must implement these
solutions with the most effective technologies, systems and processes. Companies
must integrate new Internet applications within existing systems, deploying
mission-critical solutions rapidly with advanced technology to support the
solutions. In addition, the creation of e-business solutions requires personnel
with extensive technological skills to plan and implement effective solutions
that fully exploit the benefits of e-business. Because the expertise needed by
companies to address e-business needs is typically outside their core
competencies, companies must either recruit and employ experts or retain outside
technology specialists.
The dramatic growth of the Internet and the expertise required to create
sophisticated e-business solutions has fueled the need for the outsourcing of
these solutions and the information technology professionals who are capable of
addressing the challenges posed by e-business. It has become increasingly
difficult for companies to identify, recruit and retain these skilled
information technology professionals. Accordingly, to augment internal
resources, many companies have engaged independent service providers to develop,
design and maintain their intranets, extranets, web sites and e-business
applications. The trend toward outsourcing these services has generated an
increased demand for providers of e-business services, which, according to
International Data Corporation, is projected to increase on a worldwide basis
from $7.8 billion in 1998 to $78.6 billion in 2003.
Today, companies have extremely complex e-business needs, ranging from
Internet technology professionals to sophisticated solutions. Due to the range
of expertise required to address these needs, and the time associated with
hiring and training new personnel, bringing expertise in-house is often not a
viable option. When retaining outside specialists and in order to capitalize on
e-business opportunities, companies need experts who fully understand their
industry. As companies increasingly outsource their e-business solutions needs,
and as these e-business solutions become more complex, a significant need for
highly qualified e-business solutions providers has emerged.
OUR SOLUTION
We design, develop and support e-business solutions for clients who seek to
capitalize on Internet-related opportunities to improve and expand their
businesses. Key elements of our solution include:
Comprehensive, End-to-End e-Business Solutions. We provide a comprehensive
range of integrated services to develop strategic e-business solutions. Our
services include the design of systems architectures and end-user interfaces,
and the creation, customization and implementation of Internet applications. We
have developed expertise in delivering highly transactional e-business solutions
that require the critical time-sensitive transfer of information, particularly
as it relates to such matters as online trading, order processing and real-time
market research. We also design and deliver collaborative e-business solutions
that focus on making critical information widely available and easily accessible
throughout an enterprise. These solutions permit clients to share knowledge,
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thereby improving decision-making processes, and have included such applications
as global sales and marketing intranets and collaborative customer service web
sites. In addition, we work with our clients to analyze their business
challenges, diagnose infrastructure shortcomings of their existing systems and
then design and implement e-business solutions that enhance their business,
operations and communications.
Leading-Edge, Highly Transactional Solutions. Our FLITE lab serves as a
catalyst to permit the centralized design, customization and implementation of
highly transactional, mission-critical and time-sensitive e-business solutions.
We believe that our clients benefit not only from time and cost savings realized
through our FLITE lab, but also from robust and scalable solutions that can be
implemented quickly and integrated smoothly with their existing systems. By
capitalizing on the knowledge, tools and resources of our FLITE lab, we and our
clients have developed and made available leading-edge e-business solutions that
can be further customized to address the needs within the clients' enterprise.
In addition, through our FLITE alliance program, we work with leading technology
vendors, such as Sun Microsystems, Lotus, PeopleSoft and Mercury Interactive, to
develop further our research and development capabilities and to test evolving
Internet technologies to meet the needs of our growing client base. We currently
operate our FLITE lab at our offices in New York City, and we expect to open a
second FLITE lab in San Francisco in 2000.
Reusable e-Business Tools. We design, develop and utilize advanced
proprietary technologies, and we have developed a library of proprietary
Internet-based software and tools that address a wide range of e-business needs.
These tools include NetCollaboration, which enables clients to enhance sales and
customer service through the Internet, NetIntegrator, which connects back-end
databases and web servers and NetPublisher, a content management software tool
for collaborative web publishing. These tools often form an integral part of our
customized solutions to meet the requirements of a particular client. This
library enables us to give our clients the benefit of our knowledge and
experience and to develop and implement e-business solutions quickly and
efficiently. As the library expands, we are increasingly able to use our
experience in addressing complex e-business challenges to deliver reliable
e-business solutions based on reusable software components that have been tested
and improved through repeated use.
Interactive Marketing Services. We assist our clients in leveraging the
capabilities of the Internet to motivate, acquire and retain customers through
interactive media and marketing. Through our in-house studio facility, we create
and execute interactive advertising, online affinity and loyalty programs
designed to attract and retain consumers with engaging design and compelling
messages. We also work with our clients to develop interactive marketing
strategies that complement their marketing efforts through traditional media.
These strategies may include branding programs and entertainment oriented
promotions. Our services also help clients re-evaluate their strategies and
transform their businesses to take advantage of the Internet.
Information Technology Consulting Services. We actively recruit and
maintain experienced technical professionals at our clients' premises, either on
a project-by-project or long-term basis. We have developed expertise in
identifying and recruiting experienced senior-level software developers, network
engineers and administrators. We also have created a proprietary recruitment
system that includes a database of information technology professionals and
their backgrounds and skills. The recruitment system also includes a process for
electronic submission, approval and tracking of candidates cross-referenced to
suitable and available job openings.
OUR STRATEGY
Our goal is to strengthen our position as a leading provider of e-business
solutions to Global 1000 companies who seek to capitalize on Internet-related
opportunities to improve and expand their businesses. To achieve this objective,
we are pursuing the following strategies:
Leverage and Expand Industry Expertise. We offer significant industry
expertise that enables us to understand our clients' particular business
processes and competitive positions. From inception
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we have focused on delivering services to banking, brokerage and insurance
companies for whom we developed e-business solutions that addressed highly
transactional, mission-critical and time-sensitive problems. Today our focus has
expanded to include clients in manufacturing, professional services, retail,
media and high technology. By combining industry-specific knowledge with our
general business practices and design patterns, we believe that over time we
will be able to provide effective e-business solutions tailored to the specific
needs of clients in a broader range of industries. We believe that, as a result
of increased global competition, companies in more industries will seek
e-business solutions to differentiate their products and services from those of
competitors and to use the Internet to expand their core businesses.
Use FLITE Lab to Build and Strengthen Client Relationships. At our FLITE
lab we:
- involve our clients in developing and executing their Internet
strategies;
- use our library of e-business tools to expedite the development and
testing of a proposed solution; and
- work with our FLITE alliance partners to ensure that our e-business
solutions take advantage of the most advanced hardware and software
technologies.
We believe that the ability of our clients to utilize our FLITE lab as an
integral part of their e-business planning processes serves to build and
strengthen our long-term relationships with them. FLITE strengthens the
relationship between our clients and valued third-party vendors by providing
technology and resources that often result in generating additional business
opportunities. We also intend to continue to work with our FLITE alliance
members to further our research and development capabilities. In particular, we
intend to continue to test evolving and emerging Internet technologies to meet
the needs of our growing client base. We also intend to expand our presence by
opening new FLITE labs, including a second FLITE lab in San Francisco scheduled
to open in 2000.
In addition to geographical expansion of our FLITE lab, we plan to develop
a program, which we call FLITE On-Site. This will deliver the tools and
technology, proprietary design and planning methodology, along with the
technology professionals of our FLITE lab to our clients' sites. FLITE On-Site
will enable our clients to use these techniques and methodologies in-house to
develop their own e-business solutions. We believe the creation of FLITE On-Site
will enable chief information officers to deliver more value to their
organizations at less cost. Under multi-year agreements, clients will continue
to have access to our methodology improvements, new software, permanent and
contract staff and ongoing training.
Leverage our Information Technology Consulting Business. Our information
technology consulting business gives us consistent, valuable access to qualified
information technology specialists. This access results in our ability to grow
and scale our business through internal resources, without significant
dependence on third-party providers. In addition, we are able to place such
individuals, on a project-by-project basis, with our clients. We therefore
optimize the use of such professionals by placing them within and outside our
organization depending upon our needs and demands as well as those of our
clients.
We intend to continue to build upon our information technology consulting
capabilities, including the expertise of our 85 recruiters across the United
States. In recruiting information technology professionals we use our
proprietary recruitment system, which is a core component of our information
technology consulting business. This system includes a database of approximately
50,000 professionals, their backgrounds and skills, as well as a process for
electronic submission, approval and tracking of candidates cross-referenced to
suitable and available job openings. We actively seek to develop additional
engagements for our e-business solutions services through the professionals
placed by our information technology consulting business.
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Hire and Retain Qualified Professionals. We believe that a key to our
future growth is our ability to attract, train, motivate and retain qualified
professionals. Our strategy is to continue to develop the technical and market
knowledge and practices of our employees and consultants throughout our
business, and to expand these capabilities through external hiring. We intend to
continue to hire employees with the requisite expertise to provide our clients
with a comprehensive range of Internet and e-business services. We seek to
retain and motivate our employees by giving them what we believe are the
opportunities to work with leading-edge technologies, paying competitive
compensation packages and encouraging a corporate environment that is results
driven and that rewards creativity, communication and cooperation.
Expand Long-Term Client Relationships. We believe we have earned a
reputation for delivering high quality Internet-based solutions to our clients.
We continue to undertake engagements for many of the clients for whom we have
provided services since 1992. We strive to preserve existing client
relationships and to attract additional clients through referrals. We intend to
leverage these relationships, combined with our industry expertise, technology
skills, and range of services to expand the scope of existing customer
relationships into broader and longer engagements. In addition, based upon the
goodwill we have developed through the placement of our consultants on site with
our clients, we intend to expand further the delivery of e-business solutions to
our clients that in the past have only engaged us for our information technology
consulting services.
Expand Geographic Presence. We intend to continue to establish additional
offices, including additional FLITE labs, in cities where we believe that there
will be a strong market for our services. In the near term we expect such
expansion will be in strategic locations in the United States. We believe this
expansion, once implemented, will allow us to serve more clients on a local
basis, helping to forge long-term client relationships and to better serve the
needs of our clients and their customers and vendors.
SERVICES
We offer a wide range of services to companies who seek to capitalize on
Internet-related opportunities to improve and expand their businesses. These
services fall into two distinct categories, e-business solution services and
information technology consulting services. Through our e-business services we
provide the strategy, design, development and support of advanced e-business
solutions that improve communications and commerce on an enterprise-wide basis.
Through information technology consulting services, we provide the placement of
high-level technical professionals to meet the demands of our clients.
e-Business Services
We offer clients a comprehensive range of services that focus on the
efficient delivery of reliable and scalable e-business solutions. These services
include e-business strategy, systems architectures and development, analysis of
infrastructures, design and planning, implementation, testing, and training.
While we offer comprehensive, end-to-end e-business solutions, our clients may
contract for the specific services they require. Depending on their
requirements, our clients may engage us to perform one or more of the following
services:
e-Business Strategy. We work with clients to analyze their strategic
e-business position. We demonstrate, among other things, how clients can use
interactive and transactional systems to improve sales, marketing and customer
service and achieve other business objectives. We recommend strategies that use
clients' existing strengths, and explain how the latest technology can improve
their business processes. Depending on the project, we can then prepare a plan
that specifies how the client can use technology to become more competitive,
become an e-business leader and increase revenue and profitability.
Solutions Architectures and Development. We design and build solutions
that encompass our clients' enterprises, from their desktop to their back-end
databases. In general, we produce two
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types of e-business solutions. Transactional e-business solutions focus on the
critical time-sensitive transfer of information, frequently involving financial
transactions such as online stock trading, order processing and real-time market
research. Collaborative e-business solutions focus on enabling the client to
make critical information widely available and easily accessible throughout the
enterprise. These solutions allow customers to share knowledge to improve
decision-making processes. Examples of collaborative solutions include global
sales and marketing intranets and interactive customer service web sites.
In developing enterprise-wide solutions, we analyze our clients' technology
infrastructures. This generally includes a review of system performance,
security and administration. We utilize our capabilities in application
software, networks, systems, security and infrastructure architecture. We build
infrastructures to be robust and to serve as the foundation for implementing
e-business solutions that are linked to existing systems and technologies.
When we deliver the final solution to our clients, we typically install,
convert and initialize the necessary data and make the solution operational. We
perform quality assurance tests and facilitate the client's understanding of the
use and maintenance of our solution by providing appropriate documentation.
Prior to the delivery and during implementation, we test our solution using both
industry-standard testing tools and our proprietary methodologies to analyze the
performance of a proposed solution. We provide test plans and scripts, test
execution and results, written analysis and recommendations.
We also provide our clients with training, which focuses on employing
interactive distance learning. This training helps our clients provide their
workforce and business partners with learning structures in order to remain
current with changing technology. We offer expertise in information management,
web-based learning systems, curriculum analysis and design, instructor-led class
facilitation and computer-based training.
Packaged Software Implementation. As part of an engagement by clients, we
may select and install packaged software applications. We have developed a
methodology to guide clients through the decision-making process, analyze the
functionality and customize the software to meet their needs. Traditionally our
clients have used enterprise resource planning software packages such as
PeopleSoft, Oracle and SAP to streamline operations, such as human resources,
financials and the supply chain. Our clients are discovering that this
enterprise resource planning data, once reserved primarily for back office
functions, can be a valuable tool for making critical business decisions. Since
we focus on providing our clients with end-to-end solutions, in addition to
implementing, upgrading and testing enterprise resource planning packages, we
help our clients improve the return on their technology investments by providing
integrated software and e-business solutions. As back-end data is extended onto
the Internet, we are able to offer customized solutions for our clients. These
solutions include business strategy assessments to develop integrated enterprise
resource planning/e-business strategies and Internet-enabled enterprise
applications that enable our clients' vendors, suppliers and business partners
to interact with their enterprise resources through the Internet.
Creative Services. As part of our e-business solutions, we also provide a
range of creative services at our interactive studio, including:
- the design of web sites which are created for durability, scalability,
branding consistency and compatibility with a range of browsers;
- interactive marketing programs, including online marketing plans, online
affinity and loyalty programs and lead generation programs; and
- interactive entertainment, which use character animation, games and video
for business messages and web site content.
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Although our creative services are generally provided as part of a
comprehensive e-business solution, our studio has been engaged to perform these
services independently.
Information Technology Consulting Services
We have provided our clients with information technology consulting
services since our inception in 1992. We have developed expertise in identifying
and recruiting experienced senior-level software developers, network engineers
and administrators who we either place with clients, typically on a
project-by-project basis, or hire in-house as our needs arise.
We conduct our placement operations using each regional office, utilizing
specialists in search, sales and recruiting. Members of this practice group work
to match qualified candidates to appropriate job opportunities. We have
historically generated a substantial portion of our leads for available
candidates through referrals from information technology professionals we
previously placed. Additionally, to identify job openings, our counselors
regularly contact line managers who have previously used our placement services
and place cold-calls to other employers with potential hiring needs.
We identify qualified information technology professionals through both
advertising and referrals. As part of this process, each office regularly runs
print and online advertisements seeking individuals with a variety of skills,
based upon immediate needs and in anticipation of future market requirements. We
have created a proprietary internal recruitment application that includes a
database of information technology professionals and their backgrounds and
skills, as well as a process of electronic submission, approval and tracking of
candidates against job openings. As of September 30, 1999, we employed
approximately 85 technical recruiters and 35 sales professionals. We also use
this recruiting capability to hire information technology professionals for our
FLITE lab.
Although we generally supply information technology professionals on a time
and materials basis for a specific project or term, we also place these
professionals with clients on a permanent basis for which we receive a
percentage of an individual's first-year rate of compensation. Revenue from
permanent placement activities represented less than 5% of our revenue during
1997 and 1998 and the nine months ended September 30, 1999. We do not anticipate
that these activities will represent a significant portion of our revenues in
the future.
e-BUSINESS TOOLS
To enhance the services we offer clients through our FLITE lab, we have
developed certain proprietary Internet software tools that we incorporate as
components of our e-business solutions. These tools include:
NetCollaboration is a Java-based, interactive software tool that
combines the benefits of personal selling with the power of the Internet.
It enables our clients to increase sales and enhance customer service for a
wide range of uses, including brokerage and sales, call centers, retail
sales, distance learning, product training and help desks. NetCollaboration
enables customer support, telephone sales and technical support staffs to
have direct connections to end-users and deliver content and related
collaborative applications to them in real time. It is designed for
environments where the staff member and end-users are on the telephone, or
on voice-over Internet protocols, and the Internet at the same time.
NetCollaboration is similar to an Internet chat room in that it allows
information to be shared simultaneously among a number of individuals.
NetCollaboration rooms are called "channels," which are defined by the
information participants are viewing and exchanging. Participants connected
to a shared channel see the same information. There is almost no limit to
the number of people who can be linked on each channel. The shared
information can include, in addition to text, graphics, web pages, sound
and Java applets.
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There are many uses of NetCollaboration in situations where people
need to communicate and share information, including brokerage sales,
remote presentations and retail sales.
NetIntegrator is a middleware product that connects back-end databases
and web servers to deliver personalized content to consumers selected by
their user profile and transmits the content to their preferred interactive
delivery device. NetIntegrator allows businesses to extend their
interactive sales, marketing and customer service solutions beyond personal
computers and notebooks to such Internet appliances as palmtop computers,
cell phones, pagers and kiosks, which provide numerous business benefits,
including:
- facilitates the creation of customized interactive content that
entertains and engages customers, and is personalized by user and
delivery channel;
- provides a simple, consistent and comparatively secure method for
delivering information across multiple delivery channels. These can
include web browsers, kiosks, networked personal communications
services with customized software, branch and call center devices and
interactive TV; and
- provides a medium for generating targeted online advertisements based
on customer profiles.
NetPublisher is a content management software tool for collaborative
web publishing. Users can add graphics, audio and streaming video to web
sites and update content without any significant knowledge of HTML
programming. The software enables users to provide faster content delivery
to the web, standardize content publishing, lower costs and better manage
the publishing process. NetPublisher translates content from an authors
familiar desktop
applications, including Microsoft Word, Excel and Powerpoint, so that text
and graphics can be submitted without coding or scripting. It also handles
multi-media file formats. For example, NetPublisher was implemented by a
global financial services company to provide a cost-effective and timely
process for delivering up-to-date product information to its brokers. This
content was being produced across the world in varied formats. NetPublisher
helped ensure that all product descriptions had a common format, had been
approved by appropriate product and legal managers and could be easily
revised from any web browser.
CLIENTS
Our customers represent a broad spectrum of enterprises. While we have
historically focused on serving clients in the financial services industry, we
recently expanded our focus to include a broader range of industries, including
manufacturing, professional services, retail, media and high technology. The
following is a partial list of our major clients with whom we have transacted
business since September 30, 1998:
America Online
Arthur Andersen LLP
Chase Manhattan Bank
Citigroup
Credit Suisse First Boston
DoubleClick
Dow Jones
Ernst & Young
First USA
Goldman, Sachs & Co.
Schneider Automation
McGraw-Hill
Merrill Lynch
NECX
Ogilvy & Mather
Prudential Insurance
Seagram
Securities Industries Association
Each of our clients is generally charged on a time and materials basis,
except for the occasional permanent placement which is charged as a percentage
of an individual's first year's compensation. Most of our agreements are
generally terminable by the client upon 30 days notice.
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Our five largest clients accounted for 26.0% of our revenue in 1996, 38.3%
of our revenue in 1997, 35.2% of our revenue in 1998 and 25.4% of our revenue
for the nine months ended September 30, 1999. Our largest client in 1997, 1998
and the nine months ended September 30, 1999 was Chase Manhattan Bank, which
accounted for 18.3% of our revenue in 1997, 12.6% in 1998 and 8.5% in the nine
months ended September 30, 1999. No other client accounted for more than 10% of
our revenue in 1996, 1997, 1998 or the nine months ended September 30, 1999,
except for Citibank, which accounted for 11.7% of our revenue in 1998.
CASE STUDIES
The following case studies illustrate how two of our clients have deployed
advanced e-business solutions that have improved their enterprise-wide
communication and/or facilitated electronic commerce.
Schneider Automation: Enterprise-wide, Collaborative Extranet that
Demonstrates Measurable Return on Investment
In 1997, we began to address the corporate communications needs of
Schneider Automation, a $650 million manufacturer of automation and control
products. Schneider concluded that it needed to improve its information delivery
infrastructure to effectively manage its corporate knowledge and support its
worldwide sales channel of 10,000 representatives located in 130 countries. We
designed, architected and implemented a global extranet, branded Enterprise,
which reduced the time to deliver product information and logistical technical
support to their sales force.
Enterprise is a multilingual system that provides users with a single
source for information on business development and technical support.
To achieve this, we developed a browser-based interface for universal and
secure access to multiple data sources and formats from any web browser and
provided integration with a wide variety of back-end relational databases, such
as SAP, the Vantive Help Desk System, Lotus Notes databases, and multiple file
systems. We also provided dynamic search parameters that give users the ability
to easily and quickly search for the data they need to sell products.
Schneider evaluated the initial success of Enterprise based on cost savings
and found it generates a measurable return on investment. The system also
provides consistent and timely delivery of information throughout the world,
which increases customer satisfaction. It reduces time to market for new
products, since employees in the field receive information and can begin selling
approximately 90 days sooner with Enterprise. Additional benefits Schneider has
realized through Enterprise include a decrease of approximately 10% of calls to
the call center and an increase in revenue generation.
NECX: Increased E-Commerce Sales of Computer Equipment Through Our Rapid
Infrastructure Assessment and Upgrade Services
NECX manages a comprehensive electronic commerce site for selling computer
products via the Internet, NECX Direct. We were engaged by NECX to address an
urgent need to diagnose and troubleshoot a performance problem that was
hampering their online business. The resulting solution, which was implemented
in three months, increased the e-commerce capacity significantly, and positioned
NECX to handle increased sales volumes. Our work for NECX continues to evolve
and includes a broader range of our capabilities, including technical staffing
services.
Examples of the services we have provided to NECX include:
- Assessing and upgrading NECX's e-business web site, NECX Direct. Using
Mercury Interactive's LoadRunner testing software, we found the site
could handle 20% more simultaneous transactions than with its current
architecture. Working with the NECX
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development team, we developed a solution that used our
enterprise-scalable middleware product, NetIntegrator, to enable a rapid
capacity increase to support growing sales volumes.
- Designing NECX's next generation e-commerce catalog
architecture. Seeking to leverage our experience in designing and
developing high-end transactional web solutions, NECX asked us to develop
a strategy for evolving their e-commerce architecture to support the
increasing demands of the competitive electronics e-commerce business. We
analyzed NECX business requirements and current delivery capabilities and
continue to provide ongoing architectural planning and design assistance.
SALES AND MARKETING
Our principal target clients are Global 1000 companies who seek to
capitalize on Internet-related opportunities to improve and expand their
businesses. We market our services through our direct sales force. We obtain a
substantial portion of our sales leads through referrals from clients, systems
integrators and our FLITE alliance program members. We also sell our services
indirectly through arrangements with software product companies, hardware
vendors and other technology partners. In addition, we leverage the
relationships developed through our historic strengths in information technology
consulting to expand these e-business activities, which are the fastest growing
part of our company. Our experience in information technology consulting has
greatly facilitated the growth of our e-business activities, and we anticipate
that this will continue based on market needs and our strategy.
Our direct sales organization consists of more than 60 sales
representatives as of September 30, 1999 and is divided into four geographical
regions: northeast, mid Atlantic/south, midwest and west. A regional director
manages each region. Additionally, we have sales support specialists engaged in
technical pre-sales efforts, program and business development and proposal
creation.
Our marketing strategy is to demonstrate to our potential clients the
advantage of e-business solutions, and our expertise and success in designing,
developing, implementing and managing end-to-end solutions. We do this at our
FLITE lab in New York City, at trade shows and industry events nationwide. The
FLITE alliance program is an integral part of our marketing program. Together
with our alliance partners, including such leading technology vendors as Sun
Microsystems, Lotus and PeopleSoft, we sponsor customer seminars and events that
provide us with excellent exposure to both senior level executives at our
clients and alliance program members. Our marketing staff concentrates on three
distinct areas:
- corporate communications, where we focus on building the TIS and FLITE
brands, improving our competitive positioning and communicating with our
employees;
- lead generation, where we implement marketing programs targeted at
developing new prospects for the sales force, including direct mail,
seminars, telemarketing, Internet marketing, and facilitating cross
selling between our e-business solutions and information technology
consulting services; and
- strategic alliances, where we leverage our relationships with technology
leaders to develop joint selling opportunities and to continue our
leading-edge knowledge in e-business technologies.
COMPETITION
e-Business Solutions
The market for e-business solutions is subject to rapid technological
change and is significantly affected by new product introduction and other
activities of industry participants. While the market for e-business solutions
is relatively new, it is already highly competitive and characterized by an
increasing number of entrants that have introduced or developed products and
services similar to
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<PAGE> 42
those we offer. We believe that competition will intensify in the future. We
compete on the basis of a number of factors, including architectural design and
systems engineering expertise, quality, pricing and speed of service delivery;
and industry knowledge.
We currently compete for customer assignments and experienced personnel
principally with the following:
- Internet service firms and interactive architects: including iXL,
Proxicom, Scient, Viant and USWeb/CKS.
- System integrators: including IBM, Andersen Consulting, Cambridge
Technology Partners, Cap Gemini, EDS, Ernst & Young and Sapient.
- Advertising and interactive agencies: including Ogilvy & Mather, Grey
Advertising, Bates, McCann-Erickson and DDB Needham, AGENCY.COM, Modem
Media . Poppe Tyson, Organic Online and Razorfish.
Our competitors may be better positioned to address these developments or
may react more favorably to these changes, which could have a material adverse
effect on our business, results of operations and financial condition. Many of
these businesses have longer operating histories and significantly greater
financial, technical, marketing and managerial resources than we do.
Information Technology Consulting
In information technology consulting we face significant competition for
experienced personnel and for customer assignments. We believe that the
availability and quality of candidates, the scope of geographic service and, to
a lesser extent, the price of service, are the principal elements of
competition. The availability of qualified information technology professionals
is a particularly important facet of competition. To attract qualified
candidates, we emphasize our ability to provide a choice of attractive
employment opportunities at competitive compensation levels. We believe that our
ability to compete also depends in part on a number of other competitive factors
outside our control, including the ability of competitors to recruit qualified
candidates. The long-term placement industry, particularly firms focused on the
placement of employees with information technology skills, is extremely
competitive, and there are few, if any, barriers to entry. We compete with
national, regional and local placement firms for both employers seeking
candidates and information technology professionals. Many of our competitors
have greater financial, technical and marketing resources than we have.
PROPRIETARY RIGHTS
Our success will depend, in part, on our ability to develop proprietary
e-business solutions and operate without infringing on the proprietary rights of
others. We rely on a combination of trademark, trade secret and copyright law
and contractual restrictions to protect our software, documentation and other
written materials and other proprietary rights, applications and methodologies.
These legal protections afford only limited protection. We also seek to avoid
disclosure of our intellectual property by requiring employees and consultants
with access to our proprietary information to execute confidentiality agreements
and by restricting access to our source code. Due to rapid technological change,
we believe that factors such as the technological and creative skills of our
personnel, new product developments and enhancements to existing products are
more important than legal protections to establish and maintain a technology
leadership position.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our rights, applications and methodologies or to
obtain and use information that we regard as proprietary. Policing unauthorized
use of these is difficult and, while we are unable to determine the extent to
which piracy of our software exists, software piracy is likely to persist.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect our
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<PAGE> 43
trade secrets, to determine the validity and scope of the proprietary rights of
others or to defend against claims of infringement or invalidity. Any such
resulting litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on our business, operating
results and financial condition. Moreover, if we expand internationally, laws of
many countries do not protect our proprietary rights to the same extent as do
the laws of the United States. There can be no assurance that our means of
protecting our proprietary rights will be adequate or that our competitors will
not independently develop similar technology. Any failure by us to meaningfully
protect our property could have a material adverse effect on our business,
operating results and financial condition.
HUMAN RESOURCES
We believe that our ability to recruit and retain experienced,
highly-qualified and highly-motivated professionals has contributed greatly to
our success to date and will be critical for us in the future. We seek to offer
a positive environment and corporate culture and to offer significant financial
opportunities.
We offer a flexible recruiting model that we believe enhances our ability
to attract consultants and to effectively manage utilization. Our consultants
may work for us as employees or independent contractors. Our current independent
contractor base also includes individuals with specialized expertise in discrete
areas, and we typically deploy these individuals only when their unique
expertise is necessary. We expect that we will continue to retain these
individuals as independent contractors.
As of September 30, 1999, we had a total of 621 employees, of which 73 were
executive and administrative professionals, 159 were sales and marketing
professionals and 389 were technical professionals performing services at our
FLITE lab and at client sites. As of September 30, 1999, we had an additional
175 independent contractors working on engagements for us. Our current employees
are not represented by any labor union, we have never experienced a work
stoppage and we believe our relations with our employees are good.
We retain our professionals through the use of many initiatives. We
compensate our employees through a combination of regular cash compensation,
performance-based cash incentive compensation and participation in our stock
option plans. Independent contractors are compensated at competitive daily
service rates. Our independent contractors generally receive a higher rate of
pay than our employees, but we do not provide them with any benefits.
PROPERTIES
We lease approximately 41,000 square feet of office space at 115 Broadway,
New York, New York, where our executive offices and FLITE lab are located,
pursuant to a lease which expires in December 2007. Our current annual rent
under this lease is approximately $1.1 million and is subject to annual
escalations.
We also lease office space, principally for sales, support and recruitment
personnel, in Boston, Charlotte, Chicago, Dallas, Los Angeles, New Jersey,
Philadelphia, San Diego, San Francisco and Virginia (metro area). Our aggregate
rent on our regional offices is approximately $600,000. The leases provide for
annual increases and expire between November 1999 and November 2009. We also
lease certain space on a month-to-month basis.
We believe that our present facilities are adequate for our current needs.
We are establishing additional regional offices as our needs require and we
intend to establish a FLITE lab in San Francisco. We believe that any additional
space needed will be available on reasonable terms.
LEGAL PROCEEDINGS
Other than incidental litigation in the normal course of business, we are
not a party to any material legal proceedings.
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<PAGE> 44
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our executive officers, directors and key employees and their respective
ages and positions as of November 30, 1999 are as follows:
EXECUTIVE OFFICERS AND DIRECTORS:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jeffrey Najarian............................. 41 Chairman of the Board, Chief Executive
Officer and Director
Robert Gold.................................. 41 President and Director
Mark Gutterman............................... 44 Chief Financial Officer
Edward Shaw.................................. 49 Executive Vice President, Secretary and
Director
Mitchell Fass................................ 40 Executive Vice President and Director
Mark Arzoomanian............................. 34 Executive Vice President and Treasurer
George Setford............................... 51 Executive Vice President
Arthur Farkas................................ 47 Executive Vice President
Randall Blumenthal........................... 31 Director
Joseph Gleberman............................. 41 Director
David Moxam.................................. 43 Director
Paul Bayse................................... 40 Senior Vice President
Peter Bonjuklian............................. 44 Senior Vice President
Peter Melomo................................. 42 Senior Vice President
</TABLE>
KEY EMPLOYEES:
<TABLE>
<S> <C> <C>
Lynn A. Tusa................................. 38 Senior Vice President, Marketing
Sally Ann Martins............................ 40 Vice President, Human Resources
John Heinzinger.............................. 35 Senior Vice President, Sales
Paul Wanuga.................................. 33 Chief Technology Officer
Scott C. Faktor.............................. 40 Senior Vice President, e-Business Operations
Pat Slutzky.................................. 42 Vice President, e-Business Solutions
Mark Elder................................... 34 Vice President, Strategies and
Solutions
</TABLE>
Mr. Jeffrey Najarian has served as Chief Executive Officer and Chairman
since 1997. Mr. Najarian has been a senior executive officer and Director since
1992. From 1987 to 1992, Mr. Najarian was a partner at Setford-Shaw-Najarian, a
company engaged in the placement of information technology specialists. Mr.
Najarian received his B.A. from Rutgers University.
Mr. Robert Gold has served as President and Director since 1997. Mr. Gold
has been a senior executive officer since 1992. Prior to 1992, Mr. Gold was
Director of Worldwide Sales at Systems Strategies, a developer of communications
software. Mr. Gold received his B.A. from Rutgers University and his M.S. from
Fairleigh Dickinson University.
Mr. Mark Gutterman has served as Chief Financial Officer since January
1999. From 1980 to 1998, Mr. Gutterman was a partner of Feldman, Gutterman,
Meinberg & Co., CPAs, and had served as Co-Managing Partner of the firm. Mr.
Gutterman received his B.S. from Queens College, CUNY.
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<PAGE> 45
Mr. Edward Shaw currently serves as Executive Vice President, Secretary and
Director. He has been a senior executive officer since 1992. Mr. Shaw was a
founder of both Setford-Shaw-Najarian and Transaction Information Systems. He
received his B.S. from Brooklyn College, CUNY.
Mr. Mitchell Fass has served as Executive Vice President and Director since
January 1999. He has been a senior executive officer since 1994. From 1988 to
1994, Mr. Fass was a Vice President at Oracle Corporation. Mr. Fass received his
B.A. from Rutgers University.
Mr. Mark Arzoomanian currently serves as Executive Vice President and
Treasurer. He has been a senior executive officer since 1992. Mr. Arzoomanian
received his B.A. from Queens College, CUNY.
Mr. George Setford currently serves as Executive Vice President. He has
been a senior executive officer since 1992. Mr. Setford was a founder of both
Setford-Shaw-Najarian and Transaction Information Systems. Prior to this, Mr.
Setford worked at Wells Management Corporation and at Eden Data Processing. Mr.
Setford received his B.A. and M.A. from Fairleigh Dickinson University.
Mr. Arthur Farkas has served as Executive Vice President since October
1999. He has been a senior executive officer since 1992 and served as Senior
Vice President from 1997 to October 1999. Before 1992, Mr. Farkas was a Vice
President at Bank of Tokyo and a Senior Staffing Recruiter at Chase. Mr. Farkas
received his B.A. from Bernard M. Baruch College, CUNY.
Mr. Randall Blumenthal has served as a Director since September 1998. Mr.
Blumenthal was elected as a nominee of certain investment funds affiliated with
Goldman, Sachs & Co. He is Managing Director at Goldman, Sachs & Co., Principal
Investment Area, and has been with the firm since 1992. Mr. Blumenthal serves as
a director of Evolve Software, Inc., Storage Networks, Inc., Techspan, Inc., and
TKI Holdings, Inc. Mr. Blumenthal received his B.A. from the University of
Pennsylvania, his M.S. from The London School of Economics and his M.B.A. from
The Wharton School.
Mr. Joseph Gleberman has served as a Director since September 1998. Mr.
Gleberman was elected as a nominee of certain investment funds affiliated with
Goldman, Sachs & Co. Mr. Gleberman is Managing Director at Goldman, Sachs & Co.,
Principal Investment Area, and has been with the firm since 1982. Mr. Gleberman
serves as a director of Applied Analytical Industries, Inc., BackWeb
Technologies Ltd., Dade-Behring Holdings, Inc. and Ticketmaster
Online/CitySearch, Inc., as well as several private companies. Mr. Gleberman
received his B.A. and M.A. from Yale University and his M.B.A. from Stanford
Graduate School of Business.
Mr. David Moxam has served as a Director since November 1999. Mr. Moxam has
served as President and Chief Operating Officer of the Global Financial Markets
Group of Electronic Data Systems Corporation since October 1994. Mr. Moxam
received his B.A. from Laurentian University and his M.S. and M.B.A. from
Laurentian University.
Mr. Paul Bayse has served as Senior Vice President since 1997 and has been
a senior executive officer since 1992. Prior to 1992, Mr. Bayse held management
positions at Spectrum Concepts and Resource One. Mr. Bayse attended Fairleigh
Dickinson University.
Mr. Peter Bonjuklian has served as Senior Vice President since 1997 and has
been a senior executive officer since 1992. Prior to joining us, Mr. Bonjuklian
spent six years as an IT Consultant to the Gartner Group. He also did IT
consulting work for Citicorp, Nabisco and Sony Corporation. Mr. Bonjuklian
received his B.S. from New York University and his M.B.A. from Pace University.
Mr. Peter Melomo has served as Senior Vice President since October 1999. He
has been a senior executive officer since 1992, and served as Vice President
from 1997 to October 1992. Prior to joining us in 1993, he held various
management positions at EDS and National Data Corporation. Mr. Melomo received
his B.S. from Fordham University.
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<PAGE> 46
Ms. Lynn A. Tusa currently serves as Senior Vice President, Marketing.
Prior to joining us in 1996, Ms. Tusa worked for Apertus Technologies, Inc.,
where she managed the company's marketing communications and investor relations
programs. Ms. Tusa received her B.A. from Binghamton University and her
Executive M.B.A. from the University of New Haven.
Ms. Sally Ann Martins currently serves as Vice President, Human Resources.
Ms. Martins has functioned in several roles in the organization including
recruiter, recruiting manager and operations manager and launching and running
the Charlotte, N.C. office. Prior to joining us in June 1993, Ms. Martins worked
in various human resources positions for Chemical Bank, Salomon Brothers and
Ernst & Young. Ms. Martins received her B.A. from William Paterson College.
Mr. John Heinzinger currently serves as Senior Vice President, Sales. From
1997 to 1999, Mr. Heinzinger served as Vice President, e-Business Solutions.
Prior to joining us in 1996, Mr. Heinzinger held various sales and sales
management positions at Apertus Technologies, Inc. and IBM Corporation. Mr.
Heinzinger received a B.B.A. from Pace University.
Mr. Paul Wanuga currently serves as Chief Technology Officer. Prior to
joining us in 1995, Mr. Wanuga worked for J.P. Morgan, where he investigated the
application of new and emerging technologies across a variety of business units.
Mr. Wanuga received his B.A. in Computer Science from Cornell University and his
Masters of Architectural Science in Computer Graphics from Cornell's Computer
Graphics Laboratory.
Mr. Scott C. Faktor currently serves as Senior Vice President, e-Business
Operations. Prior to joining us in 1995, Mr. Faktor worked for Apertus
Technologies, Inc. where he was Vice President of sales for middleware products.
Mr. Faktor received his B.S. in Mechanical Engineering from Lehigh University
and his M.S. in Management Science from Stevens Institute of Technology.
Ms. Pat Slutzky currently serves as Vice President, e-Business Solutions.
Prior to joining us in 1997, Ms. Slutzky worked for Advanta Corporation, where
she was Chief Information Officer. Ms. Slutzky received her B.S. in Computer
Sciences from Spring Garden College.
Mr. Mark Elder currently serves as Vice President, Strategies and Solutions
Group. Prior to joining us in 1996, Mr. Elder was an independent consultant in
both Europe and the Far East specializing in Lotus Notes. He holds a Higher
National Diploma from Norwich City College and an M.B.A. from Bournemouth
University, both located in the United Kingdom.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
Our by-laws provide that the number of members of our board of directors
shall be one or more persons, as such number shall be fixed from time to time by
a vote of a majority of the whole board. The number of directors is currently
eight. We anticipate that one additional director will be elected after the
closing of this offering. All of the officers identified above serve at the
discretion of our board of directors.
Our board of directors is divided into three classes of directors serving
staggered three-year terms. Upon expiration of the term of a class of directors,
the directors in that class will be elected for three-year terms at the annual
meeting of stockholders in the year in which their term expires. Our board of
directors has resolved that Messrs. Najarian and Gleberman will be class I
directors whose terms expire at the 2000 annual meeting of stockholders. Messrs.
Gold, Shaw and Moxam will be class II directors whose terms expire at the 2001
annual meeting of stockholders. Messrs. Fass and Blumenthal will be class III
directors whose terms expire at the 2002 annual meeting of stockholders. These
provisions, when coupled with the provision of our amended and restated
certificate of incorporation authorizing the board of directors to fill vacant
directorships or increase the size of the board of directors, may delay a
stockholder from removing incumbent directors and simultaneously gaining control
of the board of directors by filling vacancies with its own nominees.
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From and after this offering and for so long as the investors associated
with Goldman, Sachs & Co. hold in the aggregate at least 5% or more of our
outstanding common stock, Goldman, Sachs & Co. has a right to designate two
representatives to be included in the slate of directors recommended by the
board to stockholders for election as class I and class III directors.
In November 1999, our board of directors approved the creation of audit and
compensation committees. All members of the audit committee and at least a
majority of the compensation committee are to be independent directors. The
audit committee will review the scope of our audit, recommend to the board the
engagement of our independent auditors, review the financial statements with the
independent auditors and management, review any issues relating to the
independence of the independent auditors, review with the independent auditors
and the board of directors any matters discussed in the management letter issued
by the independent auditors and review any transactions between us and any of
our officers, directors or other related parties. Our compensation committee
will evaluate our compensation policies, approve executive compensation and
executive employment contracts and administer our stock option plans. We intend
to elect at least one additional independent director as soon as practical after
the date of this prospectus, and this director will join Mr. Moxam on the audit
and compensation committees.
EXECUTIVE COMPENSATION
Set forth below is information concerning our executive officers to whom we
paid or accrued compensation in excess of $100,000 during 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION -----------------------------
------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION AWARDS($) OPTIONS, SARS(#)
- --------------------------- -------- ----- ------------ ---------- ----------------
<S> <C> <C> <C> <C> <C>
Jeffrey Najarian, Chief Executive
Officer............................ $236,757 -- --
Robert Gold, President............... 229,708 -- --
Edward Shaw, Executive Vice President
and Secretary...................... 226,243 -- --
Mark Arzoomanian, Executive Vice
President and Treasurer............ 223,708 -- --
Mitchell Fass, Executive Vice
President.......................... 162,296 -- --
Mark Gutterman, Chief Financial
Officer............................ -- -- $224,200(1) -- 100,000
</TABLE>
- ---------------
(1) Other annual compensation includes the dollar value of the difference
between the exercise price of Mr. Gutterman's stock option and the fair
market value of such option at the date of his purchase of the underlying
shares.
We have no employment agreements with any of our officers except for Mr.
Gutterman, our chief financial officer. Mr. Gutterman has executed a seven-year
employment agreement with us effective as of December 31, 1998 pursuant to which
he serves as our chief financial officer. Under the agreement, as amended, we
agreed to pay Mr. Gutterman a base salary of $200,000, subject to annual
adjustment, and an annual or special bonus as we may determine in our
discretion.
Pursuant to Mr. Gutterman's employment agreement, on December 31, 1998, we
granted him an option to purchase 100,000 shares of common stock at $2.50 per
share pursuant to our 1997 stock option plan. Contemporaneously with the grant
of the option, Mr. Gutterman exercised his option by paying $1,000 and
delivering his six-year 6% promissory note for the balance of the purchase
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<PAGE> 48
price. In April 1999, we loaned Mr. Gutterman $100,000 to enable him to pay
taxes relating to his exercise of his option. In May 1999, we forgave both Mr.
Gutterman's $249,000 note and his $100,000 loan, and we granted him an option to
purchase 55,000 shares of common stock at $7.63 per share pursuant to our 1998
stock option plan.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the stock options we granted for the year
ended December 31, 1998 to each of the named executive officers.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED TO EXERCISE PRICE
UNDERLYING OPTIONS EMPLOYEES PER SHARE EXPIRATION
NAME GRANTED IN 1998 ($) DATE
- ---- ------------------ ------------------ ------------------ ----------
<S> <C> <C> <C> <C>
Mark Gutterman................. 100,000 20.9% $2.50 12/31/08
</TABLE>
OPTION EXERCISES AND OUTSTANDING OPTIONS
The following table sets forth information concerning the exercise of
options during the year ended December 31, 1998 and the year-end value of
options held by the named officers. No stock appreciation rights have been
granted.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS(1) AT FISCAL OPTIONS AT FISCAL
YEAR END YEAR END(2)
-------------------- -----------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME UPON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- --------------- -------- -------------------- -----------------
<S> <C> <C> <C> <C>
Mark Gutterman.................... 100,000 $474,000 --/-- --/--
</TABLE>
Since Mr. Gutterman has exercised his option, information as to the
potential realization value is not included in the table.
1997 AND 1998 STOCK OPTION PLANS
Our directors and stockholders adopted the 1997 stock option plan and the
1998 stock option plan pursuant to which we may grant options to purchase up to
3,000,000 shares of common stock. The options may be either incentive stock
options, as defined in the Internal Revenue Code of 1986, as amended, or
nonqualified stock options. The plans are administered by a committee consisting
of at least three directors. If a committee is not appointed, the plans will be
administered by the board of directors. The plans are presently administered by
a committee of the board of directors, consisting of Messrs. Najarian and
Blumenthal.
The committee has broad power to select the individuals eligible to receive
options, determine the terms and conditions of the options, accelerate the
vesting schedule of options and generally administer and interpret the plans.
The committee may grant options to key employees, including officers and
directors, and consultants and others who receive compensation for services
rendered to us.
The plans provide that options may be exercised by payment by check, note
or other securities that are approved by the committee. The optionees shall have
no rights as a stockholder, including the right to vote and the right to
dividends, until we have received payment in full of the exercise price.
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<PAGE> 49
None of our officers named in the Summary Compensation Table received
options pursuant to the plans other than Mr. Gutterman. As of September 30,
1999, we had outstanding options to purchase 2,395,550 shares of common stock.
Options intended to be incentive stock options must be granted at an
exercise price per share that is not less than the fair market value of the
common stock on the date of grant and may have a term that is not longer than
ten years. If the option holder holds 10% of our common stock, the exercise
price must be at least 110% of the fair market value on the date of grant and
the term of the option cannot exceed five years.
Option holders do not recognize taxable income upon the grant of either
incentive or non-qualified stock options. When employees exercise incentive
stock options, they will not recognize taxable income upon exercise of the
option, although the difference between the exercise price and the fair market
value of the stock on the date of exercise is included in income for purposes of
computing their alternative minimum tax liability, if any. If certain holding
period requirements are met, their gain or loss on a subsequent sale of the
stock will be taxed at capital gain rates. Generally, long-term capital gains
rates will apply to their full gain at the time of the sale of the stock,
provided that they do not dispose of the stock made within two years from the
date of grant of the option or within one year after their acquisition of such
stock, and the option is exercised while they are employed by us or within three
months of the termination of their employment or one year in the event of death
or disability, as defined in the Internal Revenue Code.
In general, upon the exercise of a non-qualified option, the option holders
will recognize ordinary income in an amount equal to the difference between the
exercise price of the option and the fair market value of the shares on the date
they exercise the option. Subject to certain limitations, we may deduct that
amount as an expense for U.S. federal income tax purposes. In general, when they
sell their shares, any profit or loss is either a short-term or long-term
capital gain or loss, depending upon the holding period for the shares, and
their basis in the shares will be the fair market value on the date of exercise.
DIRECTOR STOCK OPTION PLAN
In November of 1999, our directors and stockholders adopted a director
stock option plan, under which we may grant options to purchase up to 500,000
shares of common stock to non-employee directors. Initial option grants under
the non-employee director plan vest upon grant. Annual option grants shall
become exercisable cumulatively, as to one-third of the shares of common stock
subject to the option six months, twelve months and eighteen months after the
grant. The exercise price of the options granted under the plan shall not be
less 100% of the fair market value of our common stock on the date of grant.
Each option granted under the director stock option plan will be exercisable for
a period of ten years from the date of grant.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware General Corporation Law. Delaware General
Corporation Law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
except liability for any breach of their duty of loyalty to the corporation or
its stockholders, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, unlawful payments of
dividends or unlawful stock repurchases or redemptions or any transaction from
which the director derived an improper personal benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
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Our certificate of incorporation provides that we shall indemnify our
directors and executive officers and may indemnify other officers and employees
and our agents to the fullest extent permitted by law. We believe that
indemnification under our certificate of incorporation covers at least
negligence and gross negligence on the part of indemnified parties. Our
certificate of incorporation also permits us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in that capacity.
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<PAGE> 51
CERTAIN TRANSACTIONS
SALE OF PREFERRED STOCK
We underwent a recapitalization, pursuant to which we issued a total of
7,370,826 of series A convertible preferred stock to a group of investment funds
associated with Goldman, Sachs & Co. for an aggregate purchase price of $50.0
million, representing a purchase price of $6.78 per share. This recapitalization
was effected as follows:
- We issued 6,549,788 shares of series A convertible preferred stock,
which are convertible on a one-to-one basis to common stock,
pursuant to a preferred stock purchase agreement dated September 4,
1998. In connection with this issuance, these investment funds and
we agreed to certain purchase price adjustments based upon net
income thresholds to be achieved by us. These purchase price
adjustments were to be effected by either the surrender of shares by
the investment funds or the issuance of series A convertible
preferred stock by us to the investment funds, as the case may be.
In addition, the investment funds agreed to an additional purchase
price adjustment to be based upon the price of our common stock
during the twelve months following our initial public offering. This
additional purchase price adjustment was to be effected by the
subsequent transfer, by either the investment funds or our founding
stockholders, as the case may be, to the other party, of shares of
common stock.
- On November 9, 1999, in order to finalize the net income purchase
price adjustment described above and to eliminate the stock price
purchase price adjustment described above, we issued 821,038 shares
of series A convertible preferred stock to the investment funds. The
resulting purchase price for the group of investment funds was $6.78
per share of series A convertible preferred stock.
- On September 4, 1998, we purchased 5,960,308 shares of common stock
from our founding stockholders for a purchase price of $7.45 per
share, or a total of $44.4 million, of which $39.1 million was paid
in September 1998 and $2.3 million was paid in December 1998. The
remaining $3.0 million is payable from the proceeds of this offering
or as of September 4, 2000.
The shares of series A convertible preferred stock issued to the group of
investment funds associated with Goldman, Sachs & Co. were issued to the
following stockholders:
<TABLE>
<CAPTION>
NAME SHARES PURCHASE PRICE
- ---- ------------ --------------
<S> <C> <C>
GS Capital Partners III, L.P. ......................... 5,021,448.70 $34,063,120.89
GS Capital Partners III Offshore, L.P. ................ 1,380,482.17 9,364,351.65
Stone Street Fund 1998, L.P. .......................... 566,226.84 3,840,830.00
Goldman, Sachs & Co. Verwaltungs GmbH ................. 231,872.47 1,572,527.46
Bridge Street Fund 1998, L.P. ......................... 170,855.75 1,159,170.00
------------ --------------
7,370,825.93 $50,000,000.00
</TABLE>
Each share of series A convertible preferred stock automatically converts
into one share of common stock upon the completion of this offering.
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<PAGE> 52
The shares of common stock that we purchased were from the following
stockholders:
<TABLE>
<CAPTION>
NAME SHARES PURCHASE PRICE
- ---- --------- --------------
<S> <C> <C>
Mark Arzoomanian............................................ 780,800 $ 5,817,740.80
Paul Bayse.................................................. 59,603 444,101.95
Peter Bonjuklian............................................ 178,809 1,332,305.86
Arthur Farkas............................................... 119,206 888,203.91
Mitchell Fass............................................... 387,420 2,886,666.42
Robert Gold................................................. 900,006 6,705,944.71
Peter Melomo................................................ 89,405 666,156.66
Jeffrey Najarian............................................ 1,019,213 7,594,156.06
George Setford.............................................. 1,019,213 7,594,156.06
Edward Shaw................................................. 1,019,213 7,594,156.06
Jonathan Toder.............................................. 387,420 2,886,666.42
--------- --------------
5,960,308 $44,410,254.91
</TABLE>
In connection with the sale of the series A convertible preferred stock and
the recapitalization described above:
- We granted the preferred stockholders the right to designate two
members to our board of directors, and the founding stockholders
agreed to vote their shares in favor of those two members. Messrs.
Blumenthal and Gleberman are the directors designated by the
preferred stockholders.
- We granted the preferred stockholders and the founding stockholders
demand and piggyback registration rights.
- The preferred stockholders and the founding stockholders granted
each other rights of first refusal in the event that they desire to
sell their shares.
In connection with the termination of the employment of Jonathan Toder, in
December 1999 we entered into a settlement agreement with him. The agreement
provided, among other things, for our purchase of all 912,580 of his shares of
common stock for $3,100,000. One-half of this amount, without interest, is to be
paid on January 5, 2000, and the balance, without interest, is to be paid on the
earlier of January 5, 2001 or the closing of this offering. Mr. Toder is a
founding stockholder and was an executive officer from 1992 until 1999.
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<PAGE> 53
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this prospectus and as
adjusted to reflect the sale of the common stock offered by this prospectus,
information with respect to shares beneficially owned by (1) each person who we
know to be the beneficial owner of more than five percent of our outstanding
shares of common stock, (2) each of our directors, (3) each of our officers
named in the Summary Compensation Table and (4) all current executive officers
and directors as a group. The number of shares shown as beneficially owned by
each stockholder is adjusted to reflect the sale of shares offered in this
offering and the conversion of all outstanding preferred stock and other
convertible securities into common stock. We have determined beneficial
ownership in accordance with Rule 13d-3 under the Securities Exchange Act of
1934. Under this rule, certain shares may be deemed to be beneficially owned by
more than one person (if, for example, persons share the power to vote or the
power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire shares
(for example, upon exercise of an option or warrant) within 60 days of the date
as of which the information is provided. In computing the percentage ownership
of any person, the number of shares beneficially owned by him is deemed to
include the number of shares beneficially owned by that person (and only that
person) by reason of such acquisition rights. The percentage of beneficial
ownership for the following table is based on 21,510,518 shares of common stock
and series A convertible preferred stock, assuming its conversion into common
stock, outstanding as of September 30, 1999, and shares of common
stock outstanding after the completion of this offering. Unless otherwise
indicated, the address for each listed stockholder is: c/o Transaction
Information Systems, Inc., 115 Broadway, New York, New York 10006. To our
knowledge, except as indicated in the footnotes to this table or pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to the shares of common stock
indicated.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE BENEFICIALLY OWNED
BENEFICIALLY ---------------------------------------
NAME OF BENEFICIAL OWNER OWNED(1) PRIOR TO OFFERING AFTER OFFERING
- ------------------------ ------------------ ----------------- --------------
<S> <C> <C> <C>
Entities affiliated with Goldman,
Sachs & Co.(2)..................... 7,370,826 34.3%
Jeffrey Najarian(3).................. 2,400,787 11.2
Edward Shaw(4)....................... 2,400,787 11.2
George Setford....................... 2,400,787 11.2
Robert Gold(5)....................... 2,119,994 9.9
Mark Arzoomanian..................... 1,839,200 8.6
Mitchell Fass........................ 912,580 4.2
Mark Gutterman....................... 100,000 *
Randall Blumenthal(6)................ 7,370,826 34.3
Joseph Gleberman(7).................. 7,370,826 34.3
David Moxam(8)....................... 15,000 *
All officers and directors as a group
(14 persons)....................... 20,612,938 95.8%
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, each person has the sole voting and sole
investment power and direct beneficial ownership of the shares. Each person
is deemed to beneficially own shares of common stock issuable upon exercise
of options or warrants that are exercisable on or within 60 days after the
date as of which the information is provided. The shares of preferred stock
are deemed to have been converted into common stock and the additional
shares issuable at the closing date are treated as owned by them before the
offering.
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<PAGE> 54
(2) Represents 7,370,825.93 shares of common stock issuable upon the conversion
of the shares of the series A convertible preferred stock owned by certain
investment partnerships, of which affiliates of The Goldman Sachs Group,
Inc. are the general partner, managing general partner or investment
manager. Includes 5,021,448.70 series A convertible preferred shares held of
record by GS Capital Partners III, L.P., 1,380,482.17 series A convertible
preferred shares held of record by GS Capital Partners III Offshore, L.P.,
231,872.47 series A convertible preferred shares held of record by Goldman,
Sachs & Co. Verwaltungs GmbH, 566,226.84 series A convertible preferred
shares held of record by Stone Street Fund 1998, L.P. and 170,855.75 series
A convertible preferred shares held of record by Bridge Street Fund 1998,
L.P. The Goldman Sachs Group, Inc. and Goldman, Sachs & Co. disclaim
beneficial ownership of the shares owned by such investment partnerships to
the extent attributable to partnership interests held by persons other than
The Goldman Sachs Group, Inc. and Goldman, Sachs & Co. and its affiliates.
Each of such investment partnerships shares voting and investment power with
certain of its respective affiliates. The address of GS Capital Partners
III, L.P., GS Capital Partners III Offshore, L.P., Goldman, Sachs & Co.
Verwaltungs GmbH, Stone Street Fund 1998, L.P. and Bridge Street Fund 1998,
L.P. is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004,
Attention: Eve Gerriets.
(3) Includes stock owned by the Jeffrey Najarian 1999 Family Trust.
(4) Includes stock owned by the Edward L. Shaw 1999 Family Trust.
(5) Includes stock owned by the Robert Gold 1999 Family Trust.
(6) The address of Mr. Blumenthal is c/o Goldman, Sachs & Co., 85 Broad Street,
New York, New York 10004. Mr. Blumenthal is a Managing Director of Goldman,
Sachs & Co. and will be a Managing Director effective November 27, 1999, and
he disclaims beneficial ownership of the shares held by Goldman, Sachs & Co.
except to the extent of his pecuniary interest.
(7) The address of Mr. Gleberman is c/o Goldman, Sachs & Co., 85 Broad Street,
New York, New York 10004. Mr. Gleberman is a Managing Director of Goldman,
Sachs & Co., and he disclaims beneficial ownership of the shares held by
Goldman, Sachs & Co. except as to the extent of his pecuniary interest.
(8) The address of Mr. Moxam is 5630 West Hanover Avenue, Dallas, Texas 75209.
52
<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue 75,000,000 shares of common stock, $0.01 par
value per share, and 10,000,000 shares of preferred stock, $0.01 par value per
share. As of September 30, 1999, we had outstanding 14,139,692 shares of common
stock held by twelve stockholders of record and 6,549,788 shares of series A
convertible preferred stock held by five stockholders of record, which does not
include 821,038 of additional series A convertible preferred stock issued
November 9, 1999, and options to purchase an aggregate of 2,395,550 shares of
our common stock.
The following summary of certain provisions of our common stock, preferred
stock, certificate of incorporation and by-laws is not intended to be complete.
It is qualified by reference to the provisions of applicable law and to our
certificate of incorporation and by-laws included as exhibits to the
registration statement of which this prospectus is a part.
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. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any dividends as may be declared by our board of directors,
subject to any preferential dividend rights of outstanding preferred stock. Upon
our liquidation, dissolution or winding up, the holders of common stock are
entitled to receive proportionately our net assets available after the payment
of all debts and other liabilities and subject to the prior rights of any
outstanding preferred stock. Holders of common stock have no preemptive,
subscription, redemption or conversion rights. Our outstanding shares of common
stock are, and the shares offered by us in this offering will be, when issued
and paid for, 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 that we may designate and issue in the future.
PREFERRED STOCK
Under the terms of our certificate of incorporation, our board of directors
is authorized to issue shares of preferred stock in one or more series without
stockholder approval. Our board of directors has the discretion to determine the
rights, preferences, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, of each series of preferred stock.
The purpose of authorizing our board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or could discourage a third party from acquiring, a
majority of our outstanding voting stock. We have no present plans to issue any
shares of preferred stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law statute. 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 person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within the prior three years did own, 15% or
more of the corporation's voting stock.
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<PAGE> 56
Our certificate of incorporation divides our board of directors into three
classes with staggered three-year terms. See "Management." In addition, our
certificate of incorporation provides that directors may be removed only for
cause by the affirmative vote of the holders of two-thirds of our shares of
capital stock entitled to vote. Under our certificate of incorporation, any
vacancy on our board of directors, including a vacancy resulting from an
enlargement of our board of directors, may only be filled by vote of a majority
of our directors then in office. The classification of our board of directors
and the limitations on the removal of directors and filling of vacancies could
make it more difficult for a third party to acquire, or discourage a third party
from acquiring, control of the company.
Our by-laws provide that any action required or permitted to be taken by
our stockholders at an annual meeting or special meeting of stockholders may
only be taken if it is properly brought before such meeting and may not be taken
by written action in lieu of a meeting. Our certificate of incorporation
provides that special meetings of the stockholders may only be called by our
Chairman of the Board, President or board of directors. Under our by-laws, in
order for any matter to be considered "properly brought" before a meeting, a
stockholder must comply with certain advance notice requirements. These
provisions could have the effect of delaying until the next stockholders'
meeting stockholder actions that are favored by the holders of a majority of our
outstanding voting securities. These provisions may also discourage a third
party from making a tender offer for our common stock, because even if it
acquired a majority of our outstanding voting securities, the third party would
be able to take action as a stockholder (such as electing new directors or
approving a merger) only at a duly called stockholders' meeting, and not by
written consent.
Delaware General Corporation Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or by-laws, unless a
corporation's certificate of incorporation or by-laws, as the case may be,
requires a greater percentage. Our certificate of incorporation and by-laws
require the affirmative vote of the holders of at least two-thirds of the shares
of our capital stock issued and outstanding and entitled to vote to amend or
repeal any of the provisions described in the prior two paragraphs.
Our certificate of incorporation contains certain provisions permitted
under Delaware General Corporation Law relating to the liability of directors.
The provisions eliminate a director's liability for monetary damages for a
breach of fiduciary duty, except in certain circumstances involving wrongful
acts, such as the breach of a director's duty of loyalty or acts or omissions
that involve intentional misconduct or a knowing violation of law. Further, our
certificate of incorporation contains provisions to indemnify our directors and
officers to the fullest extent permitted by Delaware General Corporation Law. We
believe that these provisions will assist us in attracting and retaining
qualified individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company.
54
<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock.
After we complete this offering, based upon the number of shares outstanding as
of September 30, 1999, there will be shares of our common stock
outstanding (assuming no exercise of the underwriters' over-allotment option and
no exercise of outstanding options to purchase common stock). Of these
outstanding shares, the shares sold in this offering will be
freely tradeable without restriction or further registration under the
Securities Act of 1933, except that any shares purchased by our "affiliates," as
that term is defined in Rule 144 under the Securities Act, may generally only be
sold in compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
All of the shares offered under this prospectus will be freely tradable in
the open market. The remaining shares of common stock that will be
outstanding after this offering are considered "restricted securities" under
Rule 144 of the Securities Act. Generally, restricted securities that have been
owned for a period of at least two years may be sold immediately after the
completion of this offering and restricted securities that have been owned for
at least one year may be sold 90 days after the completion of this offering.
Certain of the restricted securities are subject to lock-up agreements with the
underwriters. Persons subject to lock-up agreements have agreed not to sell
shares of common stock without the prior permission of the underwriters for a
period of 180 days after the completion of this offering. The underwriters
currently do not intend to release anyone from the lock-up agreement. The table
below sets forth information regarding potential sales of restricted securities:
- shares which are not subject to the 180-day lock-up period may be sold
immediately after completion of this offering; and
- additional shares may be sold upon the expiration of the 180-day
lock-up period.
In general, under Rule 144, stockholders, including our affiliates, who
have beneficially owned restricted securities for at least one year, are
entitled to sell, within any three-month period commencing 90 days after the
date of this prospectus, a number of shares that does not exceed the greater of
1% of the then outstanding shares of our common stock (approximately
shares immediately after this offering) or the average weekly
trading volume in our common stock during the four calendar weeks preceding the
date on which notice of such sale was filed under Rule 144, provided certain
requirements concerning availability of public information, manner of sale and
notice of sale are satisfied. In addition, a stockholder, who is not one of our
affiliates at any time during the three months preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell the shares immediately under Rule 144(k) without compliance
with the above described requirements under Rule 144.
Securities issued in reliance on Rule 701 (such as shares of our common
stock acquired pursuant to the exercise of certain options granted under our
stock plans) are also restricted securities and, beginning 90 days after the
date of this prospectus, may be sold by stockholders other than our affiliates
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one-year holding period requirement.
STOCK OPTIONS
Shares of common stock may also be issued and sold upon the exercise of
options. After this offering, we intend to register an aggregate of
shares of common stock, which may be issued under our 1997 and
1998 stock option plans. Shares issued upon the exercise of stock options after
the effective date of the Form S-8 registration statements will be eligible for
resale in the public market without restrictions, subject to Rule 144
limitations applicable to affiliates and the lock-up agreements noted above, if
applicable.
55
<PAGE> 58
REGISTRATION RIGHTS
Upon completion of this offering, holders of 7,370,826 shares of our series
A convertible preferred stock are entitled to demand registration rights
pursuant to which they may require us to file a registration under the
Securities Act at our expense with respect to the shares of our common stock
they will hold as a result of the conversion of the preferred stock.
Upon completion of this offering, those stockholders also will be entitled
to piggyback registration rights in connection with any registration by us of
securities for our own account or for the account of other stockholders. If we
propose to register any shares of common stock under the Securities Act, we are
required to give those stockholders notice of the registration and to include
their shares in the registration statement.
EFFECT OF SALES OF SHARES
Prior to this offering, there has been no public market for our common
stock. No prediction can be made as to the effect, if any, that market sales of
shares of common stock or the availability of shares for sale will have on the
market price of our common stock. Nevertheless, sales of significant numbers of
shares of our common stock in the public market could adversely affect the
market price of the common stock and could impair our future ability to raise
capital through an offering of our equity securities.
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<PAGE> 59
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, Hambrecht & Quist LLC
and FleetBoston Robertson Stephens Inc., have severally agreed to purchase from
us the following respective number of shares of our common stock:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ---------
<S> <C>
Hambrecht & Quist LLC ......................................
FleetBoston Robertson Stephens Inc. ........................
------
Total.............................................
======
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in our business and the receipt of certain
certificates, opinions and letters from us, our counsel and the independent
auditors. The nature of the underwriters' obligation is such that they are
committed to purchase all shares of common stock offered hereby if any of the
shares are purchased.
The underwriters propose to offer the shares of common stock directly to
the public at the initial public offering price set forth on the cover page of
this prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The underwriters may allow and such dealers may
reallow a concession not in excess of $ per share to certain other
dealers. After the initial public offering of the shares, the offering price and
other selling terms may be changed by the underwriters. We have been advised by
the representatives that the underwriters do not intend to confirm discretionary
sales in excess of 5% of the shares of common stock offered by this prospectus.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to
additional shares of common stock at the initial public offering price, less the
underwriting discount set forth on the cover page of this prospectus. To the
extent that the underwriters exercise this option, each of the underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of common stock to be purchased by it shown in the
above table bears to the total number of shares offered in this offering. We
will be obligated to sell shares to the underwriters to the extent the option is
exercised. The underwriters may exercise the option only to cover
over-allotments made in connection with the sale of shares of common stock
offered in this prospectus.
The following table shows the per share and total underwriting discounts
and commissions we will pay to the underwriters. These amounts are shown
assuming both no exercises and full exercises of the underwriters'
over-allotment option to purchase additional shares.
Underwriting Discounts and Commissions Payable By Us:
<TABLE>
<CAPTION>
WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT
EXERCISE EXERCISE
-------------- --------------
<S> <C> <C>
Per Share................................................. $ $
Total..................................................... $ $
</TABLE>
We estimate that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately
$ million.
At our request, the underwriters will reserve up to shares of
common stock to be issued by us and offered for sale, at the initial public
offering price, to directors, officers, employees, business associates and other
persons related to us. The number of shares of common stock available for sale
to the general public will be reduced to the extent that such individuals
purchase
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<PAGE> 60
all or a portion of these reserved shares. Any reserved shares that are not
purchased will be offered by the underwriters to the general public.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
We have agreed to indemnify the underwriters against liabilities connected
to this offering, including liabilities under the Securities Act, and to
contribute to payments the underwriters may be required to make in respect
thereof.
Our executive officers, directors, stockholders and optionholders each
agreed that they will not, without the prior written consent of Hambrecht &
Quist LLC, offer to sell, contract to sell or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to any shares of common stock, any
options or warrants to purchase any shares of common stock or any securities
exchangeable for or convertible into shares of common stock owned by them as of
the date of this prospectus or thereafter acquired directly by such holders or
with respect to which they have or hereafter acquired the power of distribution
until the 180 days following the date of this prospectus.
In addition, we have agreed that we will not, without the prior written
consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares
of common stock, options or warrants to acquire shares of common stock or
securities exchangeable for or convertible into shares of common stock until the
date 180 days following the date of this prospectus, except that we may issue
shares upon the exercise of options granted prior to the date hereof, and may
grant additional options under our stock option plans, provided that, without
the prior written consent of Hambrecht & Quist LLC, the additional options may
not be exercisable during such period.
Prior to this offering, there has been no public market for our shares of
common stock. The initial public offering price for the common stock will be
determined by negotiations among ourselves and the representatives. Among the
factors to be considered in determining the initial public offering price of the
shares, in addition to the prevailing market conditions, will be our historical
performance, estimates of our business potential and earnings, prospects, an
assessment of management, and the consideration of the above factors in relation
to market valuation of companies in related businesses.
A prospectus in electronic format is being made available on a web site
maintained by Hambrecht & Quist LLC. In addition, some broker-dealers may choose
to make the prospectus in electronic format available on web sites maintained by
them.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those that might otherwise prevail in the open
market by entering stabilizing bids, effecting syndicate covering transactions
or imposing penalty bids. A stabilizing bid means the placing of any bid or
effecting of any purchase for the purpose of pegging, fixing or maintaining the
price of the common stock. A syndicate covering transaction means the placing of
any bid on behalf of the underwriting syndicate or the effecting of any purchase
to reduce a short position created in connection with the offering. A penalty
bid means an arrangement that permits the underwriters to reclaim a selling
concession from a syndicate member in connection with the offering when shares
of common stock sold by the syndicate member are purchased in syndicate covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the common stock. As a result, the price of the common stock may
be higher than the price that otherwise might exist in the open
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<PAGE> 61
market. Such transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
Our largest client in 1997, 1998 and in the nine months ended September 30,
1999 was Chase Manhattan Bank. The Chase Corporation, the parent of Chase
Manhattan Bank, acquired Hambrecht & Quist LLC, one of our managing
underwriters, on December 8, 1999.
LEGAL MATTERS
The validity of the shares of common stock offered by us hereby will be
passed upon for us by Esanu Katsky Korins & Siger, LLP, New York, New York.
Certain legal matters will be passed upon for the underwriters by Hale and Dorr
LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements as of and for the nine months ended
September 30, 1999 and as of December 31, 1997 and 1998 and for each of the
three years in the period ended December 31, 1998 included in this prospectus
and the financial statement schedule included in the registration statement have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission for the stock we are offering by this prospectus. This
prospectus, which is part of the registration statement, does not include all of
the information contained in the registration statement. Certain information is
omitted, and you should refer to the registration statement and its exhibits for
additional information. Whenever we make reference in this prospectus or to any
of our contracts, agreements or other documents, the references are not
necessarily complete and you should refer to the exhibits attached to the
registration statement for copies of the actual contract, agreement or other
document. When we complete this offering, we will also be required to file
annual, quarterly and special reports, proxy statements and other information
with the Securities and Exchange Commission.
You can read our Securities and Exchange Commission filings, including the
registration statement, over the Internet at the Securities and Exchange
Commission web site at http://www.sec.gov. You may also read and copy any
document we file with the Securities and Exchange Commission at its public
reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549; Seven
World Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may also
obtain copies of the documents at prescribed rates by writing to the Public
Reference Section of the Securities and Exchange Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference facilities.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors and to make available
to our stockholders quarterly reports containing unaudited financial reports for
the first three quarters of each fiscal year.
59
<PAGE> 62
TRANSACTION INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets
As of December 31, 1997 and 1998 and September 30,
1999.................................................. F-3
Consolidated Statements of Income
For the years ended December 31, 1996, 1997 and 1998
and nine months ended
September 30, 1998 (unaudited) and 1999.............. F-4
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 1996, 1997 and 1998
and nine months ended September 30, 1999.............. F-5
Consolidated Statements of Cash Flows
For the years ended December 31, 1996, 1997 and 1998
and nine months ended September 30, 1998 (unaudited)
and 1999.............................................. F-6 - F-7
Notes to Consolidated Financial Statements.................. F-8 - F-18
</TABLE>
F-1
<PAGE> 63
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Transaction Information Systems, Inc. and subsidiaries
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Transaction
Information Systems, Inc. and its subsidiaries at December 31, 1997 and 1998 and
September 30, 1999 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998 and for the nine
months ended September 30, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
New York, New York
November 12, 1999
F-2
<PAGE> 64
TRANSACTION INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1997 1998 1999
----------- ------------ -------------
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents......................... $ 665,209 $ 2,432,123 $ 4,175,316
Accounts receivable, net of allowance for doubtful
accounts of $198,472, $442,336, and
$1,025,801..................................... 12,345,243 19,536,291 23,267,519
Income taxes receivable........................... -- 1,514,074 565,191
Prepaid expenses and other current assets......... 256,842 235,638 922,042
Deferred taxes.................................... 656,219 178,862 450,327
----------- ------------ ------------
Total current assets...................... 13,923,513 23,896,988 29,380,395
Property and equipment, net......................... 854,675 1,815,711 3,407,729
Other assets........................................ 132,040 238,634 253,607
----------- ------------ ------------
Total assets.............................. $14,910,228 $ 25,951,333 $ 33,041,731
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Line of credit.................................... $ 2,956,738 $ 2,778,463 $ 7,851,593
Notes payable -- stockholders..................... -- -- 3,000,000
Accounts payable.................................. 1,063,974 3,040,769 2,390,798
Commissions payable............................... 973,520 1,177,734 2,117,262
Accrued salaries.................................. 2,716,118 4,632,294 5,071,950
Accrued expenses and other current liabilities.... 778,079 761,372 1,612,758
Obligations under capital leases.................. 235,178 592,202 581,567
Deferred taxes.................................... 1,094,446 729,035 729,035
----------- ------------ ------------
Total current liabilities................. 9,818,053 13,711,869 23,354,963
Obligations under capital leases.................... 590,449 1,002,665 570,731
Notes payable -- stockholders....................... -- 3,000,000 --
Deferred taxes...................................... -- 729,035 182,259
----------- ------------ ------------
Total liabilities......................... 10,408,502 18,443,569 24,107,953
----------- ------------ ------------
Commitments and contingencies (Notes 9 & 10)
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; no shares issued and outstanding in
1997; 10,000,000 shares authorized of which
8,000,000 shares are series A convertible
preferred; 6,549,788 shares of series A issued
and outstanding in 1998 and 1999............... -- 49,160,426 49,160,426
Common stock, $0.01 par value; 75,000,000 shares
authorized; 20,000,000 shares issued and
outstanding in 1997, 20,100,000 shares issued
and 14,139,692 shares outstanding in 1998 and
1999........................................... 100,000 201,000 201,000
Additional paid-in capital........................ 152,515 525,715 525,715
Retained earnings................................. 4,249,211 2,280,299 3,457,313
Treasury stock, at cost: 5,960,308 shares......... -- (44,410,676) (44,410,676)
Receivable from officer........................... -- (249,000) --
----------- ------------ ------------
Total stockholders' equity................ 4,501,726 7,507,764 8,933,778
----------- ------------ ------------
Total liabilities and stockholders'
equity.................................. $14,910,228 $ 25,951,333 $ 33,041,731
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 65
TRANSACTION INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.......................... $33,349,878 $55,264,323 $84,730,747 $60,790,091 $76,578,872
Cost of revenue.................. 21,680,072 35,664,579 53,842,706 38,093,503 48,672,209
----------- ----------- ----------- ----------- -----------
Gross profit................ 11,669,806 19,599,744 30,888,041 22,696,588 27,906,663
----------- ----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing............ 4,397,454 8,672,603 13,717,559 9,778,837 14,070,053
General and administrative..... 3,760,732 5,800,152 11,116,382 8,195,932 10,006,554
Research and development....... 548,814 1,095,873 1,374,527 1,001,237 1,141,325
----------- ----------- ----------- ----------- -----------
Total operating expenses.... 8,707,000 15,568,628 26,208,468 18,976,006 25,217,932
----------- ----------- ----------- ----------- -----------
Income from operations...... 2,962,806 4,031,116 4,679,573 3,720,582 2,688,731
Other income (expenses):
Interest expense, net.......... (72,331) (217,997) (252,650) (189,012) (262,594)
Loss from equity investment.... -- -- -- -- (191,838)
----------- ----------- ----------- ----------- -----------
Income before income
taxes..................... 2,890,475 3,813,119 4,426,923 3,531,570 2,234,299
Provision for income taxes....... 214,531 222,120 1,739,580 1,416,079 1,057,285
----------- ----------- ----------- ----------- -----------
Net income.................. $ 2,675,944 $ 3,590,999 $ 2,687,343 $ 2,115,491 $ 1,177,014
=========== =========== =========== =========== ===========
Basic net income per share....... $ 0.13 $ 0.18 $ 0.15 $ 0.11 $ 0.08
=========== =========== =========== =========== ===========
Diluted net income per share..... $ 0.13 $ 0.18 $ 0.13 $ 0.10 $ 0.05
=========== =========== =========== =========== ===========
Weighted average shares of common
stock outstanding.............. 20,000,000 20,000,000 18,057,050 19,410,519 14,139,692
=========== =========== =========== =========== ===========
Weighted average common stock and
common stock equivalents....... 20,000,000 20,000,000 20,457,393 20,273,657 22,071,627
=========== =========== =========== =========== ===========
Unaudited pro forma data (Note
5):
Income before income taxes..... $ 2,890,475 $ 3,813,119 $ 4,426,923 $ 3,531,570 $
Pro forma provision for income
taxes....................... 1,358,523 1,792,166 2,080,654 1,659,838
----------- ----------- ----------- ----------- -----------
Pro forma net income........ $ 1,531,952 $ 1,420,953 $ 2,020,953 $ 1,871,732 $
=========== =========== =========== =========== ===========
Pro forma basic net income per
share.......................... $ 0.08 $ 0.07 $ 0.10 $ 0.10 $
=========== =========== =========== =========== ===========
Pro forma diluted net income per
share.......................... $ 0.08 $ 0.07 $ 0.10 $ 0.09 $
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 66
TRANSACTION INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TREASURY STOCK
----------------------- --------------------- PAID-IN RETAINED ------------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
--------- ----------- ---------- -------- ---------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995............... -- $ -- 20,000,000 $100,000 $ 152,515 $ 1,569,615 -- $ --
Net income........... 2,675,944
Distribution to
stockholders....... (1,563,277)
--------- ----------- ---------- -------- --------- ----------- --------- ------------
Balance, December 31,
1996............... -- -- 20,000,000 100,000 152,515 2,682,282 -- --
Net income........... 3,590,999
Distribution to
stockholders....... (2,024,070)
--------- ----------- ---------- -------- --------- ----------- --------- ------------
Balance, December 31,
1997............... -- -- 20,000,000 100,000 152,515 4,249,211 -- --
Net income........... 2,687,343
Two-for-one stock
split.............. 100,000 (100,000)
Distribution to
stockholders....... (4,656,255)
Issuance of series A
convertible
preferred stock,
net................ 6,549,788 49,160,426
Repurchase of common
stock.............. 5,960,308 (44,410,676)
Employee stock
compensation....... 224,200
Exercise of stock
options............ 100,000 1,000 249,000
--------- ----------- ---------- -------- --------- ----------- --------- ------------
Balance, December 31,
1998............... 6,549,788 49,160,426 20,100,000 201,000 525,715 2,280,299 5,960,308 (44,410,676)
Net income........... 1,177,014
Forgiveness of
receivable from
officer............
--------- ----------- ---------- -------- --------- ----------- --------- ------------
Balance, September
30, 1999........... 6,549,788 $49,160,426 20,100,000 $201,000 $ 525,715 $ 3,457,313 5,960,308 $(44,410,676)
========= =========== ========== ======== ========= =========== ========= ============
<CAPTION>
RECEIVABLE
FROM
OFFICER TOTAL
---------- ------------
<S> <C> <C>
Balance, December 31,
1995............... $ -- $ 1,822,130
Net income........... 2,675,944
Distribution to
stockholders....... (1,563,277)
--------- ------------
Balance, December 31,
1996............... -- 2,934,797
Net income........... 3,590,999
Distribution to
stockholders....... (2,024,070)
--------- ------------
Balance, December 31,
1997............... -- 4,501,726
Net income........... 2,687,343
Two-for-one stock
split.............. --
Distribution to
stockholders....... (4,656,255)
Issuance of series A
convertible
preferred stock,
net................ 49,160,426
Repurchase of common
stock.............. (44,410,676)
Employee stock
compensation....... 224,200
Exercise of stock
options............ (249,000) 1,000
--------- ------------
Balance, December 31,
1998............... (249,000) 7,507,764
Net income........... 1,177,014
Forgiveness of
receivable from
officer............ 249,000 249,000
--------- ------------
Balance, September
30, 1999........... $ -- $ 8,933,778
========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 67
TRANSACTION INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
---------- ---------- ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $2,675,944 $3,590,999 $ 2,687,343 $ 2,115,491 $1,177,014
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation and amortization............... 33,674 322,890 609,919 517,873 730,812
Deferred income taxes....................... 151,245 141,924 840,981 1,155,350 (818,241)
Employee stock compensation................. -- -- 224,200 -- 249,000
Loss from equity investment................. -- -- -- -- 191,838
Changes in operating assets and liabilities:
Accounts receivable, net................. (5,167,611) (3,680,959) (7,191,048) (6,760,906) (3,731,228)
Income taxes receivable.................. -- -- (1,514,074) -- 948,883
Prepaid expenses and other current
assets................................. (344,025) 162,237 57,965 (42,126) (673,281)
Other assets............................. (67,138) (52,702) (106,594) 10,460 24,239
Accounts payable......................... 173,615 479,604 1,501,795 229,472 (174,971)
Commissions payable...................... 551,438 7,914 204,214 761,813 939,528
Accrued salaries......................... 902,938 929,466 1,916,176 2,802,348 439,656
Accrued expenses and other current
liabilities............................ 297,508 397,701 (16,707) 2,532,503 851,386
---------- ---------- ------------ ------------ ----------
Net cash (used in) provided by
operating activities................. (792,412) 2,299,074 (785,830) 3,322,278 154,635
---------- ---------- ------------ ------------ ----------
Cash flows from investing activities:
Purchase of property and equipment............ (97,336) (109,095) (383,104) (109,672) (2,322,830)
Equity investment............................. -- -- -- -- (231,050)
---------- ---------- ------------ ------------ ----------
Net cash used in investing
activities........................... (97,336) (109,095) (383,104) (109,672) (2,553,880)
---------- ---------- ------------ ------------ ----------
Cash flows from financing activities:
Stockholders' distributions................... (1,563,277) (2,024,070) (4,656,255) (4,656,255) --
Line of credit................................ 3,009,717 (253,220) (178,275) (140,804) 5,073,130
Payments of obligations under capital
leases...................................... -- (86,284) (418,611) (298,051) (442,569)
Proceeds from issuance of series A convertible
preferred stock............................. -- -- 50,000,000 50,000,000 --
Costs associated with issuance of series A
convertible preferred stock................. -- -- (364,574) (364,574) (475,000)
Proceeds from exercise of stock options....... -- -- 1,000 -- --
Repurchase of common stock.................... -- -- (41,410,676) (41,410,676) --
Other......................................... 17,981 64,643 (36,761) (17,655) (13,123)
---------- ---------- ------------ ------------ ----------
Net cash provided by (used in) financing
activities.................................... 1,464,421 (2,298,931) 2,935,848 3,111,985 4,142,438
---------- ---------- ------------ ------------ ----------
Net increase (decrease) in cash and cash
equivalents................................... 574,673 (108,952) 1,766,914 6,324,591 1,743,193
Cash and cash equivalents, beginning of
period........................................ 199,488 774,161 665,209 665,209 2,432,123
---------- ---------- ------------ ------------ ----------
Cash and cash equivalents, end of period........ $ 774,161 $ 665,209 $ 2,432,123 $ 6,989,800 $4,175,316
========== ========== ============ ============ ==========
</TABLE>
F-6
<PAGE> 68
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
---------- ---------- ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest.................................... $ 84,622 $ 232,637 $ 383,366 $ 288,677 $ 399,347
Income taxes................................ $ 66,804 $ 76,716 $ 2,360,984 $ 1,236,815 $1,402,081
Noncash investing and financing activities:
Capital lease obligations................... $ -- $ 911,910 $ 1,187,851 $ 806,343 $ --
Receivable from officer..................... $ -- $ -- $ 249,000 $ -- $ --
Notes payable in connection with purchase of
treasury stock........................... $ -- $ -- $ 3,000,000 $ 3,000,000 $ --
Accrual for costs associated with issuance
of series A convertible preferred
stock.................................... $ -- $ -- $ 475,000 $ 475,000 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 69
TRANSACTION INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Transaction Information Systems, Inc. ("TIS") is a Delaware Corporation.
TIS and its wholly-owned subsidiaries are collectively referred to as the
"Company." The Company operates in two segments, which are e-business solutions
and information technology consulting. The e-business solutions segment offers a
comprehensive range of services that focuses on the design, development,
deployment and management of e-business solutions. These services include
e-business consulting, solution architecture and development, analysis of
infrastructures, design and planning, implementation, testing, and training. The
information technology consulting segment places experienced software
developers, network engineers and administrators with clients either on a
project-by-project or on a permanent basis. The Company generates its revenues
primarily from customers in the financial services industry.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include TIS, and its wholly-owned
subsidiaries, Setford-Shaw-Najarian Associates, Ltd. ("SSNA") and T.I.S.
Equipment Corp., Inc. ("TEC"). The stockholders of SSNA and TEC contributed
their stock in SSNA and TEC to TIS, effective December 31, 1997 and September 4,
1998, respectively. Prior to these dates of contribution, SSNA and TEC were held
under common control by the stockholders of TIS. Such stockholders' ownership
interests in SSNA and TEC were identical to their ownership interests in TIS.
The consolidated financial statements present SSNA and TEC as if they were
wholly-owned by TIS for all periods presented, due to their previous common
ownership. All intercompany accounts and transactions have been eliminated in
the consolidated financial statements. In the opinion of management, all
adjustments necessary for a fair presentation are reflected in the unaudited
interim period consolidated financial statement presented.
Cash and Cash Equivalents
The Company classifies as cash and cash equivalents amounts on deposit in
banks and temporarily invested cash with original maturities of three months or
less.
Concentration of Credit Risk
The Company's cash balances are held principally at one financial
institution and may, at times, exceed insurable amounts. The Company believes it
mitigates its risk by investing in or through major financial institutions.
Recoverability is dependent upon the performance of the institutions.
For the year ended December 31, 1997, one customer accounted for 18.3% of
revenue and for the year ended December 31, 1998, two customers accounted for
24.3% of revenue, one of which accounted for 11.7% and one which accounted for
12.6%. No customer accounted for greater than 10% of revenue for the nine months
ended September 30, 1999.
Depreciation
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are expensed as incurred while purchases, renewals and betterments are
capitalized. Depreciation and amortization are computed on the straight-line
method over the estimated useful lives of the related assets. Leasehold
improvements and assets under capital leases are amortized on a straight-line
method over the shorter of the estimated useful lives or the related remaining
lease term.
F-8
<PAGE> 70
TRANSACTION INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated useful lives of the respective assets are as follows:
<TABLE>
<S> <C>
Computers and equipment..................................... 3 to 5 years
Furniture and fixtures...................................... 7 years
Leasehold improvements...................................... 9 to 13 years
Assets under capital leases................................. 3 to 5 years
</TABLE>
Upon retirement or disposal, the asset cost and related accumulated
depreciation or amortization are eliminated from the respective accounts and the
resulting gain or loss, if any, is included in the results of operations for the
period. Management reviews individual long-term tangible assets, whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable, by evaluating future cash flows of the asset and recognizes,
on a current basis, any diminution in value.
Income Taxes
On September 4, 1998, as a result of the issuance of series A convertible
preferred stock (see Note 7), the Company changed its legal status from an S
Corporation to a C Corporation for U.S. federal and state income tax purposes.
Simultaneously, the Company elected under Internal Revenue Code Section 481(A)
to be taxed on an accrual basis with an effective date of January 1, 1998. The
Company has provided for U.S. federal and state income tax liabilities incurred
upon conversion to the accrual method. The stockholders of the S Corporation
will recognize 25% of this tax liability and the Company will pay the remaining
75% ratably over three tax periods commencing with the tax period from September
4, 1998 to December 31, 1998.
The Company accounts for income taxes using the liability method. Such
method requires that the Company recognize deferred tax assets, to the extent
that realization of such assets is more likely than not, and liabilities for the
expected future tax consequences of events that have been included in the
consolidated financial statements or will be included in tax returns.
Revenue Recognition
e-Business solutions revenues are derived principally from time and
materials contracts, when the work is performed. Revenues derived from fixed fee
contracts are recognized on a percentage-of-completion method, based on the
ratio of costs incurred to total estimated costs. If the estimate indicates a
loss on a particular contract, a provision is made for the entire estimated loss
without reference to the percentage of completion. Billings received in advance
of services performed are recorded as deferred revenues. Information technology
consulting revenues are recognized when a technology professional performs
services, or upon placement of a technology professional on a permanent basis.
Research and Development
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed"
requires capitalization of certain software development costs subsequent to the
establishment of technological feasibility and prior to general release of the
software. Based on the Company's development process, technological feasibility
is established upon completion of a working model. The period between
technological feasibility and general release is relatively short and the costs
incurred during this period have been insignificant for capitalization.
Accordingly, research and development costs are expensed as incurred.
F-9
<PAGE> 71
TRANSACTION INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Advertising
Advertising costs are expensed when the advertisement is run.
Stock Options
The Company accounts for stock options granted to employees in accordance
with APB Opinion No. 25 "Accounting for Stock Issued to Employees" (APB No. 25).
The Company has adopted the disclosure only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation" (SFAS No. 123). Under APB No. 25,
compensation expense is based on the difference, if any, on the date of grant
between the fair value of the Company's stock and the exercise price.
Employee Benefit Plan
The Company has a defined contribution plan (401(k)) covering all full time
employees. Employee contributions are subject to certain limitations. The
Company may elect to make 401(k) matching contributions to the plan. The Company
did not make matching contributions in any period presented.
Earnings Per Share
Common stock for diluted earnings per share purposes include incremental
shares of common stock issuable upon the exercise of stock options and upon
conversion of the series A convertible preferred stock. The calculation of
diluted earnings per share excludes potential common shares if the effect is
antidilutive. On September 3, 1998, the Company declared a two-for-one stock
split. Accordingly, all references to the number of shares of common stock,
earnings per share and stock option data for all prior years have been restated
to reflect this stock split.
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 on the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. The most significant
estimates relate to the recoverability of accounts receivable and estimates to
complete for projects accounted for under the percentage-of-completion method.
Reclassifications
Certain reclassifications have been made to prior years' amounts to conform
to the current year's presentation.
F-10
<PAGE> 72
TRANSACTION INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net
income per share for the years ended December 31, 1996, 1997 and 1998 and for
the nine months ended September 30, 1998 and 1999:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic net income per share:
Net income.................... $ 2,675,944 $ 3,590,999 $ 2,687,343 $ 2,115,491 $ 1,177,014
=========== =========== =========== =========== ===========
Weighted average shares of
common stock outstanding... 20,000,000 20,000,000 18,057,050 19,410,519 14,139,692
=========== =========== =========== =========== ===========
Basic net income per share.... $ 0.13 $ 0.18 $ 0.15 $ 0.11 $ 0.08
=========== =========== =========== =========== ===========
Diluted net income per common
share:
Net income.................... $ 2,675,944 $ 3,590,999 $ 2,687,343 $ 2,115,491 $ 1,177,014
=========== =========== =========== =========== ===========
Weighted average shares of
common stock outstanding... 20,000,000 20,000,000 18,057,050 19,410,519 14,139,692
Shares of common stock
issuable upon the assumed
conversion of series A
preferred stock............ -- -- 2,135,410 647,781 7,514,694
Incremental shares assumed
exercised under common
stock option plans......... -- -- 264,933 215,357 417,241
----------- ----------- ----------- ----------- -----------
Adjusted shares of common
stock and common stock
equivalents................ 20,000,000 20,000,000 20,457,393 20,273,657 22,071,627
=========== =========== =========== =========== ===========
Diluted net income
per share.................. $ 0.13 $ 0.18 $ 0.13 $ 0.10 $ 0.05
=========== =========== =========== =========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT
The cost and accumulated depreciation and amortization of property and
equipment as of December 31, 1997 and 1998 and September 30, 1999 are as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Computers.................................... $ 162,714 $ 439,242 $ 1,697,606
Equipment.................................... 225,444 268,793 391,269
Furniture and fixtures....................... 14,283 77,510 435,043
Leasehold improvements....................... -- -- 475,709
Assets under capital leases.................. 911,910 2,099,761 2,099,761
---------- ----------- -----------
Total property and equipment....... 1,314,351 2,885,306 5,099,388
Less: Accumulated depreciation and
amortization........................... (459,676) (1,069,595) (1,691,659)
---------- ----------- -----------
Net property and equipment......... $ 854,675 $ 1,815,711 $ 3,407,729
========== =========== ===========
</TABLE>
Accumulated amortization for assets under capital leases was $233,122,
$728,244 and $1,201,138 as of December 31, 1997 and 1998 and September 30, 1999,
respectively.
F-11
<PAGE> 73
TRANSACTION INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
Prior to the change to C Corporation tax status, the income of the Company
was reported in the individual income tax returns of its stockholders for U.S.
federal and state income tax purposes. The financial statements prior to
September 4, 1998 only include a provision for New York City income tax. State
and local tax returns are filed on a consolidated or separate basis depending on
the applicable laws.
The pro forma provision for income taxes has been presented as if the
Company had been a C Corporation for all periods presented.
The Company's actual provision for income taxes for the years ended
December 31, 1996, 1997 and 1998 and for the nine months ended September 30,
1998 and 1999 consisted of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- -------------------------
1996 1997 1998 1998 1999
-------- -------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal:
Current................ $ -- $ -- $ 437,641 $ 19,422 $1,236,142
Deferred............. -- -- 842,122 969,672 (539,295)
-------- -------- ---------- ---------- ----------
Total........ -- -- 1,279,763 989,094 696,847
-------- -------- ---------- ---------- ----------
State and Local:
Current.............. 63,286 80,196 460,958 241,301 639,384
Deferred............. 151,245 141,924 (1,141) 185,684 (278,946)
-------- -------- ---------- ---------- ----------
Total........ 214,531 222,120 459,817 426,985 360,438
-------- -------- ---------- ---------- ----------
Total provision for
income taxes......... $214,531 $222,120 $1,739,580 $1,416,079 $1,057,285
======== ======== ========== ========== ==========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts reported for income tax purposes. Significant
components of the Company's net deferred income tax assets and liabilities as of
December 31, 1997 and 1998 and September 30, 1999 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- --------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts............... $ -- $ 178,862 $450,327
Net operating loss carryforwards.............. 162,101 -- --
Accounts and commissions payable.............. 420,670 -- --
Other......................................... 73,448 -- --
---------- ---------- --------
Total deferred tax assets............. 656,219 178,862 450,327
---------- ---------- --------
Deferred tax liabilities:
Accounts receivable........................... 1,089,238 -- --
Other......................................... 5,208 -- --
Cash-to-accrual basis adjustment (481(A))..... -- 1,458,070 911,294
---------- ---------- --------
Total deferred tax liabilities........ 1,094,446 1,458,070 911,294
---------- ---------- --------
Net deferred tax liabilities.......... $ 438,227 $1,279,208 $460,967
========== ========== ========
</TABLE>
F-12
<PAGE> 74
TRANSACTION INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of income taxes computed using the statutory U.S. income
tax rate and the provision for income taxes for the years ended December 31,
1996, 1997 and 1998 and for the nine months ended September 30, 1998 and 1999 is
as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income tax provision at
federal statutory tax
rate of 34%.............. $ 982,762 $ 1,296,460 $1,505,154 $1,200,888 $ 756,862
State and local taxes,
net...................... 245,690 324,115 376,288 300,183 189,915
Subchapter S Corporation
income................... (1,092,557) (1,577,690) (100,831) (100,831) --
Non-deductible expenses.... 78,636 179,235 130,155 15,839 110,508
----------- ----------- ---------- ---------- ----------
Provision for income
taxes.................... $ 214,531 $ 222,120 $1,739,580 $1,416,079 $1,057,285
=========== =========== ========== ========== ==========
</TABLE>
6. LINE OF CREDIT
The Company has a line of credit with a commercial lender, with borrowings
limited to 80% of eligible accounts receivable, subject to a maximum of
$10,000,000 as of September 30, 1999. The Company has used $1,251,461 of its
available credit for four stand-by letters of credit expiring November 30, 1999,
May 31, 2000 and two on October 31, 2000. The Company's obligations under the
line of credit bear interest at the 30-day commercial paper rate, as published
by the Wall Street Journal, plus 2.8% in 1997 and 2.5% in 1998 and 1999. The
line of credit is collateralized by a first lien on the Company's accounts
receivable, a lien on all of the Company's other assets and is guaranteed by
certain of the Company's common stockholders.
Interest expense for the years ended December 31, 1996, 1997 and 1998
approximated $83,000, $228,000 and $251,000, respectively, and for the nine
months ended September 30, 1998 and 1999 approximated $239,000 (unaudited) and
$328,000, respectively.
The line of credit agreement requires the Company maintain a consolidated
tangible net worth of at least $6,000,000 during 1999.
7. STOCKHOLDERS' EQUITY
On September 11, 1997, Transaction Information Systems, Inc., a New York
Corporation ("TIS-New York"), was merged into Transaction Information Systems,
Inc., a Delaware Corporation ("TIS-Delaware"). In connection with this merger,
the 200 shares of outstanding common stock of TIS-New York were converted into
20,000,000 shares of common stock of TIS-Delaware. The financial statements give
retroactive effect to this merger.
On September 3, 1998, the Company amended its certificate of incorporation
to increase the authorized number of shares of preferred stock from 5,000,000 to
10,000,000 and common stock from 25,000,000 to 35,000,000. Simultaneously, the
Company declared a two-for-one stock split of the outstanding shares of common
stock and options to acquire common stock. See also Note 13.
On September 4, 1998, TIS issued 6,549,788 shares of series A convertible
preferred stock to a group of investors for $50,000,000 or $7.63 per share. Each
share of series A convertible preferred stock is convertible into one share of
common stock and carries a liquidation preference equal to the purchase price
per share. Based on the number of diluted shares outstanding at September 4,
F-13
<PAGE> 75
TRANSACTION INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998 and upon conversion of the series A preferred stock, the holders of the
series A convertible preferred stock would have a 29.2% ownership of the
Company. The group of investors and the Company agreed to certain purchase price
adjustments based upon net income thresholds to be achieved by the Company.
These purchase price adjustments are to be effected by either the surrender of
shares by the group of investors or the issuance of series A convertible
preferred shares to the group of investors, as the case may be, to the other
party. In addition, the group of investors and the Company agreed to an
additional purchase price adjustment to be based upon the price of the Company's
common stock during the twelve months following the Company's initial public
offering. This additional purchase price adjustment is to be effected by the
subsequent transfer, by either the group of investors or the Company's founding
stockholders, as the case may be, to the other party, of shares of common stock.
See also Note 13. The purchasers of the series A convertible preferred stock
have the right to elect two members of the Company's board of directors.
In connection with the issuance of the series A preferred stock, the
Company repurchased 5,960,308 shares of common stock from the former S
Corporation stockholders. The total cost of the treasury stock was $44,410,676,
of which $41,410,676 was paid in 1998. The Company issued notes of $3,000,000 to
the former S Corporation stockholders for the difference. The notes are
non-interest bearing and are due on September 4, 2000 or earlier upon the
completion of an initial public offering or sale of all of the Company's common
stock.
8. STOCK OPTION PLAN
In May 1997 and November 1998, the Company adopted stock option plans (the
"Plans"). Options granted under the provisions of the Plans will be in the form
of either Incentive Stock Options or Non-Qualified Stock Options. The options
vest in four years, 25% on each anniversary date and expire in ten years after
the date of grant. All options are issued with exercise prices that equal or
exceed fair market value on the date of grant. Fair value has been estimated by
the board of directors.
Option activity under the Plans in 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance............ -- $ -- 1,598,800 $4.19 1,645,300 $5.10
Granted during the period.... 1,598,800 4.19 479,000 6.83 837,250 7.63
Exercised during the
period..................... (100,000) 2.50
Options purchased by the
Company.................... (222,500) 2.50
Canceled or forfeited during
the period................. (110,000) 7.05 (87,000) 6.05
--------- ----- --------- ----- --------- -----
Ending balance............... 1,598,800 $4.19 1,645,300 $5.10 2,395,550 $5.86
========= ===== ========= ===== ========= =====
Options exercisable at end of
period..................... -- $ -- 352,200 $3.85 693,400 $3.81
========= ===== ========= ===== ========= =====
Weighted average fair value
at grant date.............. $2.50 $5.52 $5.78
===== ===== =====
</TABLE>
F-14
<PAGE> 76
TRANSACTION INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the information about stock options outstanding
and exercisable as of September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE NUMBER LIFE EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
- -------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 2.50 826,300 8.01 $ 2.50 $ 514,400 $ 2.50
7.50 604,000 8.38 7.50 148,500 7.50
7.63 935,250 9.28 7.63 25,500 7.63
10.00 30,000 9.15 10.00 5,000 10.00
--------- ---- ------ ---------- ------
2,395,550 8.61 $ 5.86 $ 693,400 $ 3.81
========= ==== ====== ========== ======
</TABLE>
As the Company has adopted the disclosure only provisions of SFAS 123, no
compensation cost has been recorded under the Plans, except as described below.
The Company has utilized the "Minimum Value" option pricing model with the
following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------ SEPTEMBER 30,
1997 1998 1999
---- ---- -------------
<S> <C> <C> <C>
Risk-free interest rates................................ 5.83% 5.45% 5.48%
==== ==== ====
Expected option lives................................... 5 5 5
==== ==== ====
Dividend yields......................................... -- -- --
==== ==== ====
</TABLE>
Had compensation cost for the Plans been determined in accordance with SFAS
123, the impact on the Company's net income and earnings per share would have
been as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------ SEPTEMBER 30,
1997 1998 1999
---------- ---------- -------------
<S> <C> <C> <C>
Net income:
As reported......................................... $3,590,999 $2,687,343 $1,177,014
========== ========== ==========
Pro forma........................................... $3,558,214 $2,632,374 $1,003,629
========== ========== ==========
Basic net income per share:
As reported......................................... $ 0.18 $ 0.15 $ 0.08
========== ========== ==========
Pro forma........................................... $ 0.18 $ 0.15 $ 0.07
========== ========== ==========
Diluted net income per share:
As reported......................................... $ 0.18 $ 0.13 $ 0.05
========== ========== ==========
Pro forma........................................... $ 0.18 $ 0.13 $ 0.05
========== ========== ==========
</TABLE>
On December 31, 1998, the Company granted the chief financial officer an
option to purchase 100,000 shares of common stock at $2.50 per share, which was
less than the fair market value per share of the Company. The officer exercised
the option on December 31, 1998 by paying $1,000 and issuing a note to the
Company. This note is due December 31, 2005 and bears interest at 6% per annum
on the principal amount of $249,000. As a result of the issuance of the option,
the Company recorded compensation expense of $224,200, which represented the
difference between the exercise
F-15
<PAGE> 77
TRANSACTION INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
price and the fair market value per share of the Company at the date of grant.
Such compensation expense is included in general and administrative expenses for
the year ended December 31, 1998. In 1999, the Company provided the chief
financial officer with a loan of $100,000 to pay the tax liability arising from
the exercise of the stock option. Subsequently, the note of $249,000 and the
loan of $100,000 were forgiven. Such amounts have been included in general and
administrative expenses for the nine-month period ended September 30, 1999.
In connection with the issuance of series A convertible preferred stock,
the Company cancelled and settled for cash 222,500 options previously granted to
certain employees, resulting in compensation expense of approximately $1,368,000
in 1998. The expense has been included in general and administrative expenses.
9. COMMITMENTS
The Company has entered into numerous lease agreements, including leases
for their corporate headquarters located at 115 Broadway, New York, New York and
other offices. In addition, the Company has entered into operating and capital
lease agreements for fixed assets. The Company has utilized the letters of
credit to satisfy certain office lease security deposits.
A schedule of future minimum lease obligations required under capital and
operating leases agreements as of September 30, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
PERIOD ENDING SEPTEMBER 30, LEASES LEASES
- --------------------------- ---------- -----------
<S> <C> <C>
2000....................................................... $ 642,508 $ 2,439,417
2001....................................................... 409,830 2,499,049
2002....................................................... 149,765 2,355,713
2003....................................................... 45,802 2,273,333
2004....................................................... 2,533 2,300,808
Thereafter................................................. -- 8,765,681
---------- -----------
Minimum future leases obligations.......................... $1,250,438 $20,634,001
========== ===========
</TABLE>
Rent expense for the years ended December 31, 1996, 1997 and 1998
approximated $497,000, $733,000, $1,576,000, respectively, and for the nine
months ended September 30, 1998 and 1999 approximated $905,000 (unaudited) and
$1,259,000, respectively.
The future minimum lease payments under capital leases and the net present
value of the future minimum lease payments as of December 31, 1997 and 1998 and
September 30, 1999 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- ---------- ----------
<S> <C> <C> <C>
Total minimum lease payments................... $ 987,550 $1,764,545 $1,250,438
Amount representing interest................... (161,923) (169,678) (98,140)
--------- ---------- ----------
Present value of net minimum lease payments.... 825,627 1,594,867 1,152,298
Current portion................................ (235,178) (592,202) (581,567)
--------- ---------- ----------
Long-term capital lease
obligations........................ $ 590,449 $1,002,665 $ 570,731
========= ========== ==========
</TABLE>
F-16
<PAGE> 78
TRANSACTION INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On December 31, 1998, the Company entered into a seven-year employment
agreement with the chief financial officer. Under the agreement, as amended, the
chief financial officer earns a base salary of $200,000, subject to annual
adjustment, and an annual or special bonus as determined at the discretion of
management.
10. CONTINGENCIES
The Company is named as a defendant in certain lawsuits that have arisen in
the normal course of business. Management believes that the potential outcome of
these cases is not expected to have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
11. SEGMENT INFORMATION
The Company has identified two segments, which are e-business solutions and
information technology consulting. The accounting policies of the reportable
segments are the same as those described in Note 2. Segment data includes the
allocation of all corporate expenses to each of the operating segments.
Corporate expenses, consisting of general and administrative services, are
allocated to the segments based upon the revenues of each segment. The Company
evaluates the performance of its segments and allocates resources to them based
on income before taxes.
The following represents information about the Company's segments for the
years ended December 31, 1996, 1997 and 1998 and for the nine months ended
September 30, 1998 and 1999:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
e-Business solutions.......... $12,606,800 $22,081,066 $35,876,948 $25,935,934 $34,503,079
Information technology
consulting................. 20,743,078 33,183,257 48,853,799 34,854,157 42,075,793
----------- ----------- ----------- ----------- -----------
Total revenue......... $33,349,878 $55,264,323 $84,730,747 $60,790,091 $76,578,872
=========== =========== =========== =========== ===========
Income (loss) before income
taxes:
e-Business solutions.......... $ (25,588) $ 375,533 $ 1,674,275 $ 1,811,472 $ 1,566,970
Information technology
consulting................. 2,916,063 3,437,586 2,752,648 1,720,098 667,329
----------- ----------- ----------- ----------- -----------
Total income before
income taxes........ $ 2,890,475 $ 3,813,119 $ 4,426,923 $ 3,531,570 $ 2,234,299
=========== =========== =========== =========== ===========
</TABLE>
Information about segment assets and income taxes is not provided on a
segment level as segments are reviewed based on income before income taxes and
identification of assets and liabilities by segment is impractical. The
Company's services are provided only in the United States.
F-17
<PAGE> 79
TRANSACTION INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
1997
Revenue................................. $12,483,062 $13,850,341 $13,891,523 $15,039,397
Gross profit............................ 4,496,620 4,884,537 5,203,124 5,015,463
Income before income taxes.............. 939,091 1,058,412 1,097,424 718,192
Net income.............................. 884,388 996,758 1,033,497 676,356
----------- ----------- ----------- -----------
Basic net income per share.............. $ 0.04 $ 0.05 $ 0.05 $ 0.03
=========== =========== =========== ===========
1998
Revenue................................. $17,847,456 $20,524,261 $22,418,374 $23,940,656
Gross profit............................ 6,630,608 7,754,570 8,311,410 8,191,453
Income before income taxes.............. 1,239,136 1,807,629 484,805 895,353
Net income (loss)....................... 1,177,536 1,716,879 (778,924) 571,852
----------- ----------- ----------- -----------
Basic net income (loss) per share....... $ 0.06 $ 0.09 $ (0.04) $ 0.04
=========== =========== =========== ===========
1999
Revenue................................. $23,498,407 $26,987,274 $26,093,191
Gross profit............................ 8,803,206 9,682,986 9,420,471
Income before income taxes.............. 816,630 615,625 802,044
Net income.............................. 403,878 371,601 401,535
----------- ----------- -----------
Basic net income per share.............. $ 0.03 $ 0.03 $ 0.03
=========== =========== ===========
</TABLE>
13. SUBSEQUENT EVENTS
On November 9, 1999, the Company approved to increase the authorized number
of shares of common stock from 35,000,000 to 75,000,000.
On November 9, 1999, in order to finalize the net income purchase price
adjustment described in Note 7, the Company issued shares of series A
convertible preferred stock to the group of investors. The 821,038 shares issued
include an adjustment based on a separate agreement between the Company and the
group of investors to eliminate the stock price purchase adjustment also
described in Note 7. The resulting purchase price for the group of investors was
$6.78 per share for the series A convertible preferred shares.
F-18
<PAGE> 80
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
TRANSACTION INFORMATION SYSTEMS, INC.
COMMON STOCK
------------------
PROSPECTUS
------------------
HAMBRECHT & QUIST
ROBERTSON STEPHENS
------------------
------------------
You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering and
the distribution of this prospectus applicable to that jurisdiction.
Until , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade in our common stock, 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> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 18,216
NASD filing fee............................................. 7,400
Nasdaq National Market listing fee.......................... *
Blue Sky fees and expenses.................................. 12,500
Transfer Agent and Registrar fees........................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing and mailing expenses............................... 125,000
Miscellaneous............................................... *
--------
Total.............................................
========
</TABLE>
- ---------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Seventh of the Registrant's Certificate of Incorporation provides
that no director of the Registrant shall be personally liable for any monetary
damages for any breach of fiduciary duty as a director, except to the extent
that the Delaware General Corporation Law prohibits the elimination or
limitation of liability of directors for breach of fiduciary duty.
Article Eighth of the Registrant's Certificate of Incorporation provides
that a director or officer of the Registrant (a) shall be indemnified by the
Registrant against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement incurred in connection with any litigation or
other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.
II-1
<PAGE> 82
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
Article Eighth of the Registrant's Certificate of Incorporation further
provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law statute is
amended to expand the indemnification permitted to directors or officers the
Registrant must indemnify those persons to the fullest extent permitted by such
law as so amended.
Section 145 of the Delaware General Corporation Law statute provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under Section of the Underwriting Agreement, the underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three fiscal years preceding the filing of this registration
statement, the company has issued the following securities that were not
registered under the Securities Act:
(a) ISSUANCES OF CAPITAL STOCK
Pursuant to an agreement dated September 4, 1998, we issued a total of
6,549,788 shares of series A convertible preferred stock to a group of
investment funds associated with Goldman, Sachs & Co. for a total purchase price
of $50 million, representing a purchase price of $6.78 per share.
We purchased 5,960,308 shares of common stock from our founding
stockholders for a purchase price of $7.45 per share, or a total of $44.4
million, of which $39.1 million was paid in September 1998 and $2.3 million was
paid in December 1998. The remaining $3.0 million is payable from the proceeds
of this offering.
On November 9, 1999, in order to finalize the net income purchase price
adjustment described above and to eliminate the stock price purchase price
adjustment described above, the company issued 821,038 shares of series A
convertible preferred stock to the investment funds. The resulting purchase
price for the group of investment funds was $6.78 per share of series A
convertible preferred stock.
We issued 100,000 shares of common stock to Mr. Gutterman, our chief
financial officer, pursuant to the exercise of his option to purchase such
shares on December 31, 1998.
II-2
<PAGE> 83
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations
thereunder, or, in the case of options to purchase common stock, Rule 701 under
the Securities Act. All foregoing securities are deemed restricted securities
for the purpose of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBIT
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 By-laws of the Registrant.
4.1* Specimen certificate for shares of Common Stock, $.01 par
value per share, of the Registrant.
5* Opinion of Esanu Katsky Korins & Siger, LLP.
10.1 1997 Stock Option Plan.
10.2 1998 Stock Option Plan.
10.3 1999 Director Stock Option Plan.
10.4 Lease between the Registrant and 111/115 Broadway Limited
Partnership.
10.5 Loan Agreement and Unconditional Guaranty between the
Registrant and Merrill Lynch Business Services.
10.6 Preferred Stock Purchase Agreement by and among the
Registrant, the shareholders of the Registrant and
affiliates of Goldman, Sachs & Co.
10.7 Amended and Restated Employment Agreement, by and between
the Registrant and Mark Gutterman.
21 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Esanu Katsky Korins & Siger, LLP (included in
Exhibit 5).
24 Power of Attorney (included on pages II-5 and 6).
27 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
(B) VALUATION AND QUALIFYING ACCOUNTS SCHEDULE
Our audits of the consolidated financial statements referred to in our
report dated November 12, 1999 appearing in the Prospectus and the S-1
Registration Statement of Transaction Information Systems, Inc. and subsidiaries
also included an audit of the financial statement schedule listed in this Form
S-1 Registration Statement. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
II-3
<PAGE> 84
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS -- ALLOWANCE FOR DOUBTFUL
ACCOUNTS
For the years ended December 31, 1998 and 1997 and the nine months ended
September 30, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Beginning balance....................................... $ 183,453 $ 198,472 $ 442,336
Additions............................................... 505,948 970,671 1,121,650
Deductions.............................................. (490,929) (726,807) (538,184)
--------- --------- ----------
Ending balance.......................................... $ 198,472 $ 442,336 $1,025,802
========= ========= ==========
</TABLE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 85
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York, New York, on
this 15th day of December 1999.
TRANSACTION INFORMATION SYSTEMS, INC.
By: /s/ JEFFREY NAJARIAN
------------------------------------
Jeffrey Najarian
Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Transaction Information
Systems, Inc., hereby severally constitute and appoint Jeffrey Najarian, Robert
Gold and Mark Gutterman, and each of them acting singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and
in our names in the capacities indicated below, the Registration Statement on
Form S-1 filed herewith and any and all pre-effective and post-effective
amendments to said Registration Statement, and any subsequent Registration
Statement for the same offering which may be filed under Rule 462(b), and
generally to do all such things in our names and on our behalf in our capacities
as officers and directors to enable Transaction Information Systems, Inc. to
comply with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys, or any of
them, to said Registration Statement and any and all amendments thereto or to
any subsequent Registration Statement for the same offering which may be filed
under Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JEFFREY NAJARIAN Chief Executive Officer December 15, 1999
- --------------------------------------------------- (Principal Executive
Jeffrey Najarian Officer)
/s/ ROBERT GOLD Director December 15, 1999
- ---------------------------------------------------
Robert Gold
/s/ MARK GUTTERMAN Chief Financial Officer December 15, 1999
- --------------------------------------------------- (Principal Financial and
Mark Gutterman Accounting Officer)
</TABLE>
II-5
<PAGE> 86
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RANDALL BLUMENTHAL Director December 15, 1999
- ---------------------------------------------------
Randall Blumenthal
/s/ MITCHELL FASS Director December 15, 1999
- ---------------------------------------------------
Mitchell Fass
/s/ JOSEPH GLEBERMAN Director December 15, 1999
- ---------------------------------------------------
Joseph Gleberman
/s/ EDWARD SHAW Director December 15, 1999
- ---------------------------------------------------
Edward Shaw
/s/ DAVID MOXAM Director December 15, 1999
- ---------------------------------------------------
David Moxam
</TABLE>
II-6
<PAGE> 87
[PICTURES AND CAPTIONS FOR INSIDE BACK COVER.]
Inside Back Cover:
- - Top of Page: TIS logo with the words, "A leading provider of e-business
solutions" centered below it.
- - Center of Page: A series of logos and descriptions illustrating recognition
and awards that the company received, as follows: Inc. 500 logo, with the
text, "Recognized for five consecutive years (1995-1999) as one of the fastest
growing privately-held U.S. companies," Inc. 500 All-Stars logo, with the
text, "Inducted into Inc. 500 Hall of Fame in 1999. Of the nearly 6,000
companies that have made the list since 1982, TIS is one of 50 companies to be
named to this special list;" New York Technology Fast 500 logo, with the text,
"Named one of the 500 fastest growing U.S. technology companies and one of New
York's fastest growing technology companies in 1999 by Deloitte & Touche"
Authorized Java Center logo, with text, "Because of its expertise in
developing Java-based enterprise applications, TIS and our FLITE lab were
named an Authorized Java Center by Sun Microsystem;" VARBusiness 500 logo,
with the text, "In 1999, TIS was named to the VARBusiness 500, VARBusiness
magazines exclusive listing of the top 500 VARs and integrators, ranked by
revenue."
- - At bottom of page: Our company tag line: "Proven E-Business Architects
Delivering Innovative E-Business solutions for Global 1000 Companies."
<PAGE> 88
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 By-laws of the Registrant.
4.1* Specimen certificate for shares of Common Stock, $.01 par
value per share, of the Registrant.
5* Opinion of Esanu Katsky Korins & Siger, LLP.
10.1 1997 Stock Option Plan.
10.2 1998 Stock Option Plan.
10.3 1999 Director Stock Option Plan.
10.4 Lease between the Registrant and 111/115 Broadway Limited
Partnership.
10.5 Loan Agreement and Unconditional Guaranty between the
Registrant and Merrill Lynch Business Services.
10.6 Preferred Stock Purchase Agreement by and among the
Registrant, the shareholders of the Registrant and
affiliates of Goldman, Sachs & Co.
10.7 Amended and Restated Employment Agreement, by and between
the Registrant and Mark Gutterman.
21 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Esanu Katsky Korins & Siger, LLP (included in
Exhibit 5).
24 Power of Attorney (included on pages II-5 and 6).
27 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TRANSACTION INFORMATION SYSTEMS, INC.
The name of the corporation is Transaction Information Systems, Inc.
(the "Corporation") and the date of filing of the original certificate of
incorporation was May 9, 1997. This amended and restated certificate of
incorporation was duly adopted in accordance with the provisions of Sections
242 and 245 of the Delaware General Corporation Law (the "DGCL") by unanimous
written consent of the board of directors and by the written consent of the
holders of a majority of each class of capital stock entitled to vote. This
amended and restated certificate of incorporation restates and integrates and
further amends ARTICLE FOURTH of the Certificate of Incorporation of this
Corporation by increasing the total number of shares of all classes of stock
which the Corporation shall have authority to issue.
FIRST. The name of the Corporation is: Transaction Information
Systems, Inc.
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 85,000,000 shares, consisting of
(i) 10,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred
Stock") and (ii) 75,000,000 shares of Common Stock, $.01 par value per share
("Common Stock").
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated in the resolution or
resolutions providing for the issue of such series adopted by the Board of
Directors of the Corporation as hereinafter provided.
The Board of Directors shall have the authority from time to time to
issue the Preferred Stock in one or more series, and in connection with the
creation of any such series, by resolution or resolutions providing for the
issue of the shares thereof, to determine and fix such voting powers, full or
limited, or no voting powers, and such
<PAGE> 2
designations, preferences and relative participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, including
without limitation thereof, dividend rights, conversion rights, redemption
privileges and liquidation preferences, if any, and restrictions or
limitations, if any, on the right of the Board of Directors to create other
series of Preferred Stock as shall be stated in such resolutions, all to the
fullest extent now or hereafter permitted by the General Corporation Law of
Delaware. Without limiting the generality of the foregoing, the resolutions
creating any series of Preferred Stock may provide that such series shall be
superior to or rank equally with or be junior to any other series of Preferred
Stock to the extent permitted by law and subject to any restrictions set forth
in the resolutions creating any other series of Preferred Stock.
Any shares of Preferred Stock which may be redeemed, purchased or
acquired by the Corporation may be reissued except as otherwise provided by
law. Different series of Preferred Stock shall not be construed to constitute
different classes of shares for the purposes of voting by classes unless
expressly provided.
FIFTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided that the Board of Directors is expressly
authorized to adopt, amend or repeal the By-Laws of the Corporation.
SIXTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
SEVENTH. Except to the extent that the General Corporation Law of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
-2-
<PAGE> 3
director of the Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment.
EIGHTH. 1. Actions, Suits and Proceedings Other than by or in the
Right of the Corporation. Each person who was or is made a party or is
threatened to be made a party to or is involved in 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)
(hereinafter, a "proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was, or has agreed
to become, a director, officer, employee or agent of the Corporation or is or
was serving, or has agreed to serve, at the request of the Corporation as a
director, officer, trustee, employee or agent of, or in a similar capacity
with, another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans (all such
persons being referred to hereafter as an "Indemnitee"), whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, or by reason of any action alleged to
have been taken or omitted in such capacity, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expenses, liabilities and losses (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person, or on such person's behalf, in
connection with such proceeding and any appeal therefrom, if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the Corporation, and, 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 he 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 reasonable cause to believe that his conduct was unlawful. For
purposes of this Article, any person who pursuant to a provision in this
Amended and Restated Certificate of Incorporation, exercises or performs any of
the powers or duties conferred or imposed upon the board of directors of the
Corporation shall be entitled to all the benefits conferred upon directors and
officers of the Corporation (including, without limitation, the right to
indemnification and advancement of expenses) set forth in this Article. Not
withstanding anything to the contrary in this Article, except as set forth in
Section 7 below, the Corporation shall indemnify an Indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated by
the Indemnitee only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. Notwithstanding anything to the contrary
in this Article, the Corporation shall not indemnify an Indemnitee to the
extent such Indemnitee is reimbursed from the proceeds of insurance, and in the
event the Corporation makes any indemnification payments to an Indemnitee
-3-
<PAGE> 4
and such Indemnitee is subsequently reimbursed from the proceeds of insurance,
such Indemnitee shall promptly refund such indemnification payments to the
Corporation to the extent of such insurance reimbursement.
2. Actions or Suits by or in the Right of the Corporation. The
Corporation shall indemnify any Indemnitee 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 he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at
the request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust
or other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, 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 of Delaware shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding
the other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of
any claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii)
an adjudication that the Indemnitee was liable to the Corporation, (iii) a plea
of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. Notification and Defense of Claim. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
-4-
<PAGE> 5
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of
such action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation,
except as otherwise expressly provided by this Article. The Corporation shall
not be entitled, without the consent of the Indemnitee, to assume the defense
of any claim brought by or in the right of the Corporation or as to which
counsel for the Indemnitee shall have reasonably made the conclusion provided
for in clause (ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 below,
in the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article of any action, suit, proceeding or investigation of
which the Corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom
shall be paid by the Corporation in advance of the final disposition of such
matter; provided, however, that the payment of such expenses incurred by an
Indemnitee in advance of the final disposition of such matter shall be made
only upon receipt of an undertaking by or on behalf of the Indemnitee to repay
all amounts so advanced in the event that it shall ultimately be determined
that the Indemnitee is not entitled to be indemnified by the Corporation as
authorized in this Article. Such undertaking shall be accepted without
reference to the financial ability of the Indemnitee to make such repayment.
6. Procedure for Indemnification. In order to obtain indemnification
or advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article,
the Indemnitee shall submit to the Corporation a written request, including in
such request such documentation and information as is reasonably available to
the Indemnitee and is reasonably necessary to determine whether and to what
extent the Indemnitee is entitled to indemnification or advancement of
expenses. Any such indemnification or advancement of expenses shall be made
promptly, and in any event within 60 days after receipt by the Corporation of
the written request of the Indemnitee, unless with respect to requests under
Section 1, 2 or 5 the Corporation determines within such 60-day period that the
Indemnitee did not meet the applicable standard of conduct set forth in Section
1 or 2, as the case may be. Such determination shall be made in each instance
by (a) a majority vote of the directors of the Corporation consisting of
persons who are not at that time parties to the
-5-
<PAGE> 6
action, suit or proceeding in question ("disinterested directors"), whether or
not a quorum, (b) a majority vote of a committee of disinterested directors
designated by majority vote of disinterested directors, whether or not a
quorum, (c) a majority vote of a quorum of the outstanding shares of stock of
all classes entitled to vote for directors, voting as a single class, which
quorum shall consist of stockholders who are not at that time parties to the
action, suit or proceeding in question, (d) independent legal counsel (who may,
to the extent permitted by law, be regular legal counsel to the Corporation),
or (e) a court of competent jurisdiction.
7. Remedies. The right to indemnification or advances as granted by
this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the
Corporation to have made a determination prior to the commencement of such
action that indemnification is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Corporation pursuant to Section 6 that the Indemnitee has
not met such applicable standard of conduct, shall be a defense to the action
or create a presumption that the Indemnitee has not met the applicable standard
of conduct. The Indemnitee's expenses (including attorneys' fees) incurred in
connection with successfully establishing his right to indemnification, in
whole or in part, in any such proceeding shall also be indemnified by the
Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of
Delaware or any other applicable laws shall affect or diminish in any way the
rights of any Indemnitee to indemnification under the provisions hereof with
respect to any action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from time
to time by its Board of Directors, grant indemnification rights to other
employees or agents of the Corporation or other persons serving the Corporation
and such rights may be equivalent to, or greater or less than, those set forth
in this Article.
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10. Partial Indemnification. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with any action, suit, proceeding or investigation and any
appeal therefrom but not, however, for the total amount thereof, the
Corporation shall nevertheless indemnify the Indemnitee for the portion of such
expenses (including attorneys' fees), judgments, fines or amounts paid in
settlement to which the Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the General
Corporation Law of Delaware.
12. Merger or Consolidation. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent
permitted by applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. Subsequent Legislation. If the General Corporation Law of Delaware
is amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
NINTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
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TENTH. This Article is inserted for the management of the business
and for the conduct of the affairs of the Corporation.
1. Number of Directors. The number of directors of the Corporation
shall not be less than three. The exact number of directors within the
limitations specified in the preceding sentence shall be fixed from time to
time by, or in the manner provided in, the Corporation's By-Laws.
2. Classes of Directors. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III. No one class shall
have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the designated number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class I, and if such fraction is two-thirds, one of the
extra directors shall be a member of Class I and one of the extra directors
shall be a member of Class II, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
3. Election of Directors. Elections of directors need not be by
written ballot except as and to the extent provided in the By-Laws of the
Corporation.
4. Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting in 2000; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting in 2001; and each initial director in Class III shall serve for a term
ending on the date of the annual meeting in the year 2002; and provided
further, that the term of each director shall be subject to the election and
qualification of his successor and to his earlier death, resignation or
removal.
5. Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. Quorum; Action at Meeting. A majority of the directors at any time
in office shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be
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reduced by one for each director so disqualified, provided that in no case
shall less than one-third of the number of directors fixed pursuant to Section
1 above constitute a quorum. If at any meeting of the Board of Directors there
shall be less than such a quorum, a majority of those present may adjourn the
meeting from time to time. Every act or decision done or made by a majority of
the directors present at a meeting duly held at which a quorum is present shall
be regarded as the act of the Board of Directors unless a greater number is
required by law, by the By-Laws of the Corporation or by this Certificate of
Incorporation.
7. Removal. Directors of the Corporation may be removed only for
cause by the affirmative vote of the holders of at least two-thirds of the
shares of the capital stock of the Corporation issued and outstanding and
entitled to vote.
8. Vacancies. Any vacancy in the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the size of the
Board of Directors, shall be filled only by a vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected to hold office
until the next election of the class for which such director shall have been
chosen, subject to the election and qualification of his successor and to his
earlier death, resignation or removal.
9. Stockholder Nominations and Introduction of Business, Etc. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given
in the manner provided by the By-Laws of the Corporation.
10. Amendments to Article. Notwithstanding any other provisions of
law, this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law,
commencing at such time as the Corporation's common stock is registered
pursuant to the Securities Exchange Act of 1934, the affirmative vote of the
holders of at least two-thirds of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
TENTH.
ELEVENTH. Commencing at such time as the Corporation's common stock is
registered pursuant to the Securities Exchange Act of 1934, stockholders of the
Corporation may not take any action by written consent in lieu of a meeting.
Notwithstanding any other provisions of law, this Certificate of Incorporation
or the By-Laws of the Corporation, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least two-thirds of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article ELEVENTH.
TWELFTH. Commencing at such time as the Corporation's common stock is
registered pursuant to the Securities Exchange Act of 1934, special meetings of
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stockholders may be called at any time by only the Chairman of the Board of
Directors, the President or the Board of Directors. Business transacted at any
special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting. Notwithstanding any other
provision of law, this Certificate of Incorporation or the By-Laws of the
Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least two-thirds of
the shares of capital stock of the Corporation issued and outstanding and
entitled to vote shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article TWELFTH.
EXECUTED at New York, New York on November 9, 1999.
TRANSACTION INFORMATION SYSTEMS, INC.
By: /s/ Jeffrey Najarian
-------------------------------------
Jeffrey Najarian
Chief Executive Officer
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Exhibit 3.2
AMENDED AND RESTATED BY-LAWS
OF
TRANSACTION INFORMATION SYSTEMS, INC.
As in Effect on the Effective Date of the Registration Statement
Relating to the Initial Public Offering
ARTICLE I. - Stockholders
1. Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors, the Chairman of the Board or the
President or, if not so designated, at the registered office of the corporation.
2. Annual Meeting. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held on a date to be fixed by
the Board of Directors, the Chairman of the Board or the President (which date
shall not be a legal holiday in the place where the meeting is to be held) at
the time and place to be fixed by the Board of Directors, the Chairman of the
Board or the President and stated in the notice of the meeting. If no annual
meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as is
convenient. If no annual meeting is held in accordance with the foregoing
provisions, a special meeting may be held in lieu of the annual meeting, and any
action taken at that special meeting shall have the same effect as if it had
been taken at the annual meeting, and in such case all references in these
By-Laws to the annual meeting of the stockholders shall be deemed to refer to
such special meeting.
3. Special Meetings. Special meetings of stockholders may be called
at any time only by the Chairman of the Board, the President or the Board of
Directors. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
4. Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote
<PAGE> 2
at such meeting. The notices of all meetings shall state the place, date and
hour of the meeting. The notice of a special meeting shall state, in addition,
the purpose or purposes for which the meeting is called. If mailed, notice is
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
5. Voting List. The officer who has charge of the stock ledger of
the corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
6. Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
7. Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
8. Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by law, the Certificate of Incorporation or these By-Laws. Each stockholder of
record entitled to vote at a meeting of stockholders may vote in person or may
authorize another person or persons to vote or act for him by written proxy
executed by the stockholder or his authorized agent and delivered to the
Secretary of the corporation. No such proxy shall be voted or acted upon after
three years from the date of its execution, unless the proxy expressly provides
for a longer period.
9. Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two
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or more classes of stock entitled to vote as separate classes, then in the case
of each such class, the holders of a majority of the stock of that class present
or represented and voting on a matter) shall decide any matter to be voted upon
by the stockholders at such meeting, except when a different vote is required by
express provision of law, the Certificate of Incorporation or these By-Laws. Any
election by stockholders shall be determined by a plurality of the votes cast by
the stockholders entitled to vote at the election.
10. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nomination for election to the Board of Directors of the corporation
at a meeting of stockholders may be made (i) by or at the direction of the Board
of Directors or (ii) by any stockholder of the corporation entitled to vote for
the election of directors at such meeting who complies with the notice
procedures set forth in this Section 10.
To be timely, a stockholder's notice must be received by the
Secretary at the principal executive offices of the corporation as follows: (a)
in the case of an election of directors at an annual meeting of stockholders,
not less than 60 days nor more than 90 days prior to the first anniversary of
the preceding year's annual meeting; provided, however, that (i) in the event
that the date of the annual meeting is advanced by more than 20 days, or delayed
by more than 60 days, from such anniversary date, to be timely, a stockholder's
notice must be so received not earlier than the ninetieth day prior to such
annual meeting and not later than the close of business on the later of (A) the
sixtieth day prior to such annual meeting and (B) the tenth day following the
day on which notice of the date of such annual meeting was mailed or public
disclosure of the date of such annual meeting was made, whichever first occurs,
or (ii) with respect to the annual meeting of stockholders of the corporation to
be held in the year 2000, to be timely, a stockholder's notice must be so
received not earlier than the ninetieth day prior to such annual meeting and not
later than the close of business on the tenth day following the day on which
notice of the date of such annual meeting was mailed or public disclosure of the
date of such annual meeting was made, whichever first occurs; or (b) in the case
of an election of directors at a special meeting of stockholders, not earlier
than the ninetieth day prior to such special meeting and not later than the
close of business on the later of (i) the sixtieth day prior to such special
meeting and (ii) the tenth day following the day on which notice of the date of
such special meeting was mailed or public disclosure of the date of such special
meeting was made, whichever first occurs.
The stockholder's notice to the Secretary shall set forth (a) as to
each proposed nominee (i) the name, age, business address and, if known,
residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to be named
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as a nominee and to serve as a director if elected); (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the corporation's
books, of such stockholder and (ii) the class and number of shares of the
corporation which are beneficially owned by such stockholder; and (c) as to the
beneficial owner, if any, on whose behalf the nomination is being made (i) the
name and address of such beneficial owner and (ii) the class and number of
shares of the corporation which are beneficially owned by such person. In
addition, to be effective, the stockholder's notice must be accompanied by the
written consent of the proposed nominee to serve as a director if elected. The
corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the corporation to determine the eligibility of
such proposed nominee to serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
11. Notice of Business at Annual Meetings. At any annual meeting of
the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before an annual meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, (i) if such business relates to the election of directors of the
corporation, the procedures in Section 10 of Article I must be complied with and
(ii) if such business relates to any other matter, the stockholder must have
given timely notice thereof in writing to the Secretary in accordance with the
procedures set forth in this Section 11.
To be timely, a stockholder's notice must be received by the
Secretary at the principal executive offices of the corporation not less than 60
days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that (i) in the event that the date of
the annual meeting is advanced by more than 20 days, or delayed by more than 60
days, from such anniversary date, to be timely, a stockholder's notice must be
so received not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of (A) the sixtieth day prior
to such annual meeting and (B) the tenth day following the day on which notice
of the date of such annual meeting was mailed or public disclosure of the date
of such annual meeting was made, whichever first occurs, or (ii) with respect to
the annual meeting of stockholders of the corporation to be held in the year
2000, to be timely, a stockholder's notice must be so received not earlier than
the ninetieth day prior to such annual meeting and not later than the close of
business on the later of (A) the sixtieth day prior to such annual meeting and
(B) the tenth day following the day on which notice of the date of such annual
meeting was
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mailed or public disclosure of the date of such annual meeting was made,
whichever first occurs.
The stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the corporation's books, of the stockholder proposing
such business, and the name and address of the beneficial owner, if any, on
whose behalf the proposal is made, (c) the class and number of shares of the
corporation which are beneficially owned by the stockholder and beneficial
owner, if any, and (d) any material interest of the stockholder or such
beneficial owner, if any, in such business. Notwithstanding anything in these
By-Laws to the contrary, no business shall be conducted at any annual meeting of
stockholders except in accordance with the procedures set forth in this Section
11; provided that any stockholder proposal which complies with Rule 14a-8 of the
proxy rules (or any successor provision) promulgated under the Securities
Exchange Act of 1934, as amended, and is to be included in the corporation's
proxy statement for an annual meeting of stockholders shall be deemed to comply
with the requirements of this Section 11.
The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 11, and if he should
so determine, the chairman shall so declare to the meeting that any such
business not properly brought before the meeting shall not be transacted.
12. Action without Meeting. Stockholders may not take any action by
written consent in lieu of a meeting.
13. Organization. The Chairman of the Board, or in his absence the
Vice Chairman of the Board, or the President, in the order named, shall call
meetings of the stockholders to order, and shall act as chairman of such
meeting, provided, however, that the Board of Directors may appoint any officer
or stockholder to act as chairman of any meeting in the absence of the Chairman
of the Board. The Secretary of the corporation shall act as secretary at all
meetings of the stockholders; but in the absence of the Secretary at any meeting
of the stockholders, the presiding officer may appoint any person to act as
secretary of the meeting.
ARTICLE II. - Directors
1. General Powers. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law, the
Certificate of
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Incorporation or these By-Laws. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2. Number; Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors. In no event shall the number of directors
constituting the whole Board of Directors be less than three. The number of
directors may be decreased at any time and from time to time by a majority of
the directors then in office or, prior to the Termination Date, by the holders
of a majority of the votes entitled to be cast by all stockholders in any annual
election of directors or class of directors, but only to eliminate vacancies
existing by reason of the death, resignation, removal or expiration of the term
of one or more directors. The directors shall be elected at the annual meeting
of stockholders by such stockholders as have the right to vote on such election.
Directors need not be stockholders of the corporation.
3. Classes of Directors. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III. No one class shall
have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the designated number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class I, and if such fraction is two-thirds, one of the
extra directors shall be a member of Class I and one of the extra directors
shall be a member of Class II, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
4. Terms of Office. Each director shall serve for a term ending on
the date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting of stockholders in
2000; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 2001, and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2002; and provided further, that the term of each director shall
be subject to the election and qualification of his successor and to his earlier
death, resignation or removal.
5. Allocation of Directors Among Classes in the Event of Increases
or Decreases in the Number of Directors. In the event of any increase or
decrease in the authorized number of directors, (i) each director then serving
as such shall nevertheless continue as a director of the class of which he or
she is a member and (ii) the newly created or eliminated directorships resulting
from such increase or decrease shall be apportioned by the Board of Directors
among the three classes of directors so as to ensure that no one class has more
than one director more than any other class. To the extent possible, consistent
with the foregoing rule, any newly created directorships shall be added
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to those classes whose terms of office are to expire at the latest dates
following such allocation, and any newly eliminated directorships shall be
subtracted from those classes whose terms of offices are to expire at the
earliest dates following such allocation, unless otherwise provided from time to
time by resolution adopted by the Board of Directors.
6. Quorum; Action at Meeting. A majority of the directors at any
time in office shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each director so
disqualified, provided that in no case shall less than one-third (") of the
number of directors fixed pursuant to Section 2 above constitute a quorum. If at
any meeting of the Board of Directors there shall be less than such a quorum, a
majority of those present may adjourn the meeting from time to time. Every act
or decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the Board
of Directors unless a greater number is required by law, by the Certificate of
Incorporation or these By-Laws.
7. Removal. Directors of the Corporation may be removed only for
cause by the affirmative vote of the holders of at least two-thirds of the
shares of the capital stock of the Corporation issued and outstanding and
entitled to vote.
8. Vacancies. Any vacancy in the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, shall
be filled only by a vote of a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. A director elected to fill
a vacancy shall be elected to hold office until the next election of the class
for which such director shall have been chosen, subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
9. Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the Chairman of the
Board or Secretary. Such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
10. Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such time and place, either within or without the
State of Delaware, as shall be determined from time to time by the Board of
Directors; provided that any director who is absent when such a determination is
made shall be given notice of the determination. A regular meeting of the Board
of Directors may be held without notice immediately after and at the same place
as the annual meeting of stockholders.
11. Special Meetings. Special meetings of the Board of Directors may
be held at any time and place, within or without the State of Delaware,
designated in a call by the Chairman of the Board, President, two or more
directors, or by one director in the event that there is only a single director
in office.
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12. Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 24 hours in advance of the meeting, (ii) by sending a telegram, telecopy,
telex or electronic mail, or delivering written notice by hand, to his last
known business, home or electronic mail address at least 24 hours in advance of
the meeting, or (iii) by mailing written notice to his last known business or
home address at least 72 hours in advance of the meeting. A notice or waiver of
notice of a meeting of the Board of Directors need not specify the purposes of
the meeting.
13. Meetings by Telephone Conference Calls. Directors or any members
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
14. Action by Consent. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
15. Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these By-Laws for the Board of Directors.
16. Compensation of Directors. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the
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Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE III. - Officers
1. Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
2. Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3. Qualification. No officer need be a stockholder. Any two or
more offices may be held by the same person.
4. Tenure. Except as otherwise provided by law, by the Certificate
of Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
5. Resignation and Removal. Any officer may resign by delivering his
or her written resignation to the corporation at its principal office or to the
Chairman of the Board, President or Secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.
Any officer may be removed at any time, with or without cause, by
vote of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
6. Vacancies. The Board of Directors may fill any vacancy occurring
in any office for any reason and may, in its discretion, leave unfilled for such
period as it may
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determine any offices other than those of President, Treasurer and Secretary.
Each such successor shall hold office for the unexpired term of his predecessor
and until his successor is elected and qualified, or until his earlier death,
resignation or removal.
7. Chairman of the Board and Vice Chairman of the Board. The Board
of Directors may appoint a Chairman of the Board and may designate the Chairman
of the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. Unless otherwise provided by the
Board of Directors, he shall preside at all meetings of the stockholders, and if
he is a director, at all meetings of the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him or her by
the Board of Directors. The person designated as the Chief Executive Officer of
the Company shall, subject to the direction of the Board of Directors, have
general charge and supervision of the business of the corporation.
8. President. Unless the Board of Directors has designated the
Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Chief
Executive Officer or the Board of Directors may from time to time prescribe.
9. Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the Chief Executive Officer may
from time to time prescribe. In the event of the absence, inability or refusal
to act of the Chief Executive Officer, then, in the order determined by the
Board of Directors, the President (if he is not the Chief Executive Officer) and
the Vice President (or if there shall be more than one, the Vice Presidents)
shall perform the duties of the Chief Executive Officer and when so performing
shall have all the powers of and be subject to all the restrictions upon the
Chief Executive Officer. The Board of Directors may assign to any Vice President
the title of Executive Vice President, Senior Vice President or any other title
selected by the Board of Directors.
10. Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the Chief
Executive Officer may from time to time prescribe. In addition, the Secretary
shall perform such duties and have such powers as are incident to the office of
the secretary, including without limitation the duty and power to give notices
of all meetings of stockholders and special meetings of the Board of Directors,
to attend all meetings of stockholders and the Board of Directors and keep a
record of the proceedings, to maintain a stock ledger and prepare lists of
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stockholders and their addresses as required, to be custodian of corporate
records and the corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the Chief Executive Officer or the Secretary
may from time to time prescribe. In the event of the absence, inability or
refusal to act of the Secretary, the Assistant Secretary (or if there shall be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
11. Treasurer and Assistant Treasurers. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him or her by the Board of Directors or the Chief Executive Officer. In
addition, the Treasurer shall perform such duties and have such powers as are
incident to the office of treasurer, including without limitation the duty and
power to keep and be responsible for all funds and securities of the
corporation, to deposit funds of the corporation in depositories selected in
accordance with these By-Laws, to disburse such funds as ordered by the Board of
Directors, to make proper accounts of such funds, and to render as required by
the Board of Directors statements of all such transactions and of the financial
condition of the corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the Chief Executive Officer or the Treasurer
may from time to time prescribe. In the event of the absence, inability or
refusal to act of the Treasurer, the Assistant Treasurer (or if there shall be
more than one, the Assistant Treasurers in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Treasurer.
12. Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
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Article IV. - Capital Stock
1. Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
2. Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him or her in the corporation. Each such certificate shall be signed
by, or in the name of the corporation by, the Chairman or Vice Chairman, if any,
of the Board of Directors, or the President or a Vice President, and the
Treasurer or any Assistant Treasurer, or the Secretary or an Assistant Secretary
of the corporation. Any or all of the signatures on the certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
stockholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
3. Transfers. Except as otherwise established by rules and
regulations adopted by the Board of Directors, and subject to applicable law,
shares of stock may be transferred on the books of the corporation by the
surrender to the corporation or its transfer agent of the certificate
representing such shares properly endorsed or accompanied by a written
assignment or power of attorney properly executed, and with such proof of
authority or the authenticity of signature as the corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect to such stock, regardless of any transfer, pledge or other
disposition of such stock until the shares have been transferred on the books of
the corporation in accordance with the requirements of these By-Laws.
4. Lost, Stolen or Destroyed Certificates. The corporation may issue
a new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or
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destruction and the giving of such indemnity as the Board of Directors may
require for the protection of the corporation or any transfer agent or
registrar.
5. Record Date. The Board of Directors may fix in advance a date as
a record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
ARTICLE V. - General Provisions
1. Fiscal Year. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January of each year and end on the last day of December in each
year.
2. Corporate Seal. The corporate seal shall be in such form as
shall be approved by the Board of Directors.
3. Waiver of Notice. Whenever any notice whatsoever is required to
be given by law, by the Certificate of Incorporation or by these By-Laws, a
waiver of such notice either in writing signed by the person entitled to such
notice or such person's duly authorized attorney, or by telecopy or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
4. Voting of Securities. Except as the directors may otherwise
designate, the Chairman of the Board or Treasurer may waive notice of, and act
as, or appoint any person or persons to act as, proxy or attorney-in-fact for
this corporation (with or without power of
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substitution) at any meeting of stockholders or shareholders of any other
corporation or organization, the securities of which may be held by this
corporation.
5. Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
6. Certificate of Incorporation. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Amended and
Restated Certificate of Incorporation of the corporation, as amended and in
effect from time to time.
7. Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
a. The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors,
even though the disinterested directors be less than a quorum;
b. The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
stockholders; or
c. The contract or transaction is fair as to the corporation as
of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the
stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
8. Severability. Any determination that any provision of these
By-Laws is for any reason inapplicable, illegal or ineffective shall not affect
or invalidate any other provision of these By-Laws.
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9. Pronouns. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE VI. - Amendments
These By-Laws may be altered, amended or repealed, in whole or in
part, or new By-Laws may be adopted by the Board of Directors or by the
stockholders as provided in the Certificate of Incorporation.
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Exhibit 10.1
TRANSACTION INFORMATION SYSTEMS, INC.
1997 Stock Option Plan
SECTION 1. PURPOSE OF THE PLAN.
The purpose of this Plan (the "Plan") is to promote the interests of
Transaction Information Systems, Inc., a Delaware corporation (the "Company"),
and its stockholders by permitting the Company to grant options to purchase
shares of its common stock, par value $.01 per share ("Common Stock"), to key
employees and directors of the Company and its subsidiaries in order to attract,
retain and reward such persons and strengthen the mutuality of interests between
them and the Company and its stockholders by offering such persons options to
purchase the Company's securities.
SECTION 2. STOCK SUBJECT TO PLAN; ADJUSTMENTS.
(a) The total number of shares of Common Stock reserved and available
for issuance upon the exercise of options granted pursuant to the Plan shall be
two million (2,000,000) shares of Common Stock, subject to adjustment as
hereinafter provided. Such shares may consist, in whole or in part, of
authorized and unissued shares or treasury shares. Any shares subject to options
which for any reason expire or are terminated unexercised shall again become
available for stock options under the Plan.
(b) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, stock distribution, combination
or reclassification of shares or other change in corporate structure affecting
the Common Stock (other than a Sale Event (as hereinafter defined)), such
substitution or adjustment as shall be deemed appropriate by the Board or the
Committee, as the case may be, shall be made in the aggregate number of shares
reserved for issuance under the Plan and in the number and option price of
shares subject to outstanding Options granted under the Plan.
SECTION 3. INCENTIVE STOCK OPTIONS; NON-QUALIFIED STOCK OPTIONS.
Options issued pursuant to the plan may be of two types: (i) Incentive
Stock Options or (ii) Non-Qualified Stock Options. For these purposes, the term
"Incentive Stock Option" means any Option intended to be and designated as an
"Incentive Stock Option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended from time to time (the "Code"), and the term
"Non-Qualified Stock Option" shall mean any option that is not an Incentive
Stock Option. The Committee (as defined below) shall have the authority to grant
to any optionee Incentive Stock Options, Non-Qualified Stock Options, or any
combination of both.
<PAGE> 2
SECTION 4. ADMINISTRATION.
(a) The Plan shall be administered by either the Board of Directors
(the "Board") or a Compensation Committee of the Board (the "Committee"),
consisting of not less than three members of the Board. If a Committee shall be
appointed, members of such Committee shall be appointed by the Board and shall
serve at the pleasure of the Board. If and to the extent that no Committee shall
be appointed, the functions of the Committee specified in the Plan shall be
exercised by the Board. A majority of the members of the Committee shall
constitute a quorum, and a majority of the members present at any meeting at
which a quorum is present shall constitute the acts of the Committee.
(b) Subject to the express provisions of the Plan, the Committee shall
have full authority, in its discretion, to determine the individuals to whom,
and the time or times at which, options shall be granted; the number of shares
subject to each option; the option price per share; the exercise period of each
option; whether an option will be an Incentive Stock Option, a Non-Qualified
Stock Option or a combination of both; and the other terms and provisions of the
option. Grants of options need not be identical.
(c) The Committee shall have the authority to adopt, alter and repeal
such rules, guidelines and practices governing the Plan as it shall, from time
to time, deem advisable; to interpret the terms and provisions of the Plan and
any options granted pursuant to the Plan and any agreements relating thereto,
and otherwise to supervise the administration of the Plan.
(d) All decisions made by the Committee pursuant to the provisions of
the Plan shall be made in the Committee's sole discretion and shall be final and
binding on all persons, including the Company and Plan participants.
SECTION 5. ELIGIBILITY.
The Committee may, consistent with the purpose of the Plan, grant
options, from time to time, within ten (10) years from the date of adoption of
the Plan by the Company, to key employees, including officers, and directors of
the Company or any subsidiaries, as defined in Section 424 of the Internal
Revenue Code of 1986, as amended, and covering such number of shares of Common
Stock as the Committee may determine. Eligible persons may receive more than one
grant of an option under the Plan.
SECTION 6. STOCK OPTIONS.
(a) Stock options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Committee, in
its sole discretion, shall deem desirable, which shall be evidenced by a stock
option agreement or instrument of grant (collectively, "option agreement"):
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(i) Option Price. The option price per share of Common Stock
shall be determined by the Committee at the time of grant but shall be not less
than of one hundred percent (100%) of the greater of (A) fair market value of
the Common Stock on the date of grant or (B) the par value of the Common Stock.
The Board may provide guidelines for use by the Committee in determining fair
market value.
(ii) Option Term. The term of each option shall be fixed by
the Committee, but no option shall be exercisable more than ten (10) years after
the date the Option is granted.
(iii) Exercisability. Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee. If the Committee provides, in its sole discretion, that any
option is exercisable only in installments, the Committee may waive such
installment exercise provisions at any time at or after grant in whole or in
part, based on such factors as the Committee shall, in its sole discretion,
determine.
(iv) Method of Exercise.
(A) Subject to whatever installment exercise
provisions apply pursuant to Paragraph 6(a)(iii) of the Plan, options may be
exercised in whole at any time or in part from time to time by giving written
notice of exercise to the Company specifying the number of shares to be
purchased. Such notice shall be accompanied by payment in full of the purchase
price, either by check, note or such other instrument, securities or property as
the Committee may in its sole discretion accept.
(B) No shares of Common Stock shall be issued until
full payment therefor has been received by the Company. If a personal check is
given in payment of the exercise price, no shares of Common Stock shall be
issued to the optionee until the Company's bank shall have advised the Company
that such check has cleared. In the event of any payment by note or other
instrument, the shares of Common Stock shall not be issued until such note or
other instrument shall have been paid in full, and the exercising optionee shall
have no rights as a stockholder until such payment is made.
(C) An optionee shall have no rights to dividends or
other rights of a stockholder with respect to shares subject to an option until
the Company has received full payment, pursuant to the terms of this Paragraph
6(a)(iv), for the shares of Common Stock as to which the option is being
exercised and, if requested, has given the representation described in Paragraph
9(a) of the Plan.
(v) Non-Transferability of Options. No option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all options shall be exercisable, during the optionee's
lifetime, only by the optionee, or, in the event that the optionee shall be
determined to be incompetent, by his legal representative. No transfer otherwise
allowable pursuant to this Paragraph 6(v) (i.e., a transfer by will or by the
laws of descent and distribution)
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shall be allowed if the result of such transfer would be to cause the Company to
cease to be eligible to qualify as a "subchapter S corporation" under the Code
and, in the event of any such attempted transfer, the Company shall have the
right to purchase such option at a price and upon terms determined in a manner
consistent with the provisions of Paragraph 6(b)(ii) of the Plan.
(vi) Termination. Except as expressly provided in Paragraph
6(b) of the Plan, an option shall terminate immediately upon the optionee's
death or termination of employment and/or directorship for any reason or upon
the merger or consolidation of the Company into any corporation or the sale by
the Company of all or substantially all of the Company's business and assets.
Notwithstanding anything contained in this Plan or a related option agreement to
the contrary, in no event shall an employee and/or director of the Company or of
a subsidiary of the Company who is terminated for cause have the right to
exercise any option or options granted to such employee and/or director under
this Plan. For these purposes, the term "terminated for cause" shall include,
without limitation, the termination of an optionee as the result of a breach of
any agreement between the Company or any subsidiary of the Company and such
optionee by such optionee, dishonesty, dereliction of duty, or any other reason
which, in the sole judgment of the Company or any subsidiary of the Company, as
the case may be, makes it advisable to terminate the employment and/or
directorship of such optionee with the Company or such subsidiary, as the case
may be.
(vii) Restrictions on Transfer of Shares of Common Stock.
Shares of the Common Stock of the Company issuable upon the exercise of an
option shall be subject to such restrictions as the Committee may, in its sole
discretion, deem necessary or desirable. All such shares of Common Stock shall
bear an appropriate legend setting forth such transfer restrictions and stating
that no transfer in violation of such transfer restrictions shall be registered
on the books of the Company.
(b) The Committee may, in its sole discretion, include any of the
following provisions in the option agreement:
(i) If, at the time of the optionee's death or a termination
of the optionee's employment and/or directorship as a result of a disability or
on retirement or for any other reason other than cause, a Public Offering Event,
as hereinafter defined, shall have occurred, then the Option may be exercised,
to the extent exercisable on the date of death or termination of employment
and/or directorship, during the one (1) year period following the date of death
or the three (3) month period following the date of termination of employment
and/or directorship, but in no event subsequent to the last day of the stated
term of the option. The term "Public Offering Event" shall mean such date as the
Company shall have received the proceeds from its initial public offering of
securities pursuant to the Securities Act of 1933, as amended, or Regulation A
thereunder or the Common Stock shall be otherwise registered pursuant to the
Securities Exchange Act of 1934, as amended.
(ii) (A) If at the time of the optionee's death or a
termination of an optionee's employment and/or directorship as a result of a
disability or on retirement or for any other reason
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other than cause, a Public Offering Event shall not yet have occurred, then the
Company shall purchase such optionee's option for a price equal to the amount
determined by multiplying (I) the number of shares of Common Stock with respect
to which the option is exercisable on the date of death, disability, retirement
or termination for any other reason other than cause, by (II) the difference
between (x) the value of each share of Common Stock at the termination date as
determined by the Committee and (y) the average exercise price per share of
Common Stock of the options so purchased by the Company. For these purposes, the
value of each share of the Common Stock on the date of termination shall be
determined by the Committee in its sole discretion, but in no event shall the
value of the Company as a whole for purposes of establishing such per share
value be less than the amount of the gross revenues of the Company for the four
fiscal-quarter-period ending immediately preceding the date of termination.
(B) All amounts payable by the Company pursuant to
Paragraph 6(b)(ii) shall be payable by the Company at its option either (I) in
cash or (II) in three equal annual instalments, the first of which shall be
made no later than forty-five (45) days after the date the amount payable by
the Company is determined and the next two of which shall be made on the first
and second anniversary dates of the first payment date, together with interest
at a rate determined by the Committee in its sole discretion.
(iii) Notwithstanding the provisions of Paragraph 6(a)(vi) of
the Plan, in the event of a merger of the Company into another corporation or
in the event of a sale by the Company of all or substantially all of its
businesses and assets to an entity not controlled by the existing stockholders
of the Company (a "Sale Event"):
(A) The Committee, at its sole discretion, with
respect to an option which is or would be exercisable as of the effective date
of such Sale Event, shall determine whether such option shall either (I)
terminate as of the effective date of such Sale Event unless exercised prior
thereto or (II) continue in effect in accordance with its terms, in which case
such option shall be amended or deemed to be amended so that the optionee,
upon exercise of the option, shall be entitled to receive in respect of each
share of Common Stock subject to the option the same amount and kind of stock,
securities, cash, property or other consideration that each holder of a share
of Common Stock is entitled to receive in respect of a share of Common Stock
in the transaction constituting such Sale Event.
(B) The Committee, at its sole discretion, with
respect to an option which is not and would not be exercisable as of the
effective date of such Sale Event, shall determine whether such option shall
either (I) become immediately exercisable, in which case the provisions of
Paragraph 6(b)(iii)(A) shall apply to such option and the Committee shall also
determine whether subparagraph (I) or (II) of such Paragraph shall be
applicable to such option or (II) continue in effect in accordance with its
terms, in which case such option shall be amended or deemed to be amended so
that the optionee shall, upon exercise of the option, be entitled to receive
in respect of each share of Common Stock subject to the option the same amount
and kind of stock, securities, cash, property
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or other consideration that each holder of a share of Common Stock is entitled
to receive in respect of a share of Common Stock in the transaction constituting
such Sale Event, provided, however, that nothing in this Paragraph 6(b)(iii)(B)
shall be interpreted to accelerate the date on which an option may be exercised
if the Committee shall determine that such option shall continue in accordance
with its terms pursuant to option (II) of this Paragraph 6(b)(iii)(B).
(C) Any determination made by the Committee pursuant
to this Paragraph 6(b)(iii) shall be conclusive notwithstanding any other
provision of this Plan or any option agreement entered into in accordance with
this Plan.
(iv) (A) In the event of the death or termination of the
optionee's employment and/or directorship with the Company for any reason prior
to a Public Offering Event, the Company shall have the right and option to
purchase all, and not less than all, of the shares of Common Stock previously
issued upon the exercise, if any, of any options by the terminating optionee
from the optionee or his legal representative at the Stock Repurchase Price,
which shall be determined pursuant to the provisions of (B) and (C) of this
Paragraph 6(b)(iv). Such right shall be exercisable by the Company within
thirty (30) days after the date of death or termination of employment and/or
directorship, and shall be payable at the Company's option either in cash or
in three equal annual installments the first of which shall be made no later
than forty-five (45) days after the expiration of such thirty (30) day period
and the next two of which shall be made on the first and second anniversary
dates of the first payment date, together with interest at a rate determined
by the Committee in its sole discretion.
(B) In the event of the death or termination of the
optionee's employment as a result of a disability or on retirement or for any
other reason other than cause, the Stock Repurchase Price per share shall be
equal to the amount determined by multiplying (I) the number of shares of
Common Stock being repurchased by the Company by (II) the value of each share
of Common Stock at the termination date as determined by the Committee. For
these purposes, the value of each share of the Common Stock on the date of
termination shall be determined by the Committee in its sole discretion, but
in no event shall the value of the Company as a whole for purposes of
establishing such per share value be less than the amount of the gross revenues
of the Company for the four fiscal-quarter-period ending immediately preceeding
the date of termination.
(C) In the event of the termination of the optionee's
employment and/or directorship for cause, the Stock Repurchase Price shall mean
the aggregate exercise price of the shares being repurchased by the Company plus
or minus the product of (I) any increase or decrease, as the case may be, in the
Company's net tangible book value per share of Common Stock, determined in
accordance with generally accepted accounting principles, consistently applied,
from the last day of the fiscal quarter immediately preceding the date of grant
of the exercised Option to the last day of the fiscal quarter ending immediately
prior to the date on which termination of employment for cause occurs multiplied
by (II) the number of shares being repurchased by the Company.
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(c) (i) Anything in the Plan to the contrary notwithstanding, no term
of the Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the optionee(s) affected, to disqualify any Incentive
Stock Option under such Section 422.
(ii) To the extent required for "incentive stock option"status
under Section 422 of the Code (taking into account applicable Treasury
regulations and pronouncements), the Plan shall be deemed to provide that the
aggregate fair market value (determined at the time of the grant) of the Stock
with respect to which Incentive Stock Options are exercisable for the first time
by the optionee during any calendar year under the Plan and/or any other stock
option plan of the Company or any Subsidiary (within the meaning of Section 424
of the Code) shall not exceed $100,000. If Section 422 is hereafter amended to
delete the requirement now in Section 422 that the Plan text expressly provide
for the $100,000 limitation set forth in Section 422, then this Paragraph
6(c)(ii) shall no longer be operative and the Committee may accelerate the dates
on which the incentive stock option may be exercised.
(iii) To the extent permitted under Section 422 of the Code or the
applicable regulations thereunder or any applicable Internal Revenue Service
pronouncement if (x) a participant's employment is terminated for any reason
other than cause and (y) the portion of any Incentive Stock Option that is
otherwise exercisable during the post-termination period specified under
Paragraph 6(b)(i) of the Plan, applied without regard to the $100,000 limitation
contained in Section 422 of the Code, is greater than the portion of such option
that is immediately exercisable as an "incentive stock option" during such
post-termination period under Section 422, such excess shall be treated as a
Non-Qualified Stock Option.
SECTION 7. AMENDMENTS AND TERMINATION.
(a) The Board may amend, alter, or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made which would impair the
rights of an optionee or participant under any option theretofore granted
without the optionee's consent, and no amendment will be made without approval
of the stockholders if such amendment requires stockholder approval under state
law.
(b) The Committee may amend the terms of any option or other award
theretofore granted, prospectively or retroactively, but no such amendment shall
impair the rights of any optionee without the optionee's consent. The Committee
may also substitute new options for previously granted options (on a one for one
or other basis), including previously granted options having higher option
exercise prices.
SECTION 8. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan. With respect to
any payments to be
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made to an optionee by the Company, nothing contained in the Plan shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company.
SECTION 9. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares pursuant to
an option under the Plan to represent to and agree with the Company in writing
that the optionee or participant is acquiring the shares for investment and not
with a view to the sale or distribution thereof. The certificates for such
shares may include any legend which the Committee deems appropriate to reflect
any restrictions on transfer. All certificates or shares of Common Stock
delivered under the Plan shall be subject to such stock-transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Common Stock is then listed, and any
applicable Federal or state securities law, and the Committee may cause a legend
or legends to be put on any such certificates to make appropriate reference to
such restrictions. If the Company shall have an option to repurchase the Common
Stock in the event of the optionee's death or termination of employment and/or
directorship, the Committee may instruct the Company to place an appropriate
legend on the certificates representing such shares.
(b) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases.
(c) Neither the adoption of the Plan nor the grant of any award
pursuant to the Plan shall confer upon any employee of the Company or any
subsidiary any right to continued employment with the Company or a subsidiary,
as the case may be, nor shall it interfere in any way with the right of the
Company or a subsidiary to terminate the employment of any of its employees at
any time.
(d) No later than the date as of which an amount first becomes
includible in the gross income of the optionee for Federal income tax purposes
with respect to any option granted or exercised under the Plan, the optionee
shall pay to the Company, or make arrangements satisfactory to the Committee
regarding the payment of, any Federal, state, or local taxes of any kind
required by law to be withheld with respect to such amount. The Committee may
permit withholding obligations to be settled with Common Stock, including Common
Stock that is issuable upon exercise of an option that gives rise to the
withholding requirement. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and its subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the optionee.
SECTION 10. EFFECTIVE DATE OF PLAN.
The Plan shall be effective as of the date the Plan is approved by the
Board, subject to the approval of the Plan by a majority of the votes cast by
the holders of the Company's Common Stock
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at the next annual or special meeting of stockholders or in any other manner by
which such consent can be obtained under applicable law. Any grants made under
the Plan prior to such approval shall be effective when made (unless otherwise
specified by the Committee at the time of grant), but shall be conditioned on,
and subject to, such approval of the Plan by such stockholders.
SECTION 11. TERM OF PLAN.
Options may be granted pursuant to the Plan during the ten (10) year
period commencing on the date the Plan was approved by the Board, until the Plan
shall be terminated, but options granted prior to such termination may extend
beyond that date.
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Exhibit 10.2
TRANSACTION INFORMATION SYSTEMS, INC.
1998 Stock Option Plan
SECTION 1. PURPOSE OF THE PLAN.
The purpose of this Plan (the "Plan") is to promote the interests of
Transaction Information Systems, Inc., a Delaware corporation (the "Company"),
and its stockholders by permitting the Company to grant options to purchase
shares of its common stock, par value $.01 per share ("Common Stock"), to key
employees and directors of the Company and its subsidiaries in order to attract,
retain and reward such persons and strengthen the mutuality of interests between
them and the Company and its stockholders by offering such persons options to
purchase the Company's securities.
SECTION 2. STOCK SUBJECT TO PLAN; ADJUSTMENTS.
(a) The total number of shares of Common Stock reserved and available
for issuance upon the exercise of options granted pursuant to the Plan shall be
one million (1,000,000) shares of Common Stock, subject to adjustment as
hereinafter provided. Such shares may consist, in whole or in part, of
authorized and unissued shares or treasury shares. Any shares subject to options
which for any reason expire or are terminated unexercised shall again become
available for stock options under the Plan.
(b) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, stock distribution, combination
or reclassification of shares or other change in corporate structure affecting
the Common Stock (other than a Sale Event (as hereinafter defined)), such
substitution or adjustment as shall be deemed appropriate by the Board or the
Committee, as the case may be, shall be made in the aggregate number of shares
reserved for issuance under the Plan and in the number and option price of
shares subject to outstanding Options granted under the Plan.
SECTION 3. INCENTIVE STOCK OPTIONS; NON-QUALIFIED STOCK OPTIONS.
Options issued pursuant to the plan may be of two types: (i) Incentive
Stock Options or (ii) Non-Qualified Stock Options. For these purposes, the term
"Incentive Stock Option" means any Option intended to be and designated as an
"Incentive Stock Option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended from time to time (the "Code"), and the term
"Non-Qualified Stock Option" shall mean any option that is not an Incentive
Stock Option. The Committee (as defined below) shall have the authority to grant
to any optionee Incentive Stock Options, Non-Qualified Stock Options, or any
combination of both.
<PAGE> 2
SECTION 4. ADMINISTRATION.
(a) The Plan shall be administered by either the Board of Directors
(the "Board") or a Compensation Committee of the Board (the "Committee"),
consisting of not less than three members of the Board. If a Committee shall be
appointed, members of such Committee shall be appointed by the Board and shall
serve at the pleasure of the Board. If and to the extent that no Committee shall
be appointed, the functions of the Committee specified in the Plan shall be
exercised by the Board. A majority of the members of the Committee shall
constitute a quorum, and a majority of the members present at any meeting at
which a quorum is present shall constitute the acts of the Committee.
(b) Subject to the express provisions of the Plan, the Committee shall
have full authority, in its discretion, to determine the individuals to whom,
and the time or times at which, options shall be granted; the number of shares
subject to each option; the option price per share; the exercise period of each
option; whether an option will be an Incentive Stock Option, a Non-Qualified
Stock Option or a combination of both; and the other terms and provisions of the
option. Grants of options need not be identical.
(c) The Committee shall have the authority to adopt, alter and repeal
such rules, guidelines and practices governing the Plan as it shall, from time
to time, deem advisable; to interpret the terms and provisions of the Plan and
any options granted pursuant to the Plan and any agreements relating thereto,
and otherwise to supervise the administration of the Plan.
(d) All decisions made by the Committee pursuant to the provisions of
the Plan shall be made in the Committee's sole discretion and shall be final and
binding on all persons, including the Company and Plan participants.
SECTION 5. ELIGIBILITY.
The Committee may, consistent with the purpose of the Plan, grant
options, from time to time, within ten (10) years from the date of adoption of
the Plan by the Company, to key employees, including officers, directors and
consultants of, and any other person receiving compensation for services
rendered to, the Company or any subsidiaries, as defined in Section 424 of the
Internal Revenue Code of 1986, as amended, and covering such number of shares of
Common Stock as the Committee may determine. Eligible persons may receive more
than one grant of an option under the Plan.
SECTION 6. STOCK OPTIONS.
(a) Stock options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Committee, in
its sole discretion, shall deem desirable, which shall be evidenced by a stock
option agreement or instrument of grant (collectively, "option agreement"):
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(i) Option Price. The option price per share of Common Stock
shall be determined by the Committee at the time of grant but shall be not less
than the par value of the Common Stock.
(ii) Option Term. The term of each option shall be fixed by
the Committee, but no option shall be exercisable more than ten (10) years after
the date the Option is granted.
(iii) Exercisability. Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee. If the Committee provides, in its sole discretion, that any
option is exercisable only in installments, the Committee may waive such
installment exercise provisions at any time at or after grant in whole or in
part, based on such factors as the Committee shall, in its sole discretion,
determine. Notwithstanding anything to the contrary contained herein, in no
event shall any options granted under the Plan become exercisable before the
occurrence of a Public Offering Event (as defined in Paragraph 6(b)(i) of the
Plan).
(iv) Method of Exercise.
(A) Subject to whatever installment exercise
provisions apply pursuant to Paragraph 6(a)(iii) of the Plan, options may be
exercised in whole at any time or in part from time to time after the occurrence
of a Public Offering Event by giving written notice of exercise to the Company
specifying the number of shares to be purchased. Such notice shall be
accompanied by payment in full of the purchase price, either by check, note or
such other instrument, securities or property as the Committee may in its sole
discretion accept.
(B) No shares of Common Stock shall be issued until
full payment therefor has been received by the Company. If a personal check is
given in payment of the exercise price, no shares of Common Stock shall be
issued to the optionee until the Company's bank shall have advised the Company
that such check has cleared. In the event of any payment by note or other
instrument, the shares of Common Stock shall not be issued until such note or
other instrument shall have been paid in full, and the exercising optionee shall
have no rights as a stockholder until such payment is made.
(C) An optionee shall have no rights to dividends or
other rights of a stockholder with respect to shares subject to an option until
the Company has received full payment, pursuant to the terms of this Paragraph
6(a)(iv), for the shares of Common Stock as to which the option is being
exercised and, if requested, has given the representation described in Paragraph
9(a) of the Plan.
(v) Non-Transferability of Options. No option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all options shall be exercisable, during the optionee's
lifetime, only by the optionee, or, in the event that the optionee shall be
determined to be incompetent, by his legal representative.
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(vi) Termination. Except as expressly provided in Paragraph
6(b) of the Plan, an option shall terminate immediately upon the optionee's
death or termination of employment, engagement and/or directorship for any
reason or upon the merger or consolidation of the Company into any corporation
or the sale by the Company of all or substantially all of the Company's business
and assets. Notwithstanding anything contained in this Plan or a related option
agreement to the contrary, in no event shall an employee, consultant and/or
director of the Company or of a subsidiary of the Company who is terminated for
cause have the right to exercise any option or options granted to such person
under this Plan. For these purposes, the term "terminated for cause" shall
include, without limitation, the termination of an optionee as the result of a
breach of any agreement between the Company or any subsidiary of the Company and
such optionee by such optionee, dishonesty, dereliction of duty, or any other
reason which, in the sole judgment of the Company or any subsidiary of the
Company, as the case may be, makes it advisable to terminate the employment,
engagement and/or directorship of such optionee with the Company or such
subsidiary, as the case may be.
(vii) Restrictions on Transfer of Shares of Common Stock.
Shares of the Common Stock of the Company issuable upon the exercise of an
option shall be subject to such restrictions as the Committee may, in its sole
discretion, deem necessary or desirable. All such shares of Common Stock shall
bear an appropriate legend setting forth such transfer restrictions and stating
that no transfer in violation of such transfer restrictions shall be registered
on the books of the Company.
(b) The Committee may, in its sole discretion, include, among other
things, any of the following provisions in the option agreement:
(i) If, at the time of the optionee's death or a termination
of the optionee's employment, engagement and/or directorship as a result of a
disability or on retirement or for any other reason other than cause, a Public
Offering Event, as hereinafter defined, shall have occurred, then the Option may
be exercised, to the extent exercisable on the date of death or termination of
employment and/or directorship, during the one (1) year period following the
date of death or the three (3) month period following the date of termination of
employment and/or directorship, but in no event subsequent to the last day of
the stated term of the option. The term "Public Offering Event" shall mean such
date as the Company shall have (A) received the proceeds from its initial public
offering of securities pursuant to the Securities Act of 1933, as amended, or
Regulation A thereunder or the Common Stock shall be otherwise registered
pursuant to the Securities Exchange Act of 1934, as amended, and (B) the
exercise of the options and the issuance of shares of Common Stock thereunder
shall be permitted in compliance with all Federal and state securities laws.
(ii) (A) If at the time of the optionee's death or a
termination of an optionee's employment, engagement and/or directorship as a
result of a disability or on retirement or for any other reason (such date
hereinafter referred to as the "Termination Date"), a Public Offering Event
shall not yet have occurred, then the Company shall have the right, in its sole
discretion, to purchase such optionee's option for a price equal to the amount
determined by multiplying (I) the number of
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shares of Common Stock with respect to which the option is vested (but not yet
exercisable) on the Termination Date, by (II) the difference between (x) the
value of each share of Common Stock at the Termination Date as determined by the
Committee as described below and (y) the average exercise price per share of
Common Stock of the options so purchased by the Company. For these purposes, the
value of each share of the Common Stock on the Termination Date shall be
determined by the Committee in its sole discretion but shall be no less than
that determined in which the value of the Company as a whole shall be equal to
the amount of the gross revenues of the Company for the four fiscal-quarter-
period ending immediately preceding the date of termination. Such right of the
Company to purchase the optionee's option shall be exercisable by written
notice given to the optionee (or his legal representative) within forty-five
(45) days after the Termination Date ("Purchase Notice"). If the Purchase
Notice is not given by the Company as aforesaid, then the option may be
exercised, to the extent exercisable on the Termination Date, during the period
ending on the later of (I) the date forty-five (45) days after the Termination
Date or (II) such date as may be designated by the Committee at or after the
time of grant.
(B) All amounts payable by the Company pursuant to
Paragraph 6(b)(ii) shall be payable by the Company at its option either (I) in
cash or (II) in three equal annual instalments, the first of which shall be made
no later than one hundred eighty (180) days after the Termination Date and the
next two of which shall be made on the first and second anniversary dates of the
first payment date, together with interest at a rate determined by the Committee
in its sole discretion.
(iii) Notwithstanding the provisions of Paragraph 6(a)(vi) of
the Plan, in the event of a merger of the Company into another corporation or in
the event of a sale by the Company of all or substantially all of its businesses
and assets to an entity not controlled by the existing stockholders of the
Company (a "Sale Event"):
(A) The Committee, at its sole discretion, with respect
to an option which is or would be vested (but not yet exercisable) as of the
effective date of such Sale Event, shall determine whether such option shall
either (I) continue in effect in accordance with its terms, in which case such
option shall be amended or deemed to be amended so that the optionee, upon
exercise of the option, shall be entitled to receive in respect of each share
of Common Stock subject to the option the same amount and kind of stock,
securities, cash, property or other consideration that each holder of a share
of Common Stock is entitled to receive in respect of a share of Common Stock in
the transaction constituting such Sale Event or (II) purchase such optionee's
option for a price equal to the amount determined by multiplying (I) the number
of shares of Common Stock with respect to which the option is vested (but not
yet exercisable) on the effective date of such Sale Event, by (II) the
difference between (x) the value of each share of Common Stock at the effective
date of such Sale Event as determined by the Committee as described below and
(y) the average exercise price per share of Common Stock of the options so
purchased by the Company. For these purposes, the value of each share of the
Common Stock on the effective date of such Sale Event shall be determined by
the Committee in its sole discretion but shall be no less than that determined
in which the value of the Company as a whole shall be equal to the amount of
the gross revenues of the
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<PAGE> 6
Company for the four fiscal-quarter-period ending immediately preceding the date
of termination. Such right of the Company to purchase the optionee's option
shall be exercisable by written notice given to the optionee (or his legal
representative) within forty-five (45) days after the effective date of such
Sale Event ("Purchase Notice"). All amounts payable by the Company pursuant to
this Paragraph shall be payable by the Company at its option either (I) in cash
or (II) in three equal annual instalments, the first of which shall be made no
later than one hundred eighty (180) days after the effective date of such Sale
Event and the next two of which shall be made on the first and second
anniversary dates of the first payment date, together with interest at a rate
determined by the Committee in its sole discretion.
(B) Any determination made by the Committee pursuant
to this Paragraph 6(b)(iii) shall be conclusive notwithstanding any other
provision of this Plan or any option agreement entered into in accordance with
this Plan.
(c) (i) Anything in the Plan to the contrary notwithstanding, no
term of the Plan relating to Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the
Plan be so exercised, so as to disqualify the Plan under Section 422 of the
Code, or, without the consent of the optionee(s) affected, to disqualify any
Incentive Stock Option under such Section 422.
(ii) To the extent required for "incentive stock option"
status under Section 422 of the Code (taking into account applicable Treasury
regulations and pronouncements), the Plan shall be deemed to provide that the
aggregate fair market value (determined at the time of the grant) of the Stock
with respect to which Incentive Stock Options are exercisable for the first time
by the optionee during any calendar year under the Plan and/or any other stock
option plan of the Company or any Subsidiary (within the meaning of Section 424
of the Code) shall not exceed $100,000. If Section 422 is hereafter amended to
delete the requirement now in Section 422 that the Plan text expressly provide
for the $100,000 limitation set forth in Section 422, then this Paragraph
6(c)(ii) shall no longer be operative and the Committee may accelerate the dates
on which the incentive stock option may be exercised.
(iii) To the extent permitted under Section 422 of the Code or
the applicable regulations thereunder or any applicable Internal Revenue Service
pronouncement if (x) a participant's employment is terminated for any reason
other than cause and (y) the portion of any Incentive Stock Option that is
otherwise exercisable during the post-termination period specified under
Paragraph 6(b)(i) of the Plan, applied without regard to the $100,000 limitation
contained in Section 422 of the Code, is greater than the portion of such option
that is immediately exercisable as an "incentive stock option" during such
post-termination period under Section 422, such excess shall be treated as a
Non-Qualified Stock Option.
SECTION 7. AMENDMENTS AND TERMINATION.
(a) The Board may amend, alter, or discontinue the Plan, but no
amendment, alteration,
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or discontinuation shall be made which would impair the rights of an optionee or
participant under any option theretofore granted without the optionee's consent,
and no amendment will be made without approval of the stockholders if such
amendment requires stockholder approval under state law.
(b) The Committee may amend the terms of any option or other award
theretofore granted, prospectively or retroactively, but no such amendment shall
impair the rights of any optionee without the optionee's consent. The Committee
may also substitute new options for previously granted options (on a one for one
or other basis), including previously granted options having higher option
exercise prices.
SECTION 8. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan. With respect to
any payments to be made to an optionee by the Company, nothing contained in the
Plan shall give any such participant or optionee any rights that are greater
than those of a general creditor of the Company.
SECTION 9. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares pursuant to
an option issued under the Plan to represent to and agree with the Company in
writing that the optionee or participant is acquiring the shares for investment
and not with a view to the sale or distribution thereof. The certificates for
such shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer. All certificates for shares of Common
Stock delivered under the Plan shall be subject to such stock transfer orders
and other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Common Stock is then listed, and any
applicable Federal or state securities law, and the Committee may cause a legend
or legends to be put on any such certificates to make appropriate reference to
such restrictions. If the Company shall have an option to repurchase the Common
Stock in the event of the optionee's death or termination of employment,
engagement and/or directorship, the Committee may instruct the Company to place
an appropriate legend on the certificates representing such shares.
(b) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required, and such arrangements may be either
generally applicable or applicable only in specific cases.
(c) Neither the adoption of the Plan nor the grant of any award
pursuant to the Plan shall confer upon any employee of the Company or any
subsidiary any right to continued employment with the Company or a subsidiary,
as the case may be, nor shall it interfere in any way with the right of the
Company or a subsidiary to terminate the employment of any of its employees at
any time.
(d) No later than the date as of which an amount first becomes
includible in the gross
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income of the optionee for Federal income tax purposes with respect to any
option granted or exercised under the Plan, the optionee shall pay to the
Company, or make arrangements satisfactory to the Committee regarding the
payment of, any Federal, state, or local taxes of any kind required by law to be
withheld with respect to such amount. The Committee may permit withholding
obligations to be settled with Common Stock, including Common Stock that is
issuable upon exercise of an option that gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be conditional
on such payment or arrangements and the Company and its subsidiaries shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the optionee.
SECTION 10. EFFECTIVE DATE OF PLAN.
The Plan shall be effective as of the date the Plan is approved by the
Board, subject to the (i) approval of the Plan by a majority of the votes cast
by the holders of the Company's Common Stock at the next annual or special
meeting of stockholders or in any other manner by which such consent can be
obtained under applicable law and (ii) approval and consents of, and filings
with, any applicable Federal or state governmental authority. Any grants made
under the Plan prior to such approval shall be effective when made (unless
otherwise specified by the Committee at the time of grant), but shall be
conditioned on, and subject to, such approval of the Plan by such stockholders.
SECTION 11. TERM OF PLAN.
Options may be granted pursuant to the Plan during the ten (10) year
period commencing on the date the Plan was approved by the Board, until the Plan
shall be terminated, but options granted prior to such termination may extend
beyond that date.
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Exhibit 10.3
TRANSACTION INFORMATION SYSTEMS, INC.
1999 DIRECTOR STOCK OPTION PLAN
1. Purpose.
The purpose of this 1999 Director Stock Option Plan (the "Plan") of
Transaction Information Systems, Inc., a Delaware corporation (the "Company"),
is to encourage ownership in the Company by non-employee directors of the
Company whose continued services are considered essential to the Company's
future progress, to provide them with a further incentive to remain as directors
of the Company and to align the interests of such persons with those of the
Company's stockholders.
2. Administration.
The Board of Directors (the "Board") shall supervise and administer
the Plan. All questions concerning interpretation of the Plan or any options
granted under it shall be resolved by the Board and such resolution shall be
final and binding upon all persons having an interest in the Plan. The Board
may, to the full extent permitted by or consistent with applicable laws or
regulations, delegate any or all of its powers under the Plan to a committee
appointed by the Board, and if a committee is so appointed, all references to
the Board in the Plan shall mean and relate to such committee.
3. Participation in the Plan.
Directors of the Company who are not employees of the Company or any
subsidiary of the Company ("non-employee directors") shall be eligible to
receive options under the Plan.
4. Stock Subject to the Plan.
(a) The maximum number of shares of the Company's common stock, par
value $.01 per share ("Common Stock"), which may be issued under the Plan shall
be 500,000 shares, subject to adjustment as provided in Section 7.
(b) If any outstanding option under the Plan for any reason expires
or is terminated without having been exercised in full, the shares covered by
the unexercised portion of such option shall again become available for issuance
pursuant to the Plan.
<PAGE> 2
(c) All options granted under the Plan shall be non-statutory
options not entitled to special tax treatment under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
(d) Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
5. Terms, Conditions and Form of Options.
Each option granted under the Plan shall be evidenced by a written
agreement or instrument of grant in such form as the Board shall from time to
time approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a)(i) Automatic Option Grant Dates. Options shall automatically
be granted to all non-employee directors as follows:
(x) each person who first becomes a non-employee director
after the date the Plan is approved by the Board shall be granted an option to
purchase 15,000 shares of Common Stock on the date of his or her initial
election to the Board; and
(y) each non-employee director shall be granted an option to
purchase 15,000 shares of Common Stock on April 1 of each year, commencing with
the first April 1st following the closing date (the "Closing Date") of the
Company's initial public offering of Common Stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended.
(ii) Periodic Grants of Options. Subject to execution by the
non-employee director of an appropriate option agreement, the Board may grant
additional options to purchase a number of shares to be determined by the Board
in recognition of services provided by a non-employee director in his or her
capacity as a director, provided that such grants are in compliance with the
requirements of Rule 16b-3, as promulgated under the Securities Exchange Act of
1934, as amended ("Rule 16b-3").
(iii) Option Grant Date. Each date of grant of an option
pursuant to this Section 5(a) is hereinafter referred to as an "Option Grant
Date."
(b) Option Exercise Price. The option exercise price per share for
each option granted under the Plan shall be the fair market value per share of
Common Stock on the Option Grant Date. The fair market value shall mean (i) the
closing price per share of Common Stock on the principal stock exchange or
market on which the Common Stock is listed or traded, (ii) or, if the Common
Stock is not listed on any exchange or market which reports closing prices, the
average of the closing high bid and low asked prices per share as reported to
the Nasdaq Stock Market or the National Quotation Bureau, Inc. or
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<PAGE> 3
a similar reporting service selected by the Board or (iii) if the Common Stock
is not listed or traded on any exchange or market, the fair market value as
determined in good faith by the Board. If there are no reported sales of Common
Stock on the Option Grant Date, the price of the Common Stock for purposes of
clause (i) shall be the average of the last reported high bid and low asked
prices on such date.
(c) Non-Transferability of Options. Any option granted under the
Plan to an optionee shall not be transferable by the optionee other than by will
or the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder, and shall be exercisable during
the optionee's lifetime only by the optionee or the optionee's guardian or legal
representative. In the event of the optionee's death, the Option may be
exercised only by his or her executor, administrator or other legal
representative upon presentation of evidence of such appointment.
(d) Vesting Period.
(i) General. Each option granted under the Plan pursuant to
Section 5(a)(i) shall become immediately exercisable in full on the Option Grant
Date. Each option granted under the Plan pursuant to Section 5(a)(ii) above
shall become exercisable cumulatively, as to one-third of the shares of Common
Stock subject to the Option six months, twelve months and eighteen months after
the Option Grant Date.
(ii) Acceleration Upon Acquisition Event. Notwithstanding the
foregoing, each outstanding option granted under the Plan shall immediately
become exercisable in full upon the occurrence of an Acquisition Event (as
defined in Section 8) with respect to the Company.
(iii) Right of Company to Repurchase Stock. The Board shall
have the right to include in the instrument of grant or option agreement a
provision that the Options may be immediately exercisable. If the Board includes
such a provision, (A) in the event that the optionee ceased to be a director of
the Company for any reason, the Company will have the right to purchase from him
or her, at the Option Exercise Price, any shares which would not have vested
based on the vesting schedule set forth in Section 5(d)(i) of the Plan one year
from date he or she ceased to serve as a director, and (B) the certificates for
such shares of Common Stock shall bear a legend setting forth the Company's
repurchase option. As shares become vested, the legend on the stock certificate
shall be removed at the optionee's request. Options and shares are vested if the
option could be exercised to purchase such shares pursuant to said Section
5(d)(i).
(e) Termination. Each option shall terminate, and may no longer be
exercised, on the earlier of (i) the date ten years after the Option Grant Date
of such option or (ii) the
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<PAGE> 4
first anniversary of the date on which the optionee ceases to serve as a
director of the Company.
(f) Exercise Procedure. An option may be exercised only by written
notice to the Company at its principal office accompanied by (i) payment in cash
or by certified or bank check of the full consideration for the shares as to
which they are exercised, (ii) delivery of outstanding shares of Common Stock
(which have been outstanding for at least six months) having a fair market value
on the last business day preceding the date of exercise equal to the option
exercise price, or (iii) an irrevocable undertaking by a creditworthy broker to
deliver to the Company sufficient funds to pay the exercise price against
delivery of the certificate for the shares. If payment is made other than by
wire transfer, certified check or bank check, the Company shall not issue
certificates for shares of Common Stock until the Company has been advised by
its bank that the optionee's check has cleared.
6. Limitation of Rights.
(a) No Right to Continue as a Director. Neither the Plan, nor the
granting of an Option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain the optionee as a director for any period of time.
(b) No Stockholders' Rights for Options. An optionee shall have no
rights as a stockholder with respect to the shares covered by his or her option
until the date the option is exercised. Upon receipt by the Company of the
exercise price of the option, the optionee shall have all rights as a
stockholder as to those shares.
(c) Compliance with Securities Laws. Each option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board. Nothing herein shall be deemed to require the Company to apply for or
to obtain such listing, registration or qualification, or to satisfy such
condition.
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<PAGE> 5
7. Adjustment Provisions for Mergers, Recapitalizations and Related
Transactions.
If, through or as a result of any merger, consolidation,
reorganization, recapitalization, reclassification, stock dividend, stock split,
combination of shares or other reverse stock split, or other similar
transaction, (i) the outstanding shares of Common Stock are exchanged for a
different number or kind of securities of the Company or of another entity, or
(ii) additional shares or new or different shares or other securities of the
Company or of another entity are distributed with respect to such shares of
Common Stock, the Board shall make an appropriate and proportionate adjustment
in (x) the maximum number and kind of shares reserved for issuance under the
Plan, (y) the number and kind of shares or other securities subject to then
outstanding options under the Plan, and (z) the price for each share subject to
any then outstanding options under the Plan (without changing the aggregate
purchase price for such options), to the end that each option shall be
exercisable, for the same aggregate exercise price, for such securities as such
optionholder would have held immediately following such event if he had
exercised such option immediately prior to such event. No fractional shares will
be issued under the Plan on account of any such adjustments, and any fractional
shares shall be rounded to the next higher whole number of shares.
8. Acquisition Event.
For purposes of the Plan, an "Acquisition Event" shall be deemed to
have occurred only if any of the following events occurs: (i) any merger or
consolidation which results in the voting securities of the Company outstanding
immediately prior thereto representing immediately thereafter (either by
remaining outstanding or by being converted into voting securities of the
surviving or acquiring entity) less than 50% of the combined voting power of the
voting securities of the Company or such surviving or acquiring entity
outstanding immediately after such merger or consolidation; (ii) any sale of all
or substantially all of the assets of the Company; or (iii) the complete
liquidation of the Company.
9. Termination and Amendment of the Plan.
The Board may suspend or terminate the Plan or amend it in any
respect whatsoever.
10. Notice.
Any written notice to the Company required by any of the provisions
of the Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
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<PAGE> 6
11. Governing Law.
The Plan and all determinations made and actions taken pursuant
hereto shall be governed by the internal laws of the State of New York (without
regard to any applicable conflicts of laws or principles).
12. Effective Date.
The Plan shall take effect as of the date the Plan is approved by
the Board, subject to the approval of the Plan by a majority of the votes cast
by the holders of the Company's Common Stock at the next annual or special
meeting of stockholders. Any grants made under the Plan prior to such approval
shall be effective when made (unless otherwise specified by the Board at the
time of grant), but shall be conditioned on, and subject to, such approval of
the Plan by such stockholders.
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<PAGE> 1
Exhibit 10.4
STANDARD FORM OF OFFICE LEASE
The Real Estate Board of New York, Inc.
AGREEMENT OF LEASE, made as of the 28th day of August, 1996, between 111/115
BROADWAY LIMITED PARTNERSHIP, a New York limited partnership, having an office
c/o Newmark & Company Real Estate, Inc., 125 Park Avenue, New York, New York
10017 ("Owner") and TRANSACTION INFORMATION SYSTEMS, INC., a New York
corporation ("Tenant"), having its principal office and place of business at c/o
Stetford-Shaw-Najarian Associates, Ltd., 111 Broadway, New York, New York 10006.
W I T N E S S E T H :
Owner hereby leases to Tenant and Tenant hereby hires from Owner the entire
rentable portion of the 20th floor and a portion of the 21st floor substantially
as depicted on Exhibit A annexed hereto and made a part hereof (the "demised
premises") in the building (the "Building") at 115 Broadway, New York, New York
for a term of ten (10) years and six (6) months commencing on the Commencement
Date (as hereinafter defined) and ending on the day (the "Expiration Date")
prior to the day which is ten (10) years and six (6) months after the
Commencement Date (or until such term shall sooner cease and expire as
hereinafter provided), both dates inclusive, at an annual rental rate
(hereinafter sometimes referred to "Base Rent") of: (i) $518,060.04 per annum
from the Commencement Date through and including the day prior to the fifth
anniversary of the Commencement Date; and (ii) $536,273.05 per annum from the
fifth anniversary of the Commencement Date through and including the Expiration
Date, which Tenant agrees to pay in lawful money of the United States which
shall be legal tender in payment of all debts and dues, public and private, at
the time of payment in equal monthly installments in advance on the first day of
each month during said term at the office of Owner or such other place as Owner
may designate, without any set off or deduction whatsoever except that: (a)
Tenant shall pay, in addition to the security required hereunder, $43,171.67 on
the execution hereof which shall be applied against the first installment of
Base Rent due hereunder; and (b) provided that Tenant is not in default
hereunder beyond the expiration of any applicable notice and cure period herein
set forth, Tenant shall not be obligated to pay $43,171.67 of the Base Rent
allocable to the first, second, third, fourth, fifth, sixth, twelfth,
thirteenth, fourteenth, fifteenth, twenty-fifth and twenty-sixth months of the
term hereof.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
RENT: 1. Tenant shall pay the rent as above and as
OCCUPANCY: hereinafter provided.
2. Tenant shall use and occupy the demised premises
solely for general and executive offices and for no
other purpose.
TENANT 3. Tenant shall make no changes in or to the demised
ALTERATIONS: premises of any nature without Owner's prior written
consent. (1) Subject to the prior written consent of
Owner (2) and to the provisions of this article, Tenant at Tenant's expense,
may make alternations, installments, additions or improvements which are
non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first approved by Owner. (3) Tenant shall, before
making any alterations, additions, installations or improvements, at its
expense, obtain all permits, approvals and certificates required by any
governmental or quasi-governmental bodies and (upon completions) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Owner and Tenant agrees to carry and will
cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as Owner
may (4) require. If any mechanic's lien is filed against the demised premises,
or the building of which the same forms a part, for work claimed to have been
done for, or materials furnished to, Tenant, whether or not done pursuant to
this article, the same shall be discharged by Tenant within thirty days
thereafter, at Tenant's expense, by filing the bond required by law. (5) All
fixtures and paneling, partitions, railings and like installations, installed in
the premises at any time, either by Tenant or by Owner in Tenant's behalf,
shall, upon installment, become the property of Owner and shall remain upon and
be surrendered with the demised premises
<PAGE> 2
(6) Nothing in this Article shall be construed to give Owner title to or to
prevent Tenant's removal of trade fixtures, moveable office furniture and
equipment, but upon removal of any such from the premises or upon removal of
other installations as may be required by Owner, Tenant shall immediately and at
its expense, repair and restore the premises to the conditions existing prior to
installation (7) and repair any damage to the demised premises or the building
due to such removal. All property permitted or required to be removed, by Tenant
at the end of the term remaining in the premises after Tenant's removal shall be
deemed abandoned and may, at the election of Owner, either be retained as
Owner's property or may be removed from the premises by Owner, at Tenant's
expense.
MAINTENANCE AND 4. Tenant shall, throughout the term of this lease,
REPAIRS: take good care of the demised premises and fixtures and
appurtenances therein. Tenant shall be responsible for
all damages or injury to the demised premises or any other part of the building
and the systems and equipment thereof, whether requiring structural or
nonstructural repairs caused by or resulting from carelessness, omission,
neglect or improper conduct of Tenant, Tenant's subtenants, agents, employees,
invitees or licensees, or which arise out of any work, labor, service or
equipment done for or supplied to Tenant or any subtenant or arising out of the
installation, use or operation of the property or equipment of Tenant or any
subtenant. Tenant shall also repair all damage to the building and the demised
premises caused by moving of Tenant's fixtures, furniture and equipment. Tenant
shall promptly make, at Tenant's expense, all repairs in and to the demised
premises for which Tenant is responsible, using only the contractor for the
trade or trades in question (8). Any other repairs in or to the building or the
facilities and systems thereof for which Tenant is responsible shall be
performed by Owner at the Tenant's expense. Owner shall maintain in good
working order and repair the exterior and the structural portions of the
building, including the structural portions of its demised premises, and the
public portions of the building interior and the building plumbing, electrical,
heating and ventilating systems (to the extent such systems presently exist)
serving the demised premises. Tenant agrees to give prompt notice of any
defective condition in the premises for which Owner may be responsible
hereunder. There shall be no allowance to Tenant for diminution of rental value
and no liability on the part of Owner by reason of inconvenience, annoyance or
injury to business arising from Owner or others making repairs, alterations,
additions or improvements in or to any portion of the building or the demised
premises or in and to the fixtures, appurtenances or equipment thereof. (9) It
is specifically agreed that Tenant shall not be entitled to any setoff or
reduction of rent by reason of any failure of Owner to comply with the other
article of this Lease. Tenant agrees that Tenant's sole remedy at law in such
insurance will be by way of an action for damages for breach of contract. The
provisions of this Article 4 shall not apply in the case of fire or other
casualty which are dealt with in Article 9 hereof.
WINDOW 5. Tenant will not clean nor require, permit, suffer or
CLEANING: allow any window in the demised premises to be cleaned
from the outside in violation of Section 202 of the
Labor Law or any other applicable law or of the Rules of the Board of Standards
and Appeals, or of any other Board or body having or asserting jurisdiction.
REQUIREMENTS OF 6. (10) Prior to the commencement of the lease term, if
LAW, FIRE Tenant is then in possession, and at all times
INSURANCE thereafter, Tenant, as Tenant's sole cost and expense,
FLOOR LOADS: shall promptly comply with all present and future laws,
orders and regulations of all state, federal, municipal
and local governments, departments, commissions and boards and any direction of
any public officer pursuant to law, and all orders, rules and regulations of
the New York Board of Fire Underwriters, Insurance Services Office, or any
similar body which shall impose any violation, order or duty upon Owner or
Tenant with respect to the demised premises, whether or not arising out of
Tenant's use or manner of use thereof, (including Tenant's permitted use) or,
with respect to the building if arising out of Tenant's
<PAGE> 3
use or manner of use of the premises or the building (including the use
permitted under the lease). Nothing herein shall require Tenant to make
structural repairs or alterations unless Tenant has, by its manner of use of the
demised premises or method of operation therein, violated any such laws,
ordinances, orders, rules, regulations or requirements with respect thereto.
Tenant may, after securing Owner to Owner's (11) satisfaction against all
damages, interest, penalties and expenses, including, but not limited to,
reasonable attorney's fees, by cash deposit or by surety bond in an amount and
in a company (12) satisfactory to Owner, contest and appeal any such laws,
ordinances, orders, rules, regulations or requirements provided same is done
with all reasonable promptness and provided such appeal shall not subject Owner
to prosecution for a criminal offense or constitute a default under any lease or
mortgage under which Owner may be obligated, or cause the demised premises or
any part thereof to be condemned or vacated. Tenant shall not do or permit any
act or thing to be done in or to the demised premises which is contrary to law,
or which will invalidate or be in conflict with public liability, fire or other
policies of insurance at any time carried by or for the benefit of Owner with
respect to the demised premises or the building of which the demised premises
form a part, or which shall or might subject Owner to any liability or
responsibility to any person or for property damage. Tenant shall not keep
anything in the demised premises except as now or hereafter permitted by the
Fire Department. Board of Fire Underwriters, Fire Insurance Rating Organization
or other authority having jurisdiction, and then only in such manner and such
quantity so as not to increase the rate for fire insurance applicable to the
building, nor use the premises in a manner which will increase the insurance
rate for the building or any property located therein over that. (13) Tenant
shall pay all costs, expenses, fines, penalties, or damages, which may be
imposed upon Owner by reason of Tenant's failure to comply with the provisions
of this article and if by reason of such failure the fire insurance rate shall,
at the beginning of this lease, or at any time thereafter, be higher than it
otherwise would be, then Tenant shall reimburse Owner, as additional rent
hereunder, for that portion of all fire insurance premiums thereafter paid by
Owner which shall have been charged because of such failure by Tenant. In any
action or proceeding wherein Owner and Tenant are parties, a schedule or
"mark-up" of rate for the building or demised premises issued by the New York
Fire Insurance Exchange, or other body making fire insurance rates applicable to
said premises shall be conclusive evidence of the facts therein stated and of
the several items and charges in the fire insurance rates then applicable to
said premises. Tenant shall not place a load upon any floor of the demised
premises exceeding the floor load per square foot area which it was designed to
carry and which is allowed by law. Owner reserves the right to prescribe the
weight and position of all safes, business machines and mechanical equipment.
Such installations shall be placed and maintained by Tenant, at Tenant's
expense, in settings sufficient, in Owner's (14) judgement, to absorb and
prevent vibration, noise and annoyance.
SUBORDINATION: 7. This lease is subject and subordinate to all ground
or underlying leases and to all mortgages which may now
or hereafter affect such leases or the real property of which demised premises
are a part and to all renewals, modifications, consolidations, replacements and
extensions of any such underlying leases and mortgages. This clause shall be
self-operative and no further instrument of subordination shall be required by
any ground or underlying lessor or by any mortgage, affecting any lease or the
real property of which the demised premises are a part. In confirmation of such
subordination, Tenant shall execute promptly any certificate that Owner may
request.
PROPERTY- 8. Owner or its agents shall not be liable for any
LOSS, DAMAGE, damage to property of Tenant or of others entrusted to
REIMBURSEMENT employees of the building, nor for loss of or damage
INDEMNITY: to any property of Tenant by theft or otherwise, nor
for any injury or damage to persons or property
resulting from any cause of whatsoever nature, unless caused by or due to the
negligence (15) of Owner, its agents, servants or employees. Owner or its
agents will not be liable for any such damage caused by other tenants or
persons in, upon or about said building or caused by operations in construction
of any private, public or quasi public work. If at any time any windows of the
demised premises are temporarily closed, darkened or bricked up (or permanently
closed, darkened or bricked up, if required by law) for any reason whatsoever
including, but not limited to Owner's own acts, Owner shall not be liable for
any damage Tenant may sustain thereby and Tenant shall not be entitled to any
compensation therefor nor abatement or diminution of rent nor shall the same
release Tenant from its obligations hereunder nor constitute an eviction.
Tenant shall indemnify and save harmless Owner against and from all
liabilities, obligations, damages, penalties, claims, costs and expenses for
which Owner shall
<PAGE> 4
not be reimbursed by insurance, including reasonable attorneys fees, paid,
suffered or incurred as a result of any breach by Tenant, Tenant's agents,
contractors, employees, invitees, or licensees, of any covenant or condition of
this lease (16) of the carelessness, negligence or improper conduct of the
Tenant, Tenant's agents, contractors, employees, invitees or licensees. Tenant's
liability under this lease extends to the acts and omissions of any sub-tenant,
and any agent, contractor, employee, invitee or licensee of any sub-tenant. In
case any action or proceeding is brought against Owner by reason of any such
claim, Tenant, upon written notice from Owner, will, at Tenant's expense, resist
or defend such action or proceeding by counsel approved by Owner in writing,
such approval not to be unreasonably withheld.
DESTRUCTION, 9. (a) If the demised premises or any part thereof
FIRE AND OTHER shall be damaged by fire or other casualty, Tenant shall
CASUALTY: give immediate notice thereof to Owner and this lease
shall continue in full force and effect except as
hereinafter set forth. (b) If the demised premises are partially damaged or
rendered partially unusable by fire or other casualty, the damages thereto
shall be repaired by and at the expense of Owner and the rent, until such
repair shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the premises which is usable.
(c) If the demised premises are totally damaged or rendered wholly unusable by
fire other casualty, then the rent shall be proportionately paid up to the time
of the casualty and thenceforth shall cease until the date when the premises
shall have been repaired and restored by Owner, subject to Owner's right to
elect not to restore the same as hereinafter provided. (d) If the demised
premises are rendered wholly unusable or (whether or not the demised premises
are damaged in whole or in part of the building shall be so damaged that Owner
shall decide to demolish it or to rebuild it (17) then, in any of such events.
Owner may elect to terminate this lease by written notice to Tenant, given
within 90 days after such fire or casualty, specifying a date for the
expiration of the lease, which date shall not be more than 60 days after the
giving of such notice, and upon the date specified in such notice the term of
this lease shall expire as fully and completely as if such date were the date
set forth above for the termination of this lease and Tenant shall forthwith
quit, surrender and vacate the premises without prejudice however, to (18)
rights and remedies against Tenant under the lease provisions in effect prior
to such termination, and any rent owing shall be paid up to such date and any
payments of rent made by Tenant which were on account of any period subsequent
to such date shall be returned to Tenant. Unless Owner shall serve a
termination notice as provided for herein, Owner shall make the repairs and
restorations under the conditions of (b) and (c) hereof, with all reasonable
expedition, subject to delays due to adjusting of insurance claims, labor
troubles and causes beyond Owner's control. After any such casualty, Tenant
shall cooperate with Owner's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
movable equipment, furniture, and other property. (19) Tenant's liability for
rent shall resume five (5) days after (20). (c) Nothing contained hereinabove
shall relieve Tenant from liability that may exist as a result of damage from
fire or other casualty. Notwithstanding the foregoing, each party shall look
first to any insurance in its favor before making any claim against the other
party for recovery for loss or damage resulting from fire or casualty, and to
the extent that such insurance is in force and collectible and to the extent
permitted by law. Owner and Tenant each hereby releases and waives all right of
recovery against the other or any one claiming through or under each of them by
way of subrogation or otherwise. The foregoing release and waiver shall be in
force only if both releasors' insurance policies contain a clause providing
that such a release or waiver shall not invalidate the insurance. If, and to
the extent, that such waiver can be obtained only by the payment of additional
premiums, then the party benefitting from the waiver shall pay such premium
within ten days after written demand or shall be deemed to have agreed that the
party obtaining insurance coverage shall be free of any further obligation
under the provisions hereof with respect to waiver of subrogation. Tenant
acknowledges that Owner will not carry insurance on Tenant's furniture and/or
furnishings or any fixtures or equipment, improvements, or appurtenances (21)
Tenant and agrees that Owner will not be obligated to repair any damage thereto
or replace the same. (f) Tenant hereby waives the provisions of Section 227 of
the Real Property Law and agrees that the provisions of this article shall
govern and control in lieu thereof.
EMINENT 10. If the whole or any part of the demised premises
DOMAIN: shall be acquired or condemned by Eminent Domain for
any public or quasi public use or purpose, then and in
that event, the term of this lease shall cease and terminate from the date of
title vesting in such proceeding and Tenant shall have no claim for the value
of any
<PAGE> 5
unexpired term of said lease and assigns to Owner, Tenant's entire interest in
any such award. (22)
ASSIGNMENT, 11. Tenant, for itself, its heirs, distributees,
MORTGAGE, ETC.: executors, administrators, legal representatives,
successors and assigns, expressly covenants that it
shall not assign, mortgage or encumber this agreement, not underlet , or suffer
or permit the demised premises or any part thereof to be used by others,
without the prior written consent of Owner in each instance. Transfer of the
majority of the stock of a corporate Tenant shall be deemed an assignment. If
this lease be assigned, or if the demised premises or any part thereof be
underlet or occupied by anybody other than Tenant, Owner may, after default by
Tenant, collect rent from the assignee under-tenant or occupant, and apply the
net amount collected to the rent herein reserved, but no such assignment,
underletting, occupancy or collection shall be deemed a waiver of this
covenant, or the acceptance of the assignee, under-tenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Owner to any further
assignment or underletting
ELECTRIC 12. Tenant covenants and agrees that at all times its
CURRENT: use of electric current shall not exceed the capacity
(*) of existing feeders to the building or the risers or
wiring installation and Tenant may not use any electrical equipment which, in
Owner's opinion, reasonably exercised, will overload such installation or
interfere with the use thereof by other tenants of the building. The change at
any time of the character of electric service shall in no wise make Owner liable
or responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
ACCESS TO 13. Owner or Owner's agents shall have the right (but
PREMISES: shall not be obligated) to enter the demised premises
in any emergency at any time, and, at other reasonable
times (23) to examine the same and to make such repairs, replacements and
improvements as Owner may (24) deem necessary and resonably desirable to the
demised premises or to any other portion of the building or which Owner may
elect to perform. Tenant shall permit Owner to use and maintain and replace
pipes and conduits in and through the demised premises and to erect new pipes
and conduits therein provided they are concealed within the walls, floor, or
ceiling.(25) Owner may, during the progress of any work in the demised
premises, take all necessary materials and equipment into said premises without
the same constituting an eviction nor shall the Tenant be entitled to any
abatement of rent while such work is in progress nor to any damages by reason
of loss or interruptions of business or otherwise. Throughout the term hereof
Owner shall have the right to enter the demised premises at reasonable hours
for the purpose of showing the
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(*) Rider to be added if necessary.
<PAGE> 6
same to prospective purchasers or mortgagees of the building, and during the
last six months of the term for the purpose of showing the same to prospective
tenants. If Tenant is not present to open and permit an entry into the premises,
Owner or Owner's agents may (26) enter the same whenever such entry may be
necessary or permissible by master key or forcibly and provided reasonable care
is exercised to safeguard Tenant's property, such entry shall not render Owner
or its agents liable therefor, nor in any event shall the obligations of Tenant
hereunder be affected. If during the last month of the term Tenant shall have
removed all or substantially all of Tenant's property therefrom Owner may
immediately enter, alter, remove or redecorate the demised premises without
limitation or abatement of rent, or incurring liability to Tenant for any
compensation and such act shall have no effect on this lease or Tenant's
obligations hereunder.
VAULT, 14. No Vaults, vault space or area, whether or not
VAULT SPACE, enclosed or covered, not within the property line of
AREA the building is leased hereunder, anything contained in
or indicated on any sketch, blue print or plan, or
anything contained elsewhere in this lease to the contrary notwithstanding.
Owner makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the property
line of the building, which Tenant may be permitted to use and/or occupy, is to
be used and/or occupied under a revocable license, and if any such license be
revoked, or if the amount of such space or area be diminished or required by
any federal, state or municipal authority or pubic utility, Owner shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation, diminution or
requisition be deemed constructive or actual eviction.
OCCUPANCY: 15. Tenant will not at any time use or occupy the
demised premises in violation of the certificate of
occupancy issued for the building of which the demised premises are a part.
Tenant has inspected the premises and accepts them as is, subject to the riders
annexed hereto with respect to Owner's work, if any. In any event, Owner makes
no representation as to the condition of the premises and Tenant agrees to
accept the same subject to violations, whether or not of record. (27)
BANKRUPTCY: 16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Owner
by the sending of a written notice to Tenant within a reasonable time after the
happening of any one or more of the following events: (1) the commencement of a
case in bankruptcy or under the laws of any state naming Tenant as the debtor,
(28) or (2) the making by Tenant of an assignment or any other arrangement for
the benefit of creditors under any state statute. Neither Tenant nor any person
claiming through or under Tenant, or by reason of any statute or order of
court, shall thereafter be entitled to possession of the premises demised but
shall forthwith quit and surrender the premises. If this lease shall be
assigned in accordance with its terms, the provisions of this Article 16 shall
be applicable only to the party then owning Tenant's interest in this lease.
(b) it is stipulated and agreed that in the event
of the termination of this lease pursuant to (a) hereof, Owner shall forthwith,
notwithstanding any other provisions of this lease to the contrary, be entitled
to recover from Tenant as and for liquidated damages an amount equal to the
difference between the rent reserved hereunder for the unexpired portion of the
term demised and the fair and reasonable rental value of the demised premises
for the same period. In the computation of such damages the difference between
any installment of rent becoming due hereunder after the date of termination
and the fair and reasonable rental value of the demised premises for the period
for which such installment was payable shall be discounted to the date of
termination at the rate of (29) per annum. If such premises or any part thereof
be re-let by the Owner for the unexpired term of said lease, or any part
thereof, before presentation of proof of such liquidated damages to any court,
commission or tribunal, the amount of rent reserved upon such reletting shall
be deemed to be the fair and reasonable rental value for the part or the whole
of the premises so re-let during the term of the re-letting. Nothing herein
contained shall limit or prejudice the right of the Owner to prove for and
obtain as liquidated damages by reason of such termination, an amount equal to
the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
<PAGE> 7
DEFAULT: 17. (1) If Tenant defaults in fulfilling any of the
covenants of this lease (30) the covenants for the
payment of rent or additional rent; or if the demised premises become vacant or
deserted; or if any execution or attachment shall be issued against Tenant or
any of Tenant's property whereupon the demised premises shall be taken or
occupied by someone other than Tenant; or if this lease be rejected under (31)
of Title 11 of the U.S. Code (bankruptcy code); or if Tenant shall fail to move
into or take possession of the premises within fifteen (15) days after the
commencement of the term of this lease, then, in any one or more of such
events, upon Owner serving a written notice upon Tenant specifying the nature
of said default or omission complained of shall be of a nature of said default
and upon the expiration of said (32), if Tenant shall have failed to comply
with or remedy such default, or if the said default or omission complained of
shall be of a nature that the same cannot be completely cured or remedied
within said (33), and if Tenant shall not have diligently commenced curing such
default within such (34) period, and shall not thereafter with reasonable
diligence and in good faith, proceed to remedy or cure such default, then Owner
may serve a written three (3) days' notice of cancellation of this lease upon
Tenant, and upon the expiration of said three (3) days this lease and the term
thereunder shall end and expire as fully and completely as if the expiration of
such three (3) day period were the day herein definitely fixed for the end and
expiration of this lease and the term thereof and Tenant shall then quit and
surrender the demised premises to Owner but Tenant shall remain liable as
hereinafter provided.
(2) If the notice provided for in (1) hereof shall
have been given, and the term shall expire as aforesaid; then and in any of
such events Owner may without notice, re-enter the demised premises either by
force or otherwise, and dispossess. Tenant by summary proceedings or otherwise,
and the legal representative of Tenant or other occupant of demised premises
and remove their effects and hold the premises as if this lease had not been
made, the Tenant hereby waives the service of notice of intention to re-enter
or to institute legal proceedings to that end. If Tenant shall make default
hereunder prior to the date fixed as the commencement of any renewal or
extension of this lease, Owner may cancel and terminate such renewal or
extension agreement by written notice.
REMEDIES OF 18. In case of any such default, re-entry, expiration
OWNER AND WAIVER and/or dispossess by summary proceedings or otherwise,
OF REDEMPTION: (a) the rent shall become due thereupon and be paid up
to the time of such re-entry, dispossess and/or
expiration, (b) Owner may re-let the premises or any part or parts thereof,
either in the name of Owner may re-let the premises or any part or parts
thereof, either in the name of Owner or otherwise, for a term or terms, which
may at Owner's option be less than or exceed the period which would otherwise
have constituted the balance of the term of this lease and may grant
concessions or free rent or charge a higher rental than that in this lease,
and/or (c) Tenant or the legal representatives of Tenant shall also pay Owner
as liquidated damages for the failure of Tenant to observe and perform said
Tenant's covenants herein, contained, any deficiency between the rent hereby
reserved and/or covenanted to be paid and the net amount, if any, of th rents
collected on account of the lease or leases of the demised premises for each
month of the period which would otherwise have constituted the balance of the
term of this lease. The failure of Owner to re-let the premises or any part or
parts thereof shall not release or affect Tenant's liability for damages. In
computing such liquidated damages there shall be added to said deficiency such
expenses as Owner may incur in connection with re-letting, such as legal
expenses, attorneys' fees, brokerage, advertising and for keeping the demised
premises in good order or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant on the rent
day specified in this lease and ay suit brought to collect the amount of the
deficiency for any month shall not prejudice in any way the rights of Owner to
collect the deficiency for any subsequent month by a similar proceeding. Owner,
in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements
and/or decorations in the demised premises as Owner, in Owner's (35) judgement,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid Owner shall in no event be liable in any way whatsoever
for failure to re-let the demised premises, or in the event that the demised
premises are re-let for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant shall be entitled to receive
<PAGE> 8
any excess, if any, of such net rents collected over the sums payable by Tenant
to Owner hereunder. In the event of a breach or threatened breach by Tenant of
any of the covenants or provisions hereof, Owner shall have the right of
injunction and the right to invoke any remedy allowed at law or in equity as if
re-entry, summary proceedings and other remedies were not herein provided for.
Mentioned in this lease of any particular remedy, shall not preclude Owner from
any other remedy, in law or in equity. Tenant hereby expressly waives any and
all rights of redemption granted by or under any present or future laws in the
event of Tenant being evicted or dispossessed for any cause, or in the event of
Owner obtaining possession of demised premises, by reason of the violation by
Tenant of any of the covenants and conditions of this lease, or otherwise.
FEES AND 19. If Tenant, shall default (36) in the observance or
EXPENSES: performance of any term or covenant on Tenant's part to
be observed or performed under or by virtue of any of
the terms or provisions in any article of this lease, then, unless otherwise
provided, elsewhere in this lease, Owner may immediately or at any time
thereafter and without notice perform the obligation of Tenant thereunder. If
Owner, in connection with the foregoing or in connection with any default by
Tenant in the covenant to pay rent hereunder, makes any expenditures or incurs
any obligations for the payment of money, including but not limited to
attorney's fees, in instituting, prosecuting or defending any action or
proceeding, then Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses incurred
by reason of Tenant's default shall be deemed to be additional rent hereunder
and shall be paid by Tenant to Owner within (37) days of rendition of
any bill or statement to Tenant therefor. If Tenant's lease term shall have
expired at the time of making of such expenditures or incurring of such
obligations, such sums shall be recoverable by Owner as damages.
BUILDING 20. Owner shall have the right at any time without the
ALTERATIONS same constituting an eviction and without incurring
AND MANAGEMENT liability to Tenant therefor to change the arrangement
and/or location of public entrances, passageways,
doors, doorways, corridors, elevators, stairs, toilets or other public parts of
the buildings (38) and to change the name, number or designation by which the
building may be known. There shall be no allowance to Tenant for diminution of
rental value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner or other Tenant making any
repairs in the building or any such alterations, additions, and improvements.
(38A) Furthermore, Tenant shall not have any claim against Owner by reason of
Owner's imposition of such controls or the manner of access to the building by
Tenant's social or business visitors as the Owner may deem necessary for the
security of the building and its occupants.
NO REPRESENTATIONS: 21. Neither Owner nor Owner's agents have made any
BY OWNER representations or promises with respect to the physical
condition of the building, the land upon which
<PAGE> 9
it is erected or the demises premises, the rents, leases, expenses or operation
or any other matter or thing affecting or related to the premises except as
herein expressly set forth and no rights, easements or licenses are acquired by
Tenant by implication or otherwise except as expressly set forth in the
provisions of this lease. Tenant has inspected the building and the demised
premises and is thoroughly acquainted with their condition and agrees to take
the same "as is" and acknowledges that the taking of possession of the demises
premises by Tenant shall be conclusive evidence that the same premises and the
building of which the same form a part were in good and satisfactory condition
at the time such possession was so taken, except as to latent defects. All
understandings and agreements heretofore made between the parties hereto are
merged in this contract, which alone fully and completely expresses the
agreement between Owner and Tenant and any executory agreement hereafter made
shall be ineffective to change, modify, discharge or effect an abandonment of it
in whole or in part, unless such executory agreement is in writing and signed by
the party against whom enforcement of the change, modification, discharge or
abandonment is sought.
END OF 22. Upon the expiration or other termination of the
TERM: term of this lease, Tenant shall quit and surrender to
Owner the demised premises, broom clean, in good order
and condition, ordinary wear and damages which Tenant is not required to repair
as provided elsewhere in this lease excepted, and Tenant shall remove all its
property. Tenant's obligation to observe or perform this covenant shall survive
the expiration or other termination of this lease. If the last day of the term
of this Lease or any renewal thereof, falls on Sunday, this lease shall expire
at noon on the preceding Saturday unless it be a legal holiday in which case it
shall expire at noon on the preceding business day.
QUIET 23. Owner covenants and agrees with Tenant that upon
ENJOYMENT: Tenant paying the rent and additional rent and
observing and performing all the terms, covenants and
conditions, on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the premises hereby demised, subject, nevertheless, to the
terms and conditions of this lease including, but not limited to, Article 31
hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
FAILURE 24. If Owner is unable to give possession of the
TO GIVE demised premises on the date of the commencement of the
POSSESSION: term hereof, because of (39) the holding over or
retention of possession of any tenant, undertenant or
occupants or, Owner shall not be subject to any liability for failure to give
possession on said date and the validity of the lease shall not be impaired
under such circumstances, nor shall the same be construed in any wise to extend
the term fo this lease, but the rent payable hereunder shall be abated
(provided Tenant is not responsible for Owner's inability to obtain possession)
until after Owner shall have given Tenant written notice that the premises are
substantially ready for Tenant's occupancy. If permission is given to Tenant to
enter into the possession of the demised premises or to occupy premises other
than the demised premises prior to the date specified as the commencement of
the term of this lease, except as to the covenant to pay rent. The provisions
of this article are intended to constitute "an express provision to the
contrary" within the meaning of Section 223-a of the New York Real Property
Law.
NO WAIVER: 25. The failure of Owner to seek redress for violation
of, or to insist upon the strict performance of any
covenant or condition of this lease or of any of the Rules or Regulations, set
froth or hereafter adopted by Owner, shall not prevent a subsequent act which
would have originally constituted a violation from having all the force and
effect of an original violation. The receipt by Owner of rent with knowledge of
the breach of any covenant of this lease shall be deemed to have been waived by
Owner unless such waiver be in writing signed by Owner. No payment by Tenant or
receipt by Owner of a lesser amount than the monthly rent herein stipulated
shall be deemed to be other than on account of the earliest stipulated rent,
nor shall any endorsement or statement of any check or any letter accompanying
any check or payment as rent be deemed an accord and satisfaction, and Owner
may accept such check or payment without prejudice to Owner's right to recover
the balance of such rent or pursue any other remedy in this lease provided. No
act or thing done by Owner or Owner's agents during the term hereby demised
shall be deemed an acceptance of a surrender of said premises, and no agreement
to accept such
<PAGE> 10
surrender shall be valid unless in writing signed by Owner. No employee of Owner
or Owner's agent shall have any power to accept the keys of said premises prior
to the termination of the lease and the delivery of keys to any such agent or
employee shall not operate as a termination of the lease or a surrender of the
premises. (40)
WAIVER OF 26. It is mutually agreed by and between the Owner and
TRIAL BY JURY: Tenant that the respective parties hereto shall and
they hereby do waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other (except for personal injury or property damage) on any matters whatsoever
arising out of or in any way connected with this lease, the relationship of
Owner and Tenant, Tenant's use of or occupancy of said premises, and any
emergency statutory or any other statutory remedy. It is further mutually
agreed that in the event Owner commences any summary proceeding for possession
of the premises, Tenant will not interpose any counterclaim of whatever nature
or description in any such proceeding including a counterclaim under Article 4.
(41)
INABILITY TO 27. This Lease and the obligation of Tenant to pay rent
PERFORM: and hereunder perform all of the other covenants and
agreements hereunder on the part of Tenant to be
performed shall in no wise be affected, impaired or excused because Owner
insurable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment or
fixtures if Owner is prevented or delayed from so doing by reason of strike or
labor troubles or any cause (42) including, but not limited to, government
preemption in connection with a National Emergency or by reason of any rule,
order or regulation of any department or subdivision thereof of any government
agency or by reason of the conditions of supply and demand which have been or
are affected by war or other emergency.
BILLS AND 28. Except as otherwise in this lease provided, a bill,
NOTICES: statement, notice or communication which Owner may
desire or be required to give to Tenant, shall be
deemed sufficiently given or rendered if, in writing, delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first
hereinabove given or at such other address as Owner shall designate by written
notice.
SERVICES 29. Owner shall provide: (a) necessary elevator
PROVIDED BY facilities on business days from 8 a.m. to 6 p.m.
OWNERS: and have one elevator subject to call at all other
times; (b) heat to the demised premises when and as
required by law, on business days from 8 a.m. to 6 p.m; (c) water for ordinary
lavatory purposes, but if Tenant uses or consumes water for any other purposes
or in unusual quantities (of which fact Owner shall be the sole judge), Owner
may install a water meter at Tenant's expense which Tenant shall thereafter
maintain at Tenant's expense in good working order and repair to register such
water consumption and Tenant shall pay for water consumed as shown on said
meter as additional rent as and when bills are rendered; (d) cleaning service
for the demised premises on business days at Owner's expense 43 provided that
the same are kept in order by Tenant. If, however, said premises are to be kept
clean by Tenant, it shall be done at Tenant's sole expense, in a manner
satisfactory to Owner and no one other than persons approved by Owner shall be
permitted to enter said premises or the building of which they are a part for
such purpose. Tenant shall pay Owner the cost of removal of any of Tenant's
refuse and rubbish from the building;
<PAGE> 11
(44) (**) (f) Owner reserves the right to stop services of the heating,
elevators, plumbing, air-conditioning, power systems or cleaning or other
services, if any, when necessary by reason of accident or for repairs,
alterations, replacements or improvements necessary or desirable in the (45)
judgment of Owner for as long as may be reasonably required by reason thereof.
(46) If the building of which the demised premises are a part supplies
manually-operated elevator service, Owner at any time may substitute
automatic-control elevator service and upon ten days' written notice to Tenant,
proceed with alterations necessary therefor without in any wise affecting this
lease or the obligation of Tenant hereunder. The same shall be done with a
minimum of inconvenience to Tenant and Owner shall pursue the alteration with
due diligence.
CAPTIONS: 30. The Captions are inserted only as a matter of
convenience and for reference and in no way define,
limit or describe the scope of this lease nor the intent of any provisions
thereof.
DEFINITIONS: 31. The term "office", or "offices", wherever used in
this lease, shall not be construed to mean premises
used as a store or stores, for the sale or display, at any time, of goods,
wares or merchandise, of any kind, or as a restaurant, shop, booth, bootblack
or other stand, barber shop, or for other similar purposes or for
manufacturing. The term "Owner" means a landlord or lessor, and as used in this
lease means only the owner, or the mortgagee in possession, for the time being
of the land and building (or the owner of a lease of the building or of the
land and building) of which the demised premises form a part, so that in the
event of any sale or sales of said land and building or of said lease, or in
the event of a lease of said building, or of the land and building, the said
Owner shall be and hereby is entirely freed and relieved of all covenants and
obligations of Owner hereunder, and it shall be deemed and construed without
further agreement between the parties or their successors in interest, or
between the parties and the purchaser, at any such sale, or the said lessee of
the building, or of the land and building that the purchaser or the lessee of
the building has assumed and agreed to carry out any and all covenants and
obligations of Owner, hereunder. The words "re-enter" and "re-entry" as used in
this lease are not restricted to their technical legal meaning. The term
"business days" as used in this lease shall exclude Saturdays (except such
portion thereof as is covered by specific hours in Article 29 hereof), Sundays
and all days observed by the State or Federal Government as legal holidays and
those designated as holidays by the applicable building service union employees
service contract or by the applicable Operating Engineers contract with respect
to HVAC service.
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(**) Rider to be added if necessary.
<PAGE> 12
ADJACENT 32. If an excavation shall be made upon land adjacent
EXCAVATION- to the demised premises, or shall be authorized to be
SHORING made, Tenant shall afford to the : person causing or
authorized to cause such excavation, license to enter
upon the demised premises for the purpose of doing such work as said person
shall deem necessary to preserve the wall or the building of which demised
premise form a part from injury or damage and to support the same by proper
foundations without any claim for damages or indemnity against Owner, or
diminution or abatement of rent.
RULES AND 33. Tenant and Tenant's servants, employees, agents,
REGULATIONS: visitors, and licensees shall observe faithfully, and
comply strictly with, the Rules and Regulations and
such other and further reasonable Rules and Regulations
as Owner or Owner's agents may from time to time adopt. Notice of any
additional rules or regulations shall be given in such manner as Owner may
elect. In case Tenant disputes the reasonableness of any additional Rule or
Regulation hereafter made or adopted by Owner or Owner's agents, the parties
hereto agree to submit the question of the reasonableness of such Rule or
Regulation for decision to the New York Office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless th same shall be
asserted by service of notice, in writing upon Owner with ten (47) days
after the giving of notice thereof. Nothing in this lease contained shall be
construed to impose upon Owner any duty or obligation to enforce the Rules and
Regulations or terms, covenants or conditions in any other lease, as against ay
other tenant and Owner shall not be liable to Tenant for violation of the same
by any other tenant, it servants, employees, agents, visitors or licensees.
(48)
SECURITY: 34. Tenant has deposited with Owner the sum of
$250,000.00 (***) as security for the faithful
performance and observance by Tenant of the terms, provisions and conditions of
this lease; it is agreed that in the event Tenant defaults in respect of any of
the terms, provisions and conditions of this lease, including, but not limited
to, the payment of rent and additional rent, Owner may use, apply or retain the
whole or any part of the security so deposited to the extent required for the
payment of any rent and additional rent or any other sum as to which Tenant is
in default or for any sum which Owner may expend or may be required to expend
by reason of Tenant's default in respect of any of the terms, covenants and
conditions of this lease, including but not limited to, any damages or
deficiency in the re-letting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other re-entry by
Owner. In the event that Tenant shall comply with all of the terms, provisions,
covenants and conditions of this lease, the security shall be returned to
Tenant after the end of the Lease and after delivery of entire possession of
the demised premise to Owner. In the event of sale of the land and building or
leasing of the building, of which the demised premise form a part, Owner shall
transfer the security to the lendee or lessee and Owner shall thereupon be
released by Tenant from all liability for the return of such security; and
Tenant agrees to look to the new Owner solely for the return of said security,
and it is agreed that the provisions hereof shall apply to every transfer or
assignment made of the security to a new Owner. Tenant further covenants that
it will not assign or encumber or attempt to assign or encumber the monies
deposited herein as security and that neither Owner nor it successors or
assigns shall be bound by any such assignment, encumbrance, attempted
assignment or attempted encumbrance.
ESTOPPEL 35. Tenant, at any time, and from time to time, upon at
CERTIFICATE: least 10 days' prior notice by Owner, shall execute,
acknowledge and deliver to Owner, and/or to any other,
person, firm or corporation specified by Owner, a statement certifying that
this Lease is unmodified and in full force and effect (or, if there have been
modifications, that the same is in full force and effect as modified and
stating the modifications), stating the dates to which the rent and additional
rent have been paid, and stating whether or not (49) there exists any default
by Owner under this Lease, and, if so, specifying each such default.
SUCCESSORS AND 36. The covenants, conditions and agreements contained
ASSIGNS: in this lease shall bind and inure to the benefit of
Owner and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns.
<PAGE> 13
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(***) Space to be filled in or deleted.
SEE RIDER ANNEXED HERETO AND MADE PART HEREOF.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed this
lease as of the date and year first above written.
111/115 BROADWAY LIMITED PARTNERSHIP
By: Eighth Development Corp., a general partner
By: /s/
--------------------------------------------
Name:
Title:
TRANSACTION INFORMATION SYSTEMS, INC.
By: /s/ Jeffrey Najarian
--------------------------------------------
Name: Jeffrey Najarian
Title: President
Witness for Tenant:
- ------------------------- -----------------------------------------
ACKNOWLEDGMENTS
CORPORATE TENANT
STATE OF NEW YORK ss.:
County of
On this day of , 19 , before
me personally came to me
known, who being by me duly sworn, did depose and
say that he resides
in
that he is the of
the corporation described in and which executed the
foregoing instrument, as TENANT; that he knows the
seal affixed ro said instrument is such corporate
seal; that it was so affixed by order of the Board
of Directors of said corporation, and that h signed
his name thereon by like order.
-----------------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK ss.:
County of
On this day of , 19 , before
me personally came to
me known and known to me to be the individual
described is and who, as TENANT, executed the
foregoing instruments and acknowledged to me that
h e executed the same.
-----------------------------------------
<PAGE> 14
INSERTS TO PRINTED FORM
1. (which shall not be unreasonably withheld or delayed in the
case of nonstructural alterations that do not affect Building
systems and are made wholly within the demised premises,
except that Tenant may, without Owner's consent, perform
decorative work within the demised premises such as painting,
installation of fixtures and wall and floor coverings
provided, however, that Tenant shall give Owner at least ten
(10) days notice of the performance of any such decorative
work and that no building department permit or notice is
required therefor). In no event and under no circumstances,
however, shall Tenant alter, modify or damage the stained
glass mural depicting the history of law as told by Hamurabi,
or the stained wood crown moldings in the demised premises,
both of which Owner believes are of historical significance
and value.
2. , which consent shall not be unreasonably withheld or delayed,
3. , which approval shall not be unreasonably withheld or
delayed.
4. reasonably
5. or as otherwise permitted by law.
6. except that Owner may elect to require Tenant to remove any
Specialty Alterations (as hereinafter defined) constructed by
or on behalf of Tenant (or anyone claiming under or through
Tenant), at Tenant's expense, by giving written notice to
Tenant at least thirty (30) days prior to the expiration of
the term of this lease. Owner shall indicate at the time at
which Owner shall give its consent to any Specialty Alteration
whether Owner may wish to require such Specialty Alteration to
be demolished and removed at the expiration or earlier
termination of the term of this lease provided that Tenant
submits a written request for such determination at the time
that Tenant delivers plans and specifications for such
Specialty Alterations to Owner for its consent. As used
herein, the term "Specialty Alteration" shall mean kitchens,
vaults, bathrooms and waste lines, internal staircases,
dumbwaiters, supplemental air conditioning systems, libraries,
computer centers, trading areas, structural steel and other
floor load reinforcing systems and any alteration that shall
penetrate the floor slab of the demised premises and/or any
alteration of a structural element of the Building.
7. , reasonable wear and tear and damage caused by casualty for
which Tenant is not otherwise responsible excepted,
8. selected by Tenant and approved by Owner, which approval shall
not be unreasonably withheld or delayed.
9. Notwithstanding anything to the contrary contained in this
lease, all work performed or caused to be performed by Owner
resulting in any material interruption of the service to be
provided to Tenant by Owner pursuant to this lease, shall be
performed diligently and in a good and workerlike manner in an
effort to minimize interference with the conduct of Tenant's
business in the demised premises. In the event that such work
renders the demised premises completely unusable for a period
of ten (10) consecutive business days, the Base Rent
thereafter due hereunder shall abate until such time as Owner
has substantially completed the work or otherwise rendered the
demised premises again usable. Nothing contained herein or
otherwise shall, however, be deemed to require Owner to pay
for overtime charges or perform work at hours other than
normal business hours.
<PAGE> 15
10. Owner represents that to its knowledge, without independent
inquiry, it has not received notice of any violation of any
Legal Requirements (as hereinafter defined) with respect to
the demised premises which remains uncured or which will not
be cured during the performance of Owner's Work (as
hereinafter defined).
11. reasonable
12. reasonably
13. otherwise in effect, provided that Tenant shall not be
responsible for any increase in insurance rates due to
Tenant's use of the demised premises as general and executive
offices if Tenant otherwise complies with all of the
provisions of this lease and the Rules and Regulations annexed
hereto or hereafter created in accordance with the terms
hereof.
14. reasonable
15. or willful acts
16. to be performed or observed by Tenant,
17. and Owner shall elect to terminate leases covering at least
thirty-five (35%) percent of the rentable area of the
Building,
18. Owner's
19. Notwithstanding anything in this Article to the contrary, if
the demised premises or any part thereof shall be damaged by
fire or other casualty as set forth in this Article and if
Owner is required to or elects to repair and restore the
demised premises, and Owner has not substantially completed
the required repairs and restored the demised premises within
nine (9) months after the date of such fire or other casualty,
or within such period thereafter (not to exceed three (3)
months) as shall equal the aggregate period Owner may have
been delayed in doing so by adjustment of insurance, labor
trouble, governmental controls, acts of god, or any other
cause beyond Owner's reasonable control), then Tenant shall,
during the ten (10) day period (time being of the essence)
following the expiration of such nine (9) month period, or if
extended as aforesaid, such extended period, have the right to
elect to terminate this lease upon written notice to Owner and
such election shall be effective as of the date which is
thirty (30) days after the date of such notice, unless Owner
substantially completes the restoration within such thirty
(30) day period.
20. the date that Owner shall have substantially completed its
restoration of the demised premises. Owner shall give Tenant
at least ten (10) days prior notice of the expected date of
substantial completion of such restoration.
21. or betterments made by or for the benefit of
22. Nothing in this Article shall be construed to limit or assign
Tenant's right to seek to recover damages from the condemning
authority with respect to moving expenses, loss of trade
fixtures and other personal property of Tenant, provided,
however, that any such action or claim by Tenant does not
delay the recovery of or reduce the amount of Owner's award.
23. and upon reasonable prior notice (which may be oral)
24. reasonably
<PAGE> 16
25. Owner shall use reasonable efforts to minimize interference
with the conduct of Tenant's business caused by such
installations (but Owner shall not be required to utilize
overtime labor or pay overtime wages in connection therewith)
and shall restore the demised premises to a finished condition
upon completion of such work.
26. without notice in the event of an emergency and otherwise only
after reasonable notice (which may be oral)
27. Owner represents that, to its knowledge, without independent
inquiry, the Building complies with applicable zoning
requirements and that applicable zoning requirements permit
the use of the demised premises for office purposes. Owner
believes that the Building was constructed prior to the date
on which the City of New York began issuing and requiring
certificates of occupancy and that none has heretofore been
issued for the Building.
28. which is not stayed within one hundred twenty (120) days,
29. seven (7%) percent
30. including
31. Section 365
32. seven (7) days notice to Tenant in the case of a monetary
default or twenty (20) days notice to Tenant in the case of
any other default
33. twenty (20) day period (it being acknowledged by Tenant that
any monetary default can be completely cured within the
aforesaid seven (7) day period)
34. the aforesaid
35. sole but reasonable
36. beyond any applicable notice and cure period herein set forth
(except that the expiration of any applicable notice and cure
period shall not be required in the event of emergency)
37. ten (10)
38. (provided that Tenant's access to the demised premises is not
materially adversely affected and that the rentable area of
the demised premises is not materially reduced)
38A. provided, however, that if the performance of such
alterations, additions and improvements by Owner renders the
demised premises completely unusable for a period of ten (10)
consecutive business days, the Base Rent thereafter due
hereunder shall abate until such time as Owner has
substantially completed such alterations, additions and
improvements or otherwise rendered the demised premises again
usable.
39. fire, casualty or any other event beyond Owner's control other
than
40. The failure of Tenant to seek redress for violation of, or to
insist upon the strict performance of any covenant or
condition of this lease shall not prevent a subsequent act
which would have originally constituted a violation from
having all the force and effect of an original violation. The
payment by Tenant of rent with knowledge of the breach of any
covenant of this lease shall not be deemed
<PAGE> 17
a waiver of such breach and no provision of this lease shall
be deemed to have been waived by Tenant unless such waiver be
in writing signed by Tenant.
41. except for a mandatory counterclaim or a counterclaim which
Tenant would otherwise be estopped from asserting if not made
in such proceeding.
42. beyond Owner's reasonable control
43. in accordance with the specifications and conditions set forth
on Exhibit C annexed hereto and made a part hereof
44. that is in excess of normal office refuse or differs in kind
therefrom
45. reasonable
46. Notwithstanding anything to the contrary contained in this
lease, all work performed or caused to be performed by Owner
resulting in any interruption of services to be supplied by
Owner to Tenant under this lease, shall be performed
diligently and in a good and workerlike manner so as to
minimize interference with the conduct of Tenant's business in
the demised premises. Nothing contained herein or otherwise
shall, however, shall be deemed to require Owner to pay for
overtime charges or perform work at hours other than normal
business hours.
47. twenty (20)
48. Owner shall not unreasonably discriminate against Tenant in
its enforcement of any rules and regulations now or hereafter
adopted.
49. to Tenant's knowledge
<PAGE> 18
RIDER ANNEXED TO AND MADE A PART OF LEASE DATED AS OF AUGUST
28, 1996 BETWEEN 111/115 BROADWAY LIMITED PARTNERSHIP, AS
OWNER, AND TRANSACTION INFORMATION SYSTEMS, INC., AS TENANT,
COVERING THE RENTABLE PORTION OF THE 20TH FLOOR AND A PORTION
OF THE 21ST FLOOR AT 115 BROADWAY, NEW YORK
37. Adjustments of Rent:
(a) For the purposes of this Article, the following definitions
shall apply:
(i) The term "Taxes" shall mean: (x) all real estate taxes,
assessments, sewer rents and water charges, governmental levies, municipal
taxes, county taxes, business improvement district levies and assessments and
any other governmental or quasi-governmental charge, general or special,
ordinary or extraordinary, unforeseen as well as foreseen, of any kind or nature
whatsoever, which are or may be assessed, levied or imposed upon all or any part
of the Building, the land thereunder (the "Land") and/or the sidewalks, plazas
or streets in front of or adjacent thereto, including any tax, excise or fee
measured by or payable with respect to any rent, and levied against Owner and/or
the Land and/or Building, under the laws of the United States, the State of New
York, or any political subdivision thereof, or by The City of New York, or any
political subdivision thereof; and (y) any expenses incurred by Owner in
contesting any of the foregoing or the assessed valuations of all or any part of
the Land and the Building, or collecting any refund. If, due to a future change
in the method of taxation or in the taxing authority, a new or additional real
estate tax, or a franchise, income, transit, profit or other tax or governmental
imposition, however designated, shall be levied against Owner, and/or the Land
and/or the Building, in addition to, or in substitution in whole or in part for
any tax which would constitute "Taxes", or in lieu of additional Taxes, such tax
or imposition shall be deemed for the purposes hereof to be included within the
term "Taxes".
(ii) The term "Tax Year" shall mean each period of twelve
months commencing on the first day of July or such other period of twelve months
as hereafter may be duly adopted as the fiscal year for real estate tax purposes
of The City of New York.
(iii) The term "Tax Base" shall mean the product obtained by
multiplying: (x) the amount for which the Land and the Building are assessed for
the purpose of establishing real estate taxes to be paid by Owner for the Tax
Year commencing July 1, 1996 and ending on June 30, 1997; by (y) the real estate
tax rate for such Tax Year.
(iv) The term "Tenant's Proportionate Share" shall mean 6.1%
(v) The term "Wage Rate" shall mean the regular average hourly
wage rate required to be paid to Porters (as hereinafter defined) in Class A
Office Buildings (as hereinafter defined) pursuant to any agreement between the
Realty Advisory Board on Labor Relations, Incorporated or any successor thereto
(hereinafter referred to as "R.A.B.") and Local 32B/32J of the Building Service
Employees International Union AFL-CIO, or any successor thereto (hereinafter
referred to as "Local 32B"), provided that if any such agreement shall require
Porters to be regularly employed on days or during hours when overtime or other
premium pay rates are in effect, then the term "regular average hourly wage
rate" shall mean the regular average hourly wage rate for the hours in a
calendar week which Porters are required to be regularly employed (whether or
not actually at work in the Building), e.g., if, for example, as of November 1,
1980, an agreement between R.A.B. and Local 32B required the regular
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<PAGE> 19
employment of Porters for 40 hours during a calendar week at a regular average
hourly wage of $4.00 for the first 30 hours and at an overtime hourly average
wage of $5.00 for the remaining 10 hours, then the regular average hourly wage
rate as of November 1, 1980, would be the quotient arrived at by dividing the
total weekly average wages ($170.00) by the total number of required hours of
employment (forty (40)), or $4.25. The computation of the regular average hourly
wage rate shall be done on the same basis whether based on an hourly or other
pay scale but shall be predicated on the number of hours in a work week,
regardless of who is obligated to pay same. Such regular average hourly wage
rate shall be exclusive of the monetary value or cost of all fringe benefits. If
there is no agreement between R.A.B. and Local 32B in effect as of the date of
any Escalation Statement (as hereinafter defined), the computations shall be
made on the basis of the regular average hourly wage rate being paid by Owner or
by the contractor performing porter or cleaning services for Owner as of the
date of such Escalation Statement and appropriate retroactive adjustments shall
be made when (and if) the regular average hourly wage rate paid as of the date
of such Escalation Statement is finally determined. If length of service shall
be a factor in determining any element of wages, it shall be conclusively
presumed that all employees have two (2) years of service. The Wage Rate is
intended to be an index in the nature of a cost of living index, and is not
intended to reflect the actual costs of wages or expenses incurred by Owner in
connection with the Building.
(vi) The term "Porters" shall mean that classification of
employee engaged in the general maintenance and operation of Class A Office
Buildings most nearly comparable to the classification now applicable to porters
in the current agreement between R.A.B. and Local 32B (which classification is
presently termed "others" in said agreement).
(vii) The term "Class A Office Buildings" shall mean office
buildings in the same class or category as the Building under any building
operating agreement between R.A.B. and Local 32B, regardless of the designation
given to such office buildings in any such agreement.
(viii) The term "Wage Rate Multiple" shall mean 24,288.
(ix) The term "Base Wage Rate" shall mean the Wage Rate for
the calendar year 1997.
(x) The term "Escalation Statement" shall mean a statement
setting forth the amount payable by Tenant for a specified Tax Year or calendar
year (as the case may be) pursuant to this Article.
(b) If the Wage Rate for any calendar year shall be greater than the
Base Wage Rate, Tenant shall pay to Owner as additional rent for the demised
premises for such year an amount equal to the product obtained by multiplying
the Wage Rate Multiple by the difference between the Wage Rate for such year and
the Base Wage Rate.
(c) (i) Tenant shall pay as additional rent for each Tax Year, all or
any part of which occurs during the term hereof, a sum (hereinafter referred to
as "Tenant's Tax Payment") equal to Tenant's Proportionate Share of the amount
by which the Taxes for such Tax Year exceed the Tax Base. Any amount payable by
reason of the provisions of this Article 37(c)(i) shall be payable within thirty
(30) days after Owner shall furnish to Tenant an Escalation Statement with
respect to Taxes for any Tax Year.
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<PAGE> 20
(ii) If the real estate tax fiscal year of The City of New
York shall be changed during the term of this lease, any Taxes for such fiscal
year, a part of which is included within a particular Tax Year and a part of
which is not so included, shall be apportioned on the basis of the number of
days in such fiscal year included in the particular Tax Year for the purpose of
making the computations under this Article.
(iii) If Owner shall receive a refund of Taxes for any Tax
Year, Owner shall permit Tenant to credit against rental payments next due
hereunder Tenant's Proportionate Share of the refund but not to exceed the
amount of Tenant's Tax Payment actually received by Owner in respect of the Tax
Year to which such refund applies.
(iv) If the Tax Base is reduced for any reason whatsoever,
Owner shall adjust the amount of each Tenant's Tax Payment previously made, and
Tenant shall pay the amount of said adjustment within thirty (30) days after
Owner's request therefor.
(d) Tenant shall pay to Owner upon demand, as additional rent, any
occupancy tax or rent tax now in effect or hereafter enacted, if payable by
Owner in the first instance or hereafter required to be paid by Owner.
(e) Any amount payable by reason of the provisions of Article 37(b)
hereof shall commence as of the first day of the relevant calendar year and,
after Owner shall furnish Tenant with an Escalation Statement relating to such
year, all monthly installments of rent shall reflect one-twelfth of the annual
amount due thereunder until a new Escalation Statement is rendered to Tenant,
provided, however, that if said Escalation Statement is furnished to Tenant
after the commencement of such calendar year, there shall be promptly paid by
Tenant to Owner, an amount equal to the portion of such adjustment allocable to
the part of such year which shall have elapsed prior to the first day of the
calendar month next succeeding the calendar month in which said Escalation
Statement is furnished to Tenant. In the event that by reason of any Legal
Requirement, an increase in the Wage Rate for any year is reduced or does not
take effect, or increases in the Wage Rate for any year are limited or
prohibited, then during the period beginning on the effective date of any such
Legal Requirement and ending on the date that such Legal Requirement shall cease
to be in effect (hereinafter called the "Control Period"), the Wage Rate for
purposes of the adjustment payments to be made by Tenant in accordance with
Article 37(b) hereof, shall be deemed to increase for each year during the
Control Period that the Wage Rate is affected by such Legal Requirement at the
same annual rate that the same increased for the year immediately preceding the
first year affected by such Legal Requirement.
(f) In the event that the Expiration Date shall be a day other than the
last day of a Tax Year or a calendar year, in applying the provisions of this
Article appropriate adjustments shall be made to reflect the portion of such Tax
Year or calendar year which shall have elapsed prior to the Expiration Date.
(g) Payments shall be made pursuant to this Article notwithstanding the
fact that an Escalation Statement is furnished to Tenant after the expiration of
the term of this lease.
(h) In no event shall the Base Rent ever be reduced by operation of
this Article and the rights and obligations of Owner and Tenant under the
provisions of this Article with respect to any additional rent shall survive the
expiration or sooner termination of this lease. Owner's failure to render an
Escalation Statement with
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<PAGE> 21
respect to any period shall not prejudice Owner's right to thereafter render an
Escalation Statement with respect thereto or with respect to any subsequent
period.
(i) (i) Owner believes that the Building qualifies for a real
property tax abatement and other tax and/or expense reductions (collectively
hereinafter referred to as an "Abatement") applicable to pre-1975 buildings in
lower Manhattan pursuant to the Lower Manhattan Plan (1995 NY A.B. 8028),
effective October 29, 1995 (the "Commercial Revitalization Program"). Owner
acknowledges that Tenant may request that Owner join Tenant in executing a
Commercial Revitalization Program Application and required annual updates
(hereinafter collectively referred to as an "Application"). Owner agrees to
join Tenant in executing an Application subject to Tenant's agreement to, and
compliance with, the terms of this paragraph.
(ii) Tenant agrees that if Tenant requests Owner to join
Tenant in executing an Application, Tenant shall pay: (A) all costs and expenses
arising in connection with the Application, including, without limitation, any
application fee and/or filing fee; and (B) all reasonable fees and disbursements
for professional services utilized by Owner in connection therewith including,
without limitation, legal, accountant's and clerical fees. Tenant agrees that
compliance with all requirements ancillary to the Application and the Abatement
shall be the sole responsibility of Tenant and that Owner shall bear no
responsibility therefor. Owner's only obligation in connection with an
Application shall be to reasonably cooperate with Tenant in executing the same,
it being understood that Owner shall bear no responsibility for the accuracy or
completeness of any Application. Owner shall not be required to join Tenant in
executing an Application or any ancillary documentation if doing so would result
in any cost, loss, damage or liability to Owner or if such Application and/or
ancillary documents are not accurate and complete in every respect. Owner makes
no representation that the Building, the demised promises or this lease are
eligible for an Abatement nor that an Abatement will be obtained in connection
this lease (or, if obtained, that an Abatement will continue in effect).
(iii) Tenant acknowledges that Tenant's obligation to pay Base
Rent, additional rent and/or any other charges (collectively hereinafter
referred to as "Rent") due hereunder shall continue unaffected if an Application
made in connection with this lease is rejected (or if an Abatement, once
obtained, does not continue to be in effect). The Rent set forth herein does not
reflect any Abatement. If an Abatement is granted in connection with this lease,
Owner shall adjust the Rent payable hereunder to accurately reflect such
Abatement as of the date that such Abatement takes effect but only for as long
as it remains in effect. Tenant hereby agrees that Tenant shall be entitled
to the benefits of an Abatement only to the extent that Owner's real property
tax payments are actually reduced pursuant to such Abatement, and Tenant shall
not be entitled to any reduction in Rent by reason of any abatement or reduction
in real property taxes for any reason other than an Abatement.
(iv) Tenant hereby acknowledges that, in order to qualify for
an Abatement, Owner and/or Tenant must timely spend a specified minimum amount
per square toot (the "Expenditure Minimum") in preparing the demised promises
and/or the common areas of the Building for Tenant's occupancy but that Owner
shall have no obligation to: (i) make any expenditure in connection with Owner's
Work, or otherwise, which Owner is not otherwise obligated to make under other
provisions of this lease; or (ii) consent to any improvements to be made by
Tenant in or to the demised premises to which Owner is not otherwise required
hereunder to consent.
(v) The calculation of the square footage of the demised
premises for purposes of: (i) completing an Application; (ii) determining the
Expenditure Minimum; and/or (iii) calculating the amount of any Abatement
available with respect to this
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<PAGE> 22
lease shall be made utilizing the ratio of Tenant's Proportionate Share to the
New York City Department of Finance listing of the square footage of the
Building. Tenant hereby agrees that the foregoing method of calculating the
square footage of the demised premises may differ from and shall have no
application with respect to any other provision of this lease and shall not
otherwise be utilized by Tenant in calculating Rent, determining the size of the
demised premises, measuring the relationship of the size of the demised premises
to the Building or other space therein or otherwise assessing any of Tenant's
rights or obligations hereunder or otherwise. Tenant hereby acknowledges that
any Abatement granted in connection with this lease may be revoked if real
estate taxes or water or sewer charges or other lienable charges on the Building
are unpaid for one (1) year. In the event that an Abatement is revoked due to
the wrongful or negligent failure of Owner to pay real estate taxes or water or
sewer charges or other lienable charges on the Building, Owner agrees that
Tenant shall be entitled to a credit against Base Rent in the amount of the
Abatement which would otherwise have been available to Tenant but for Owner's
negligent or wrongful failure to make such payments.
38. Electricity:
(a) Owner shall supply electricity to the demised premises on a
submetered basis and Tenant will pay Owner or Owner's designated agent, as
additional rent for supplying electricity, the sum of: (i) an amount computed by
applying Tenant's actual consumption and demand for the billing period in
question (as measured by the submeters installed for that purpose) to the rates
then in effect pursuant to which Owner purchases electricity for the Building;
plus (ii) ten (10%) percent of such amount. If more than one (1) submeter
measures the service of Tenant in the Building, the service rendered through
each submeter may be computed and billed separately in accordance with the rates
herein. Bills therefor shall be rendered at such time as Owner may reasonably
elect and the amount as computed from a submeter, shall be deemed to be, and
paid as additional rent within thirty (30) days of rendition thereof. If any tax
is imposed on Owner's receipt from the sale or resale of electricity to Tenant
by any federal, state or municipal authority, Tenant covenants and agrees that
where permitted by law, Tenant's pro rate share of such tax shall be passed on
to, and included in the bill of, and paid by, Tenant to Owner. If any submeters
or other equipment must be installed to furnish electric service to the demised
premises on a submetered basis, as herein provided, the same shall be installed
by Owner at Owner's expense.
(b) Owner shall not be liable in any way to Tenant for any failure or
defect in the supply or character of electricity or other utilities furnished to
the demised premises by reason of any requirement, act or omission of the public
utility serving the Building with electricity or other utilities or for any
other reason, except to the extent that such failure or defect was caused by
the negligent acts of Owner in which case Owner shall promptly take such steps
as are necessary to restore such services to the demised premises. Owner shall
supply seven (7) watts of electricity per rentable square foot of the demised
premises on a demand load basis, in addition to the electricity which powers the
A/C Units (as hereinafter defined). Tenant's use of electricity in the demised
premises shall not at any time exceed the capacity of any of the electrical
conductors, machinery and equipment in or otherwise serving the demised
premises. In order to ensure that such capacity is not exceeded and to avert
possible adverse effect upon the electric service in the Building, Tenant agrees
not to connect any additional electric equipment, fixtures, machinery or
appliances of any type to the Building electric distribution system, nor any
additional electric equipment, fixtures, machinery or appliances of any type to
the electrical distribution system serving the demised premises other than a
computer server, desk top computers,
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<PAGE> 23
computer monitors, printers and other computer-related equipment, small office
copiers, lamps, typewriters and other small office machines which consume
comparable amounts of electricity, which would substantially increase Tenant's
electrical requirements subsequent to the original installation, without Owner's
prior written consent, which consent shall not be unreasonably withheld. Any
additional risers, feeders, or other equipment proper or necessary to supply
Tenant's electrical requirements, upon written request of Tenant, will be
installed by Owner, at the sole cost and expense of Tenant, if, in Owner's sole
judgment, the same are necessary and will not cause permanent damage or injury
to the Building or the demised premises, or cause or create a dangerous or
hazardous condition or entail excessive or unreasonable alterations, repair or
expense or interface with or disturb other tenants or occupants.
(c) Owner reserves the right to discontinue furnishing electricity to
Tenant at any time upon sixty (60) days' written notice to Tenant, provided that
Owner has elected to discontinue furnishing electricity to thirty (30%) percent
or more of the office tenants in the Building, and from and after the effective
date of such termination, Owner shall no longer be obligated to furnish Tenant
with electricity, provided, however, that such termination date may be extended
for such time as is reasonably necessary for Tenant to make arrangements to
obtain electricity directly from the public utility company servicing the
Building. If Owner exercises such right of termination, this lease shall remain
unaffected thereby and shall continue in full force and effect, and Tenant shall
diligently arrange to obtain electricity directly from the public utility
company servicing the Building, and may utilize the then existing electric
feeders, risers and wiring serving the demised premises to the extent available
and safely capable of being used for such purpose and only to the extent of
Tenant's then authorized connected load. To the extent that modifications to the
existing electric feeders, risers and wiring are necessary for Tenant to obtain
electricity directly from the public utility company servicing the Building,
Owner shall bear the cost of such modifications. Owner shall be obligated to pay
no part of any cost required for Tenant's direct electric service other than the
cost of the aforesaid modifications.
39. Heat And Air-Conditioning:
(a) Any use of the demised premises, or any part thereof, or
rearrangement of partitioning in a manner that interferes with normal operation
of the heat system and the A/C Units (hereinafter called the "systems") serving
the same, may require changes in such systems. Such changes, so occasioned,
shall be made by Tenant, at its expense, subject to Owner's prior written
approval of such changes, which shall not be unreasonably withheld. Tenant
shall not make any change, alteration or addition to or substitution of
components of the systems without Owner's prior written approval, which shall
not be unreasonably withheld.
(b) Owner shall maintain and operate the heating system serving the
demised premises at its sole cost and expense.
(c) The demised premises shall be equipped with a combination of
water-cooled and air-cooled air conditioning units (the "A/C Units"). Tenant
shall, at its sole cost and expense, enter into and maintain a contract with a
reputable air conditioning service company reasonably acceptable to Owner which
shall provide for such regular maintenance of the A/C Units as is necessary for
the same to remain in good working order. Provided that Tenant complies with its
obligation to provide for such regular maintenance of the A/C Units, Owner shall
pay the cost of performing any unusual or extraordinary repairs to the A/C Units
and, if necessary, replacing the same.
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<PAGE> 24
40. Subordination:
(a) In the event of any act or omission of Owner that would give Tenant
the right, immediately or after lapse of a period of time, to cancel or
terminate this lease, or to claim a partial or total eviction, Tenant shall not
exercise such right: (i) until it has given written notice of such act or
omission to Owner and the holder of each superior mortgage and the lessor of
each superior lease whose name and address shall previously have been furnished
to Tenant in writing; and (ii) until the day which is sixty (60) days after the
date on which such notice was given (provided, however, that if such act or
omission shall be one that is not capable of being remedied by Owner or such
holder or lessor within such sixty (60) day period, and provided further, that
Owner or such holder or lessor shall have given Tenant written notice of its
intention to remedy such act or omission and shall have commenced and continued
to do so with due diligence, such sixty (60) day period shall be extended for an
additional 120 days), provided, however, that such sixty (60) day period (or 180
day period if extended as aforesaid) shall not be less than the time available
for cure reserved to any holder or lessor under such superior mortgage or
superior lease, as the case may be.
(b) If the lessor of a superior lease or the holder of a superior
mortgage shall succeed to the rights of Owner under this lease, whether through
possession or foreclosure action or delivery of a new lease or deed, then, at
the request of the party so succeeding to Owner's rights (herein sometimes
called a "successor landlord") and upon such successor landlord's written
agreement to accept Tenant's attornment, Tenant shall attorn to and recognize
such successor landlord as Tenant's landlord under this lease, and shall
promptly execute and deliver any instrument that such successor landlord may
reasonably request to evidence such attornment. Upon such attornment, this lease
shall continue in full force and effect as, or as if it were, a direct lease
between the successor landlord and Tenant, upon all of the terms, conditions and
covenants as are set forth in this lease and shall be applicable after such
attornment, except that the successor landlord shall not: (i) be liable for any
act or omission of Owner; (ii) be subject to any offset that shall have
theretofore accrued to Tenant; or (iii) be bound by any modification of this
lease or any prepayment of more than one month's rent (which shall not be deemed
to include the security on deposit in accordance with Articles 34 and 55 hereof)
unless such modification or prepayment shall have been expressly approved in
writing by the lessor of the superior lease or the holder of the superior
mortgage through, or by reason of, which the successor landlord shall have
succeeded to the rights of Owner under this lease.
(c) Notwithstanding anything to the contrary contained herein or in
Article 7 hereof, Owner shall provide to Tenant concurrently with the execution
of this lease a subordination, nondisturbance and attornment agreement
substantially in the form of Exhibit D annexed hereto and made a part hereof
from the first mortgagee of the Building. Owner shall use reasonable efforts to
obtain a subordination, nondisturbance and attornment agreement benefitting
Tenant from any future mortgagee of the Building on such mortgages's standard
form but Owner shall not be liable to Tenant and Tenant shall not have any
rights to terminate this lease or affect the subordination of this lease should
Owner fail or be unable to obtain such nondisturbance agreement or should same
be unacceptable to Tenant.
41. Subletting and Assignment:
(a) If Tenant desires to assign this lease or sublet all or part of the
demised premises, Tenant shall promptly notify Owner thereof. Upon obtaining a
proposed assignee or subtenant upon terms satisfactory to Tenant, Tenant shall
submit to
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Owner in writing a request for Owner's consent, together with: (i) the name of
the proposed assignee or subtenant; (ii) the terms and conditions of the
proposed assignment or subletting; (iii) a copy of the proposed sublease or
assignment, (iv) a description of the nature and character of the business which
the proposed assignee or subtenant proposes to conduct in the demised premises;
(v) current financial statements and banking and other references of such
proposed assignee or subtenant; and (vi) such other Information concerning such
proposed assignment or subletting as Owner may reasonably request. Within thirty
(30) days following Owner's receipt of the items specified in this Paragraph (a)
Owner may notify Tenant that Owner elects to cancel this lease if Tenant has
requested consent to an assignment of this lease or a subletting of all or
substantially all of the demised premises (or of a part thereof which, when
aggregated with all portions thereof previously sublet, exceeds fifty percent
(50%) of the demised premises), or to cancel this lease as to the portions of
the demised premises which Tenant proposes to sublet in any other instance, in
which event such cancellation shall become effective on the date proposed by
Tenant for such assignment or subletting and this lease shall thereupon
terminate on said date (in whole or in part, as the case may be) with the same
force and effect as if said date were the expiration date of this lease.
(b) In the event that Owner shall not exercise its option and
election to cancel under Paragraph (a) of this Article, then provided that
Tenant is not then in default hereunder, Owner shall not unreasonably withhold
or delay its consent to the proposed assignment or subletting if Owner, in its
reasonable discretion, is satisfied as to the reputation and financial
responsibility of the proposed assignee or subtenant and that the business of
the proposed assignee or subtenant will be conducted in the demised premises in
a manner consistent with the character and reputation of the Building.
(c) As conditions precedent to granting consent to any proposed
assignment or subletting, Owner may require that: (i) in the case of a proposed
sublease, Tenant first agree, in a written agreement satisfactory to Owner
(which agreement shall be secured by a collateral assignment of any such
sublease) to pay monthly to Owner, as additional rent hereunder, an amount equal
to fifty (50%) percent of any and all rent and/or other consideration payable by
the proposed subtenant to Tenant (after deducting reasonable out-of-pocket
brokerage and legal fees actually paid by Tenant to consummate the sublease and
the actual costs paid by Tenant to prepare the demised premises for such
proposed subtenant's occupancy (amortized on a straight line basis over the term
of such sublease), including cash contributions paid for the proposed
subtenant's installations and improvements, and any rent concessions (amortized
on a straight line basis over the term of such sublease) granted to the proposed
subtenant) to the extent that such rent and/or other consideration exceeds the
Base Rent and additional rent payable pursuant to Article 37 hereof at the time
payable hereunder by Tenant; (ii) in the case of a proposed assignment, Tenant
pay to Owner, as additional rent hereunder, fifty (50%) percent of any and all
consideration payable by the proposed assignee to Tenant (after deducting
reasonable out-of-pocket brokerage and legal fees actually paid by Tenant to
consummate the assignment and the actual costs paid by Tenant to prepare the
demised premises for such proposed assignee's occupancy); (iii) Tenant and its
proposed assignee or subtenant provide Owner with such other information as it
may reasonably request, including (but not limited to) a certification in
affidavit form of all rental and other consideration proposed to be paid in
connection with the proposed assignment or subletting; and (iv) the proposed
assignment or sublease and the documentation evidencing and/or executed or
delivered in connection with same shall be otherwise reasonably acceptable to
Owner.
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<PAGE> 26
(d) Tenant hereby acknowledges and agrees that notwithstanding Owner's
failure or refusal to consent to a proposed assignment or subletting or its
exercise of its option set forth in Paragraph (a) of this Article, Owner shall
have the right to, and shall incur no liability to Tenant, if Owner should
subsequently lease the demised premises (or any part thereof) or any other space
in the Building to any assignee or subtenant proposed by Tenant.
(e) If Owner shall grant its consent to a proposed assignment of this
lease or subletting of the demised premises, such consent and the effectiveness
of any such assignment or subletting shall nevertheless be conditioned upon
Tenant delivering to Owner at least five (5) business days prior to the
effective date thereof: (i) an executed duplicate original of the sublease or
assignment in the form previously approved by Owner; and (ii) In the event of an
assignment, an assumption agreement wherein the assignee agrees to assume
directly for the benefit of Owner all of the terms, covenants and conditions of
this lease to be performed by Tenant and which provides that the tenant named
herein and such assignee shall be jointly and severally liable for the
performance of all of the terms, covenants and conditions of this lease. Every
assignment of this lease or subletting hereunder shall be expressly subject to
the condition and restriction that the lease or sublease shall not be further
assigned, encumbered or otherwise transferred or the subleased premises further
sublet by the subtenant in whole or in part, or any part of the demised
premises used or occupied by others, without again first complying with all of
the provisions of this Article. Every subletting hereunder shall be subject to
the express condition, and by accepting a sublease hereunder each subtenant
shall be conclusively deemed to have agreed, that such sublease is subject and
subordinate to this lease in all respects and that if this lease should be
terminated prior to the expiration date herein set forth or if Owner shall
succeed to Tenant's estate in the demised premises, then at Owner's election the
subtenant shall attorn to and recognize Owner as the subtenant's landlord under
the sublease, any provision of law to the contrary notwithstanding; and the
subtenant shall promptly execute and deliver to Owner any Instrument Owner may
reasonably request to evidence such attornment, and each subtenant shall
conclusively be deemed to have appointed Owner its attorney-in-fact to execute
and deliver any such certificate for and on behalf of such subtenant in the
event that such subtenant has failed to deliver such certificate within ten
(10) days after Owner has requested the same.
(f) If this lease is assigned, Tenant covenants and agrees that the
terms, covenants and conditions of this lease may be changed, altered or
modified in any manner whatsoever by Owner and the assignee without the consent
of Tenant and that no such change, alteration or modification shall release
Tenant from the performance by it of any of the terms, covenants and conditions
on its part to be performed under this lease. However, any such change,
alteration or modification which would have the effect of increasing or
enlarging Tenant's obligations or liabilities under this lease shall not, to the
extent only of such increases or enlargement, be binding upon Tenant.
(g) Tenant covenants that notwithstanding any subletting of the demised
premises, any assignment of this lease, any assumption of this lease by an
assignee, Owner's consent to any assignment or subletting and/or Owner's
acceptance of rent or additional rent from any subtenant or assignee, Tenant and
each immediate and remote successor in interest to Tenant shall and will remain
fully liable, jointly and severally (as a primary obligor) for the payment of
the Base Rent and additional rent due and to become due hereunder and for the
performance of all the covenants, agreements, terms, provisions and conditions
contained in this lease on the part of Tenant to be performed. Furthermore, the
consent by Owner to any assignment, subletting or occupancy shall not in any
wise be construed to relieve Tenant from
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<PAGE> 27
obtaining the express consent, in writing, of Owner to any further assignment,
subletting, sub-subletting or occupancy.
(h) If Tenant shall advertise or list the demised premises or any part
thereof in connection with its efforts to assign this lease or sublet all or a
portion of the demised premises, Tenant hereby agrees that it shall not state
nor make any reference in such advertisement or listing to the rental rate asked
for the demised premises or any portion thereof or the consideration asked for
this lease (either expressly or in relation to the rents charged or asked by
Owner for other space in the Building or other owners with respect to office
space in the City of New York).
(i) A transfer of fifty (50%) percent or greater interest (whether
stock, partnership or otherwise) of Tenant shall be deemed to be an assignment
of this lease, either in one transaction or in any series of transactions unless
such transfer is accomplished by means of a public offering of stock which is
registered with the Securities and Exchange Commission or unless such transfer
is by a Principal (as hereinafter defined) to a member of, or a direct lineal
descendent of a member of, his nuclear family or to an entity owned and
controlled by, or a trust created for the benefit, of a member of, or a direct
lineal descendent of, his nuclear family. For purposes hereof the term
"Principal" shall mean each of Jeffrey Najarian, Edward Shaw, George Stetford,
Robert Gold and Mark Arzoomanian.
(j) Notwithstanding anything contained herein to the contrary, Tenant
may assign this lease without Owner's consent (but on not less than ten (10)
days prior notice to Owner) to an affiliate, subsidiary or parent of Tenant, to
a company into or with which Tenant is merged or consolidated or to a company
which purchases all or substantially all of Tenant's assets and in such event
Owner shall have no right to cancel this lease pursuant to Paragraph (a) of this
Article or receive any consideration as set forth in Paragraph (c) of this
Article. For purposes hereof: (i) an affiliate of Tenant shall mean any entity
which is directly controlled by or is under common control with Tenant
("control" being interpreted as the ownership of fifty-one percent (51%) or
more of the interests in such entity and possession of the power to direct the
management and policies of such entity and the distribution of its profits);
(ii) a subsidiary of Tenant shall mean an entity which is controlled by Tenant;
(iii) a parent of Tenant shall mean any entity which owns fifty-one (51%)
percent or more of the interests of Tenant and possession of the power to direct
the management and policies of Tenant and the distributions of Tenant's profits;
(iv) an entity in which or with which Tenant is merged or consolidated shall
mean an entity subject to the jurisdiction of the courts of the State of New
York which succeeds Tenant in accordance with applicable statutory provisions
for merger or consolidation of entities and which, by operation of law or by
effective provisions contained in the instruments of merger or consolidation,
fully assumes the liabilities of the entities participating in such merger or
consolidation and which has, on the completion of such merger or consolidation,
a net worth equal to or greater than Tenant's net worth immediately prior to
such merger or consolidation; and (v) an entity which purchases all or
substantially all of Tenant's assets shall mean an entity which: (A) is
unrelated to Tenant or any affiliate, subsidiary or parent of Tenant; (B) is
subject to the jurisdiction of the courts of the State of New York; (C) fully
assumes the liabilities and obligations of Tenant under this lease; (D)
purchases such assets pursuant to a bona fide, arm's length sale that is not
consummated for the purpose of circumventing the restrictions set forth in this
Article; and (E) has, on the completion of such sale, a net worth equal to or
greater than Tenant's net worth immediately prior to such sale.
(k) Notwithstanding anything contained herein to the contrary, Tenant
may, without Owner's consent (but on not less than ten (10) days prior notice to
Owner) sublease an aggregate of twenty (20%) percent of the demised premises
and in such event Owner shall have no right to cancel this lease pursuant to
Paragraph (a) of this Article or receive any consideration as set forth in
Paragraph (c), provided that: (i) no
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<PAGE> 28
more than three (3) subtenancies shall exist in the demised premises at any one
time; (ii) Tenant shall not alter the demised premises to facilitate such
subtenancies, separately demise any space within the demised premises or
otherwise act in any way to cause the demised premises to appear other than as a
single tenant space; (iii) no subtenant shall be permitted to use any portion of
the demised premises for a use which is inconsistent with the uses set forth in
Article 2 hereof; and (iv) the granting of such subtenancies shall not create
unusual amounts of traffic in the Building. In no event shall anything contained
in this Paragraph: (A) operate as a consent to or approval by Owner of any of
the provisions, covenants or conditions of the sublease between Tenant and any
subtenant and Owner shall not be bound thereby; (B) be construed to modify,
waive or affect: (1) any of the provisions, covenants or conditions in this
lease; (2) any of Tenant's obligations under this lease, or to waive any breach
thereof; or (3) any rights of Owner under this lease; or (C) be construed to
enlarge or increase Owner's obligations under this lease, to establish any
subtenant as a party entitled to the performance or benefit of any of such
obligations, or to confer upon any subtenant any benefits or legal rights under
this lease.
(I) Any assignment or subletting made in contravention of the
provisions of Article 11, as modified by this Article, shall constitute a
material breach of the covenants contained in said Articles; and any such
assignment or subletting shall not be binding upon Owner and, at Owner's option,
may be treated as a nullity and of no force or effect whatsoever against Owner.
Except as specifically set forth in this Article, nothing in this
Article is intended to modify the provisions of Article 11 of this lease.
42. Preparation of the Demised Premises:
Tenant has examined the demised premises and agrees to accept same in
their existing condition, "as is" and further agrees that Owner shall have no
obligation to perform any work, supply any materials or incur any cost in
preparation for Tenant's occupancy except that Owner shall, at its expense,
perform the work ("Owner's Work") described and/or depicted in Exhibit B
attached hereto and made a part hereof in accordance with all applicable Legal
Requirements including, without limitation, The Americans with Disabilities Act
of 1990. Owner shall permit Tenant to perform certain work (hereinafter referred
to as "Tenant's Initial Construction") in the demised premises during the period
that Owner is performing Owner's Work, provided, however, that Tenant shall not
delay, impede or interfere with the performance of Owner's Work and provided,
further, that: (i) Owner shall have no responsibility for: (a) any damage to or
loss of any materials used in or stored in the demised premises in connection
with Tenant's Initial Construction; and (b) any damage to the demised premises
caused by the performance of Tenant's Initial Construction; (ii) Owner shall
have the right to bar Tenant and/or its contractors and agents from the demised
premises prior to the Commencement Date if Owner determines, in its sole
discretion, that the performance of Tenant's Initial Construction is delaying,
impeding or interfering with the performance of Owner's Work; and (iii) there
shall be a one (1) day reduction in the rent abatement periods set forth in the
first paragraph of this lease (hereinafter referred to as the "Abatement
Period") for each day that the performance of Owner's Work is delayed solely by
reason of the performance of Tenant's Initial Construction (such reduction in
the Abatement Period shall be applied against the portions of the Abatement
Period first occurring during the term of this lease). The earlier of the day
following the day on which Owner notifies Tenant that Owner's Work is
substantially completed or the day Tenant first occupies all or any part of the
demised premises for the conduct of its business shall be (and is herein
sometimes referred to as) the Commencement Date. For purposes of this lease
"substantial
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<PAGE> 29
completion" of Owner's Work shall mean that the portion of Owner's Work then
remaining to be performed, if any, shall have reached the stage of completion
such that Tenant can use and occupy all or substantially all of the demised
premises (other than, perhaps, a deminimis portion thereof) and operate its
business therein with not more than minimal interference by reason of those
items still required to complete Owner's Work. The taking of possession of the
demised premises or any portion or portions thereof by Tenant shall be
conclusive evidence that the same are in any event in satisfactory condition at
the time such possession is so taken and that Owner's Work has been
satisfactorily completed except for the "punch list" items of which Owner is
notified in writing by Tenant within ten (10) business days thereafter. Within
ten (10) days after substantial completion of Owner's Work, Owner and Tenant
shall execute and deliver a certificate confirming the Commencement Date and the
Expiration Date. In no event shall the failure of either party to request any
such certificate or the failure or refusal of either party to execute any such
certificate in any way affect this lease, the term hereof or any obligations
hereunder including, without limitation, Tenant's obligation to pay the Base
Rent and additional rent herein reserved and each of the parties' obligations to
perform all of the other covenants and agreements herein set forth. If, through
no fault of Tenant, the Commencement Date has not occurred on or before: (x) May
16, 1997, Tenant shall be entitled to receive a credit of $1,381.00 for each day
following May 16, 1997 that the Commencement Date has not occurred which may be
applied against the first installment of Base Rent payable by Tenant after the
Commencement Date; and (y) August 16, 1997, Tenant shall have the right,
exercisable on or before August 26, 1997 (time being of the essence), to
terminate this lease effective as of the date (the "Termination Date") which is
thirty (30) days after the date that Owner receives Tenant's notice of
termination, except that this lease shall not terminate if the Commencement Date
occurs prior to the Termination Date. Tenant acknowledges that Owner's architect
is preparing complete plans and specifications ("Owner's Plans") for Owner's
Work and Tenant agrees that Owner's Plans shall be deemed acceptable to Tenant
in all respects if they incorporate the items set forth in Exhibit B. Tenant
agrees that it shall bear the sole cost of any changes to Owner's Plans that
Tenant may request, including, without limitation, the cost of modifying Owner's
Plans and any increase in the cost of performing Owner's Work that results from
such modifications. Moreover, Tenant agrees that there shall be a one (1) day
reduction in the Abatement Period for each day (such reduction in the Abatement
Period shall be applied against the portions of the Abatement period first
occurring during the term of this lease) that the completion of Owner's Work is
delayed due to changes to Owner's Plans requested by Tenant (unless same do not
incorporate the items set forth on Exhibit B) and, additionally, for each day
that the completion of Owner's Work is delayed due to changes to Owner's Plans
requested by Tenant, the time periods allowed Owner for completion of Owner's
Work in subclauses (x) and (y), above, shall be extended by one (1) day.
43. Limitation on Liability:
Tenant shall look only to Owner's estate and interest in the Building
for the satisfaction of Tenant's remedies or for the collection of a judgment
(or other judicial process) requiring the payment of money by Owner in the event
of any default or liability by Owner hereunder or otherwise, and no other
property or assets of Owner and no property of any officer, employee, director,
shareholder, partner or principal of Owner shall be subject to levy, execution
or other enforcement procedure for the satisfaction of Tenant's remedies under
or with respect to this lease, the relationship of Owner and Tenant hereunder,
Tenant's use or occupancy of the demised premises or otherwise.
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44. Insurance:
(a) Tenant covenants and agrees to provide on or before the
Commencement Date and to keep in force during the term hereof for the benefit of
Owner and Tenant a comprehensive general liability insurance policy protecting
Owner and Tenant against any liability, occasioned by any occurrence on or about
the demised premises or any appurtenances thereto. Such policy is to be written
on an occurrence basis by good and solvent insurance companies reasonably
satisfactory to Owner, and shall be in limits of Two Million ($ 2,000,000)
Dollars per occurrence for bodily or personal injury (including death) and Five
Hundred Thousand ($500,000) Dollars in respect of property damage. At least
fifteen (15) days prior to the effective date of such policy, Tenant shall to
deliver to Owner either a duplicate original of the aforesaid policy or a
certificate evidencing such insurance. Said policy or certificate shall contain
an endorsement that such insurance may not be cancelled except upon thirty (30)
days' notice to Owner.
(b) (i) Owner agrees that, if obtainable at no additional cost, it will
include in its fire insurance policies appropriate clauses pursuant to which the
insurance companies: (x) waive all right of subrogation against Tenant with
respect to losses payable under such policies; and/or (y) agree that such
policies shall not be invalidated should the insured waive in writing prior to a
loss any or all right of recovery against any party for losses covered by such
policies. But should any additional premiums be exacted for any such clause or
clauses, Owner shall be released from the obligation hereby imposed unless
Tenant shall agree to pay such additional premium.
(ii) Tenant agrees to include, if obtainable at no additional
cost, in its fire insurance policy or policies on its furniture, furnishings,
fixtures and other property removable by Tenant under the provisions of this
lease appropriate clauses pursuant to which the insurance company or companies:
(x) waive the right of subrogation against Owner and/or any tenant of space in
the Building with respect to losses payable under such policy or policies;
and/or (y) agree that such policy or policies shall not be invalidated should
the insured waive in writing prior to a loss any or all right of recovery
against any party for losses covered by such policy or policies. But should any
additional premium be exacted for any such clause or clauses, Tenant shall be
released from the obligation hereby imposed unless Owner or the other tenants
shall agree to pay such additional premium. Tenant hereby acknowledges and
agrees that in no event and under no circumstances shall Owner have any
responsibility to insure Tenant's improvements, fixtures, furniture, furnishings
or other personalty and that Tenant shall be solely responsible therefor.
(iii) Provided that Owner's right of full recovery under its
policy or policies aforesaid is not adversely affected or prejudiced thereby,
Owner hereby waives any and all right of recovery which it might otherwise have
against Tenant, its servants, agents and employees, for loss or damage occurring
to the Building and the fixtures, appurtenances and equipment therein, to the
extent the same is covered by Owner's insurance, notwithstanding that such loss
or damage may result from the negligence or fault of Tenant, its servants,
agents or employees. Provided that Tenant's right of full recovery under its
aforesaid policy or policies is not adversely affected or prejudiced thereby,
Tenant hereby waives any and all right of recovery which it might otherwise have
against Owner, its servants, and employees, and against every other tenant in
the Building who shall have executed a waiver similar to the one herein set
forth for loss or damage to, Tenant's furniture, furnishings, fixtures and other
property, notwithstanding that such loss or damage may result from the
negligence or fault of Owner, its servants, agents or employees, or such other
tenant and/or the servants, agents or employees thereof.
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<PAGE> 31
(iv) Owner and Tenant hereby agree to advise the other
promptly if the clauses to be included in their respective insurance policies
pursuant to subdivisions (i) and (ii) hereof cannot be obtained. Owner and
Tenant hereby also agree to notify the other promptly of any cancellation or
change of the terms of any such policy which would affect such clauses.
45. Change of Condition:
Owner shall not be liable for any change of condition in the demised
premises caused by the compliance with any present or future laws, rules,
orders, ordinances, requirements, or regulations of any Federal, State, County
or Municipal authority or government, including any change required by law for
off-street parking or similar legislation, or by revocation by any such
authority or authorities of any permit or license heretofore granted, or by
construction or operation of any public or quasi-public work, or by the erection
of any building or buildings upon any adjacent property, or by change of
environment. Owner shall not be liable for interference with or loss of light or
other incorporeal hereditaments.
46. Brokerage:
Each of Tenant and Owner covenants, represents and warrants that it has
had no dealings or communications with any broker or agent in connection with
the consummation of this lease other than Newmark & Company Real Estate, Inc.
(which is representing Owner) and Edward S. Gordon & Company (which is
representing Tenant) and each of Tenant and Owner covenants and agrees to pay,
hold harmless and indemnify the other from and against any and all cost, expense
(including reasonable attorneys' fees) or liability for any compensation,
commissions or charges claimed by any broker or agent other than the brokers
hereinabove set forth with respect to this lease or the negotiation thereof
arising out of or relating to its acts. If, as and when this lease shall be
mutually executed and delivered by Owner and Tenant, Owner agrees to pay any
commission that may be due the above-named brokers in connection with this lease
in accordance with separate agreements between Owner and said brokers.
47. Estoppel Certificate:
Tenant agrees, at any time and from time to time, as requested by
Owner, upon not less than twenty (20) days' prior notice, to execute and deliver
to Owner a statement certifying that this lease is unmodified and in full force
and effect (or if there have been modifications that the same is in full force
as modified and stating the modifications), certifying the dates to which Base
Rent and additional rent have been paid, and stating whether or not, to the best
knowledge of Tenant, Owner is in default in performance of any of its
obligations under this lease, and, if so, specifying each such default of which
Tenant may have knowledge, it being intended that any such statement delivered
pursuant hereto may be relied upon by others with whom Owner may be dealing.
48. Late Payment Charge; End of Term:
(a) If Tenant shall make any payment of Base Rent, additional rent or
other charges more than ten (10) days after the same is due and payable Tenant
shall pay a late payment charge on the amount due. Such charge shall be payable
as additional rent hereunder at a rate per annum equal to the lesser of: (a) two
(2%) percent above
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the lending rate announced from time to time by Chemical Bank (New York) as such
bank's prime rate for 90-day unsecured loans, in effect from time to time or;
(b) the maximum applicable legal rate, if any.
(b) Article 22 hereof is hereby amended to add the following: "If the
demised premises are not surrendered and vacated as and at the time required by
this lease (time being of the essence), Tenant shall be liable to Owner for per
diem use and occupancy in respect of the demised premises equal to one and
one-half (1-1/2) times the Base Rent and additional rent payable hereunder
for the last year of the term of this lease (which amount Owner and Tenant
presently agree is contemplated by them as being fair and reasonable under the
circumstances and not a penalty). Further, if the demised premises are not
surrendered and vacated as of the day which is sixty (60) days after the
expiration or termination of this lease, Tenant shall be liable to Owner for all
losses and damages which Owner may incur or sustain by reason thereof,
including, without limitation, reasonable attorneys' fees, and Tenant shall
indemnify Owner against all claims made by any succeeding tenants against Owner
or otherwise arising out of or resulting from the failure of Tenant timely to
surrender and vacate the demised premises in accordance with the provisions of
this lease. In no event shall any provision hereof be construed as permitting
Tenant to hold over in possession of the demised premises after expiration or
termination of the term hereof."
49. [INTENTIONALLY DELETED]
50. [INTENTIONALLY DELETED]
51. Addendum to Article 6:
Notwithstanding anything contained in the lease to the contrary, if at
any time during the term of this lease, Owner expends any sums for alterations
or improvements to the Building which are required to be made pursuant to any
Legal Requirement, Tenant shall pay to Owner, as additional rent, Tenant's
Proportionate Share of the portion of the Cost (as hereinafter defined) that can
be amortized during the term hereof, it being understood that the Cost shall,
for purposes of this Article, be deemed amortized on a straight line basis over
a period of ten years beginning on the date any portion of the Cost is first
incurred. For the purposes hereof: (i) "Legal Requirements" shall mean laws,
statutes and ordinances (including building codes and zoning regulations and
ordinances) and the orders, rules, regulations, directives and requirements of
all federal, state, county, city and borough departments, bureaus, boards,
agencies, offices, commissions and other subdivisions thereof, or of any
official thereof, or of any other governmental public or quasi-public authority,
whether now or hereafter in force, which may be applicable to the Land, the
building or the demised premises or any part thereof, or the sidewalks, curbs or
areas adjacent thereto and all requirements, obligations and conditions of all
instruments of record on the date of this lease; and (ii) "Cost" shall mean any
sums expended for alterations or improvements made to comply with Legal
Requirements, and shall be deemed to include any sums expended in preparing any
necessary plans and the fees for filing such plans. Notwithstanding anything
contained in this Article to the contrary, Tenant shall not be obligated to pay
any portion of the Cost of alterations or improvements made by Owner to comply
with The Americans with Disabilities Act of 1990 (it being understood that
compliance with The Americans with Disabilities Act of 1990 with respect to the
bathrooms in the Building shall be the sole responsibility of Owner or the
tenant in whose space the same are located) or any local fire safety rules or
regulations in existence on the date hereof. In the event that the bathrooms in
the core of the Building which serve the demised premises do not comply with any
future
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laws or amendments to existing laws, Owner shall, at its expense, perform such
work as is necessary to cause the bathrooms to comply if the failure to perform
such work would affect Tenant's occupancy of the demised premises.
52. Addendum to Article 29:
In the event Owner shall furnish cleaning service to the demised
premises pursuant to the provisions of Article 29(d), Tenant covenants and
agrees that Tenant shall pay to Owner on demand the costs incurred by Owner for:
(a) extra cleaning work in the demised premises required because of: (i) misuse
or neglect on the part of Tenant or its employees or visitors; (ii) use of
portions of the demised premises for preparation, serving or consumption of food
or beverages, data processing or reproducing operations, private lavatories or
toilets or other special purposes requiring greater or more difficult cleaning
work than office areas; (iii) unusual quantity of interior glass surfaces; (iv)
non-building standard materials or finishes installed by or at the request or
Tenant; and (b) removal from the demised premises and the Building of so much of
any refuse and rubbish of Tenant as shall exceed that ordinarily accumulated
daily in the routine of business office occupancy. The foregoing shall not
require Tenant to pay any extra costs for cleaning or rubbish removal resulting
from such warming of pre-prepared foods and/or the preparation of coffee in the
demised premises by Tenant's employees as normally occurs in an office
environment, provided that Tenant, utilizing its own employees, is maintains the
area(s) in which such activities occur in a neat and tidy condition and each day
separately bags any refuse produced therein.
53. Existing Lease:
(a) As of the date hereof, Setford-Shaw-Najarian Associates, Ltd.
("Tenant's Predecessor") is the tenant of that certain space (the "Existing
Space") on the 10th floor of the building owned by Owner which is located at 111
Broadway, New York, New York, pursuant to a lease of unspecified date in the
month of December, 1989, between Owner's predecessor in interest and the
predecessor in interest of Tenant's Predecessor, as amended by an amendment to
lease of unspecified date in the month of November, 1990, and as further amended
by a second amendment to lease of unspecified date in the month of April, 1994
(as so amended, the "Existing Lease"). As a material inducement to Owner to
enter into this lease, Tenant covenants and Predecessor agrees to cause Tenant's
Predecessor to surrender and vacate the Existing Space on or before the
thirtieth (30th) day after the Commencement Date, time being of the essence,
leaving the same in broom-clean condition. Notwithstanding anything set forth in
the Existing Lease to the contrary, Tenant's Predecessor shall not be required
to remove any of its alterations or installations from the Existing Space or to
restore the Existing Space to the condition which existed prior to its
occupancy. As of the date that Tenant timely vacates and surrenders the Existing
Space in accordance with the provisions of this Article, the Existing Lease
shall be, and be deemed to be, terminated and of no further force and effect.
Tenant further covenants and agrees that if Tenant fails to fully and completely
fulfill its obligations under the Existing Lease including the obligation to
vacate and surrender the Existing Space on or before the thirtieth (30th) day
after the Commencement Date, time being of the essence, such failure shall be,
and be deemed to be, a material default under the Existing Lease and this lease,
and such failure to timely vacate the Existing Space shall: (a) entitle Owner to
exercise any and all remedies available to it pursuant to the Existing Lease,
this lease and at law, in equity or otherwise, and (b) be, and be deemed to be,
a failure to deliver possession of the demised premises at the time specified in
a notice of intention to quit the demised premises within the purview of Section
229 of the Real Property Law of the State of New York. Furthermore, if the
Existing Space is not
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surrendered and vacated as and at the time required by the Existing Lease (time
being of the essence), Tenant shall be liable to Owner for per diem use and
occupancy in respect of the Existing Space equal to two times the fixed annual
rent and additional rent payable thereunder for the last year of the term of the
Existing Lease (which amount Owner and Tenant presently agree is the minimum to
which Owner would be entitled and is presently contemplated by them as being
fair and reasonable under such circumstances and not a penalty). In no event
shall any provision hereof be construed as permitting Tenant to hold over in
possession of the Existing Space after expiration or termination of the term of
the Existing Lease.
(b) Owner is currently holding $7,000.00, plus any interest accrued
thereon, as security (the "Existing Security") pursuant to the Existing Lease.
In the event Tenant shall fully and completely fulfill its obligations under the
Existing Lease, Owner shall return the Existing Security to Tenant promptly
after the date that Tenant vacates and surrenders the Existing Space.
54. [INTENTIONALLY DELETED]
55. Security:
(a) Supplementing Article 34 hereof, as long as major commercial banks
in The City of New York make interest bearing security deposit accounts
available, said security deposit shall be placed by Owner or its agent in an
interest bearing account. Interest that may accrue thereon shall belong to
Tenant, except such portion thereof as shall be equal to one (1%) per cent per
annum of said security deposit which such percentage shall belong to and be the
sole property of Owner as an administrative fee which Owner may withdraw from
time to time and retain. That portion of the interest belonging to Tenant shall
be accumulated and paid to Tenant annually except that prior to the date in any
given year that such interest is paid to Tenant, such interest shall be retained
with such deposit and shall be considered additional security hereunder. The
obligation to pay any taxes, whether income or otherwise, related to or
affecting any interest earned on such security deposit (except as to that
portion thereof which belongs to Owner) shall be the sole responsibility of
Tenant and Tenant hereby agrees to pay same and to forever indemnify and save
harmless Owner in respect thereof. Tenant shall, within fifteen (15) days after
demand, furnish Owner or its agent with a tax identification number for use in
respect of such deposits. If Owner at any time utilizes any portion of the
security deposit in respect or by reason of a default by Tenant, Tenant shall,
within five (5) days after demand, restore and pay to Owner the amounts so
utilized.
(b) In lieu of the cash security deposit referred to in Article 34 of
this lease, to secure the full and faithful performance by Tenant of all the
terms, provisions, conditions, covenants and obligations (including, without
limitation, the payment of rent) on Tenant's part to be performed hereunder,
simultaneously with the execution of this lease, Tenant may deliver to Owner an
unconditional, clean, irrevocable "evergreen" letter of credit, payable on
sight, in form and substance satisfactory to Owner, in the amount of Two Hundred
Fifty Thousand Dollars ($250,000.00) issued by a bank which is a member of the
New York Clearing House Association. Owner may present such letter of credit for
payment upon the occurrence of any default by Tenant hereunder. Such letter of
credit shall have an expiration date that is no earlier than sixty (60) days
after the expiration of this lease (as same may be extended or renewed). If,
notwithstanding that the letter of credit on deposit with Owner is to be an
"evergreen" letter of credit, same shall for any reason whatsoever expire or
have an expiration date earlier than sixty (60) days after the Expiration Date
(as same may be extended or renewed) then a subsequent or extension letter of
credit in the amount
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<PAGE> 35
of the then existing letter of credit and otherwise in form and substance
reasonably acceptable to Owner shall be delivered by Tenant to Owner at least
thirty (30) days prior to the expiration date of the letter of credit it is
replacing (time being of the essence). The failure to timely deliver any
subsequent or extension letter of credit shall constitute a material default
hereunder for which no notice need be given, and for which no grace or cure
period need be allowed (notwithstanding anything herein set forth to the
contrary) and the letter of credit, then in effect, may be presented for payment
and negotiated notwithstanding that no other default may then exist under this
lease and upon such presentment and negotiation, the default for Tenant's
failure to so deliver shall be deemed to have been cured. The proceeds of the
letter of credit that is so negotiated shall be held by Owner in accordance with
Article 34 hereof.
(c) In the event Tenant defaults in respect of any of the terms,
provisions, conditions, covenants and obligations of this lease, including, but
not limited to, the payment of rent and additional rent, Owner may, without
first applying any other security, use, apply or retain the whole or any part of
the proceeds of the letter of credit delivered as security hereunder to the
extent required for the payment of any rent or additional rent or any other sum
as to which Tenant is in default or for any sum which Owner may incur or may be
required to incur by reason of Tenant's default in respect of any of the terms,
provisions, conditions, covenants and obligations on Tenant's part to be
performed hereunder, including but not limited to, any damages or deficiencies
which accrued before or after the commencement of summary proceedings or other
re-entry by Owner.
(d) Every letter of credit deposited with Owner hereunder shall be
transferable by its terms without charge to Owner and without any further
responsibility and liability with respect to such security and Tenant agrees to
look solely to such assignee of Owner for the return of the letter of credit or
the proceeds thereof. The provisions of the preceding sentence are self
operative without the need for further documentation. Tenant shall not assign or
encumber or attempt to assign or encumber any letter of credit or any of the
proceeds thereof.
(e) Provided, in each instance, that: (i) Tenant is not then in default
hereunder as to which notice has been given; (ii) on or before the first day of
March and the first day of September of each year during the term hereof Tenant
has delivered to Owner a certificate prepared, in each case, by an independent
certified public accountant reasonably acceptable to Owner, which
unconditionally states that, in accordance with generally accepted accounting
principles, Tenant has a net worth of at least $2,500,000.00; and (iii) within
ninety (90) days after the end of each calendar year Tenant has delivered to
Owner audited financial statements which indicate that Tenant has a net worth of
at least $2,500,000.00; on the second anniversary of the Commencement Date and
on each anniversary of the Commencement Date thereafter occurring through and
including the ninth anniversary of the Commencement Date, the amount of the
security required by Owner under this lease may be reduced by Twenty-Five
Thousand and 00/100 Dollars ($25,000.00). In no event may the security on
deposit hereunder be less than Fifty Thousand and 00/100 Dollars ($50,000.00).
Owner agrees that in each case Tenant may deliver to Owner an amended letter of
credit for the applicable reduced amount and Owner shall surrender the letter of
credit then held by Owner in exchange therefor provided that such amended letter
of credit conforms to the requirements of Paragraph (b) of this Article and is
otherwise in form and substance satisfactory to Owner. The failure of Tenant to
meet the requirements set forth in clauses (i), (ii) and (iii) of this Article
in any calendar year shall not preclude Tenant from meeting those requirements
in any subsequent calendar year and thereafter seeking a reduction in the
security deposit on the anniversary of the Commencement Date occurring in the
next succeeding year.
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56. Expansion Space. Owner and Tenant acknowledge that the
balance of the space on the twenty-first floor of the Building (hereinafter
referred to as the "Balance Space") is currently unoccupied. Prior to accepting
a bona fide offer from an independent, third-party prospective tenant of all or
any portion of the Balance Space, Owner shall give notice thereof (hereinafter
referred to as a "First Refusal Notice") to Tenant indicating that Owner
received a bona fide offer from an independent, third-party prospective tenant
with respect to all or a portion of the Balance Space (the portion of the
Balance Space subject to such negotiations is hereinafter referred to as the
"Subject Space") which Owner desires to accept. Such offer shall be set forth in
a letter prepared by the prospective tenant, a broker on behalf of Owner or the
prospective tenant, or a term sheet prepared by Owner, the prospective tenant
or a broker for Owner or the prospective tenant. Provided Tenant is not in
default hereunder as to which notice has been given and that Tenant is actually
occupying all of the space originally demised hereunder: (A) if the Subject
Space contains more than 3,000 rentable square feet and the First Refusal Notice
with respect thereto is delivered on or before the first anniversary of the
Commencement Date, Tenant may lease the Balance Space for the balance of the
term hereof by delivering to Owner an unconditional written notice (the
"Exercise Notice") within five (5) business days after delivery of the First
Refusal Notice (time being of the essence) specifying that Tenant is exercising
its right to lease the Balance Space, provided, however, that if Tenant does not
timely deliver an Exercise Notice with respect to the Balance Space, then,
subject to the last sentence of this paragraph, Owner shall have no obligation
whatsoever to lease the Balance Space, or any portion thereof, to Tenant or to
send any further or additional notice to Tenant with respect thereto and Tenant
shall have no rights to the Balance Space, it being understood that Owner shall
have the right to lease all or any part thereof to any party or parties from
time to time at such rents and on such terms as Owner, in the exercise of its
unfettered discretion, may determine; and (B) if the First Refusal Notice is
delivered subsequent to the first anniversary of the Commencement Date, or even
if prior thereto, if the Subject Space contains 3,000 rentable square feet or
less, Tenant may lease the Subject Space for the balance of the term hereof by
delivering to Owner an Exercise Notice within five (5) business days after
delivery of the First Refusal Notice (time being of the essence) specifying that
Tenant is exercising its right to lease the Subject Space, provided, however,
that if Tenant does not timely deliver to Owner an Exercise Notice with respect
to the Subject Space, then, subject to the last sentence of this paragraph,
Owner shall have no obligation whatsoever to lease the Subject Space to Tenant
or to send any further or additional notice to Tenant with respect thereto and
Tenant shall have no rights to the Subject Space, it being understood that Owner
shall have the right to lease all or any part thereof to any party or parties
from time to time at such rents and on such terms as Owner, in the exercise of
its unfettered discretion, may determine, but Tenant's rights with respect to
the portion of the Balance Space other than the Subject Space shall be
unaffected thereby. The Subject Space or, in the event of an election in
accordance with subclause (A) of this Article, the Balance Space, is hereinafter
referred to as the "Expansion Space." If Tenant timely gives Owner an Exercise
Notice, from and after the date that the Expansion Space is made available to
Tenant (hereinafter referred to as the "Expansion Date"): (i) the term "demised
promises" used herein shall be deemed, for all purposes of this lease, to
include the Expansion Space; (ii) the annual Base Rent due hereunder for the
balance of the term hereof shall increase by a number equal to the Expansion
Factor (as hereinafter defined) (provided, however, that so long as Tenant is
not in default hereunder as to which notice has been given, and provided further
that if the Expansion Date occurs after the first anniversary of the
Commencement Date, Tenant shall, with respect to the Expansion Space only, be
obligated to pay only the portion of the Base Rent allocable to each of the
first, second and third months after the Expansion Date that is equal to the
quotient obtained by dividing: (a) the product of $2.75 multiplied by the number
of rentable square feet contained in the Expansion Space (the "Square
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Footage"); by (b) 12; (iii) Tenant's Proportionate Share shall increase by the
number that is the quotient obtained by dividing: (c) the product of the Square
Footage times 100; by (d) 399,000; and (iv) the Wage Rate Multiple shall
increase by the Square Footage. For purposes hereof the term "Expansion
Factor" shall, if the Exercise Notice is delivered on or before the first
anniversary of the Commencement Date, mean, the number per annum that is the
product of the Square Footage multiplied by $20.58. If the Exercise Notice is
delivered on or before the first anniversary of the Commencement Date, the Base
Wage Rate and the Tax Base with respect to the Expansion Space shall be the same
as is provided in Article 37 of this lease. If the Exercise Notice is delivered
after the first anniversary of the Commencement Date, the Expansion Factor shall
mean the number per annum that is the product of the Square Footage multiplied
by the number that Owner deems to be the greater of: (1) 110% of the then
escalated Base Rent per square foot (provided, however, that if the Expansion
Factor is determined pursuant to this subclause (1) then from and after the
Expansion Date, and with respect to the period thereafter occurring, the Base
Wage Rate for purposes of calculating Tenant's payments pursuant to Article
37(b) of this lease shall, with respect to the Expansion Space only, be deemed
to be the Wage Rate for the calendar year in which the Expansion Date occurs and
the Tax Base for purposes of calculating Tenant's Tax payment pursuant to
Article 37(c) of this lease shall, with respect to the Expansion Space only, be
deemed to be the Tax Year ending on June 30 of the year in which the Expansion
Date occurs); or (2) the Offered Rate (as hereinafter defined). For purposes
hereof the term "Offered Rate" shall mean the annual rental rate per square
foot, assuming current base years for porter's wage and tax escalations and
after accounting for Concessions (as hereinafter defined) submitted to Owner
pursuant a bona fide offer, whether set forth in a letter prepared by a broker
on behalf of, or a term sheet prepared by Owner with respect to, an independent,
third-party prospective tenant. For purposes hereof the term "Concessions" shall
be deemed to mean the value of any abatement of Base Rent specified in such
offer, which, for purposes of determining the Offered Rate, shall be deemed to
be amortized, without interest, on a straight line basis over the remaining
term of this lease. Tenant agrees to take the Expansion Space "as is" and agrees
that Owner shall have no obligation to perform any work, supply any materials or
incur any cost in preparation for Tenant's occupancy of the Expansion Space
whatsoever except that if Owner receives the Exercise Notice from Tenant: (I) on
or before the first anniversary of the Commencement Date, Owner shall, at its
expense, construct an installation in the Expansion Space that is comparable to
the installation constructed in the demised premises in accordance with Exhibit
B to this lease in terms of design, layout and the quality of the materials and
finishes used in connection with Owner's Work including, without limitation,
comparable heating, ventilation and air conditioning systems; or (II) subsequent
to the first anniversary of the Commencement Date but on or before the third
anniversary of the Commencement Date, Owner shall provide an allowance equal to
the product of $10.00 multiplied by the Square Footage ("Owner's Maximum
Contribution") to be applied towards Tenant's Work (as hereinafter defined) in
accordance with Article 57 of this lease. In the event that Owner is to
construct an installation in the Expansion Space in accordance with subclause
(i), above. Tenant shall be required to deliver to Owner complete plans and
specifications for such work (hereinafter referred to as "Expansion Plans") on
or before the date (hereinafter referred to as the "Delivery Date") that is
forty-five (45) days after the date that Tenant delivers the Exercise Notice to
Owner. If Tenant fails to timely deliver to Owner the Expansion Plans, Tenant
agrees to pay to Owner as and for agreed upon late charges (and not a penalty)
on account of delay in the completion of Owner's work in the Expansion Space
attributable to Tenant's delinquency, for each day after the Delivery Date that
expires before the Expansion Plans are delivered to Owner, an amount equal to
the quotient obtained by dividing the Expansion Factor by 365. All amounts
payable to Owner pursuant to the preceding sentence shall be considered
additional rent hereunder. If: (w) Owner shall give Tenant a First Refusal
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Notice in accordance with the terms of this Article; (x) Tenant elects not to
lease the space which is the subject of such First Refusal Notice; and (y) Owner
does not consummate a lease with the prospective tenant which is the basis of
such First Refusal Notice, Owner shall thereafter give Tenant a First Refusal
Notice upon receiving a subsequent bona fide offer from an independent,
third-party prospective tenant which Owner desires to accept.
Provided that Tenant is not in default hereunder as to which notice
has been given and that Owner has not given Tenant a First Refusal Notice which
Tenant has ignored or rejected, Tenant shall have the option upon thirty (30)
days notice to Owner given at least thirty (30) days prior to the first
anniversary of the Commencement Date (time being of the essence) to lease all of
the Balance Space (or all of the remaining portion of the Balance Space if some
of it has theretofore been leased to a third party). In such case, the Base Rent
for the Expansion Space shall be the number per annum that is the product of the
Square Footage multiplied by $20.58 and the Base Wage Rate and the Tax Base with
respect to the Expansion Space shall be the same as is provided in Article 37 of
this lease. Owner and Tenant hereby agree that the Balance Space contains 9,244
rentable square feet.
57. Tenant's Work in Expansion Space.
(a) In the event that Tenant exercises its right to lease the Expansion
Space subsequent to the first anniversary of the Commencement Date, Tenant
hereby agrees to improve, fixture and decorate the Expansion Space ("Tenant's
Work") to create offices therein of comparable quality to those in the premises
demised hereunder. In addition to and in supplementation of the provisions of
Article 3 hereof, Tenant hereby agrees that prior to Tenant commencing Tenant's
Work, Tenant shall submit to Owner for its approval four (4) sets of complete
working plans, drawings and specifications (collectively, "Tenant's Plans"),
including, but not limited to, all mechanical, electrical, air conditioning and
other utility systems and facilities for Tenant's Work, prepared by an architect
or engineer licensed as such in the State of New York ("Tenant's Architect").
Within ten (10) business days following Owner's receipt of Tenant's Plans, Owner
shall review or cause the same to be reviewed and shall thereupon return to
Tenant one (1) set of Tenant's Plans with Owner's approval or disapproval noted
thereon. If Owner does not approve or disapprove Tenant's Plans within such ten
(10) business day period, Tenant may send Owner a notice, accompanied by an
additional copy of Tenant's Plans, which states in bold print that Owner must
approve or disapprove Tenant's Plans within five (5) business days thereafter or
Owner shall be deemed to have approved Tenant's Plans. If Owner does not approve
or disapprove Tenant's Plans within five (5) business days following receipt of
Tenant's reminder notice, Owner shall be deemed to have approved Tenant's Plans.
In case Owner disapproves Tenant's Plans in any respect Tenant shall cause
Tenant's Architect to make such changes to Tenant's Plans as Owner shall
reasonably require and shall thereupon resubmit the same to Owner for its
approval. Owner shall reasonably cooperate with Tenant in obtaining any permits
which must be obtained in connection with Tenant's Work. Following the approval
of Tenant's Plans, as aforesaid, the same shall be final and shall not be
changed by Tenant without the prior approval of Owner which shall not be
unreasonably withheld. All contractors or materialmen Tenant proposes to employ
shall be subject to Owner's prior approval, which approval shall not be
unreasonably withheld or delayed.
(b) (i) Promptly following Owner's approval of Tenant's Plans, Tenant
shall file for and secure or cause to be secured: (A) all necessary approvals of
Tenant's Plans from all governmental authorities having jurisdiction thereover;
and (B) all permits and licenses necessary to perform Tenant's Work. Tenant
shall furnish Owner with two (2) copies of Tenant's Plans as approved by such
governmental
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authorities and two (2) copies of such permits and licenses. In the event that
Tenant is unable to obtain governmental approval of Tenant's Plans or any
permits or licenses necessary to perform Tenant's Work solely due to the
existence of violations of record against the Building, Owner shall have the
right to retain an expediter and attempt to obtain approval of Tenant's Plans or
obtain such necessary permits and licenses. If Owner or its expediter is
unsuccessful in obtaining approval of Tenant's Plans and/or the necessary
permits and licenses, Owner shall remedy such violations to the extent necessary
to obtain such approvals, permits and licenses.
(ii) Tenant shall enter into a construction contract with a
construction manager or general contractor reasonably acceptable to Owner. Such
construction contract shall be subject to Owner's prior written approval which
shall not be unreasonably withheld or delayed provided it includes
indemnification, insurance and retainage provisions acceptable to Owner and
shall otherwise comply with the terms of this lease. Tenant shall furnish Owner
with a copy of such executed contract.
(c) Following compliance by Tenant with its obligations under
Paragraphs (a) and (b) of this Article and after furnishing to Owner one (1) or
more certificates evidencing that Tenant and Tenant's contractor or construction
manager have procured all of the insurance specified in Article 3 hereof, Tenant
shall promptly commence or cause to be commenced Tenant's Work and shall
complete or cause the same to be completed expeditiously in accordance with
Tenant's Plans, in a good and workerlike manner, in accordance with all
applicable laws, ordinances and regulations of all governmental and insurance
authorities and with all requirements of the Board of Fire Underwriters
governing same (collectively, "Requirements") and in accordance with Owner's
work regulations for the Building. All of Tenant's Work shall be performed in a
manner so as not interfere with other contractors, if any, in the Building.
Passenger elevators shall not be used by Tenant or its contractors to transport
construction material and/or workers to the demised premises or any part
thereof. Owner shall furnish freight elevator service to the demised premises
for Tenant's performance of Tenants Work during normal business hours on a non-
exclusive "first come first served basis" at no charge to Tenant and on
non-business days and outside normal business hours on business days at the
Building standard rate then charged by Owner. The current charge for overtime
freight elevator service is $75.00 per hour. At all times during the progress of
Tenant's Work, Tenant shall permit Owner, its architect and other
representatives of Owner access to the demised premises, for the purpose of
inspecting same, verifying conformance of Tenant's Work with Tenant's Plans and
otherwise viewing the progress of Tenant's Work.
(d) Tenant shall pay its contractors, laborers, subcontractors,
materialmen and suppliers in accordance with their respective agreements and
shall not cause or suffer any liens, mortgages, chattel liens, or other title
retention or security agreements to be placed on the Building, the demised
premises or any improvements therein. All contracts or agreements made by Tenant
with any third party or parties in connection with Tenant's Work or any other
alterations, improvements, changes, decorations or additions shall expressly
provide that said third party or parties shall look solely to Tenant for any and
all payments to be made pursuant to such contract or agreement and that Owner
shall not have any responsibility or liability for the payment thereof.
(e) (i) Subject to and in accordance with the provisions in this
Paragraph (a) set forth and provided that Owner shall have received an Exercise
Notice on or before November 11, 1999, Owner shall reimburse Tenant for an
amount equal to the lesser of: (i) Tenant's actual out-of-pocket cash payments
for the permanent leasehold improvements constituting part of Tenant's Work
("Tenant's Work Cost"), (it being agreed that the cost of any moveable
partitions, business or trade fixtures, furniture,
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furnishings or other articles of personalty shall not be included in Tenant's
Work Cost); or (ii) Owner's Maximum Contribution.
(ii) From time to time during the performance of Tenant's
Work, but not more frequently than once a month, Tenant may submit to Owner a
written statement (each, an "Interim Statement") setting forth in reasonable
detail the amount of Tenant's Work Cost theretofore paid in respect of Tenant's
Work theretofore completed and requesting reimbursement of a portion thereof
provided that the aggregate amount of the reimbursement then requested by Tenant
combined with any amounts previously reimbursed pursuant to this Paragraph (e)
does not exceed the Maximum Request Amount. Tenant shall include with each
Interim Statement: (1) copies of all invoices in respect of all of Tenant's Work
theretofore performed; (2) a certification from Tenant's Architect certifying
that the portion of Tenant's Work relating to such Tenant's Work Cost has been
completed; and (3) evidence reasonably satisfactory to Owner establishing that
all sums due and owing to contractors, subcontractors and materialmen in respect
of such portion of Tenant's Work have been paid, including without limitation
lien waivers from such contractors, subcontractors and materialmen.
(iii) On or before the thirtieth (30th) day after Owner
receives an Interim Statement, provided that Tenant is not in default hereunder
beyond any notice and cure period herein set forth, Owner shall reimburse Tenant
the amount properly requested in the Interim Statement.
(iv) After Tenant has completed Tenant's Work, Tenant shall
submit to Owner: (1) an affidavit executed by an officer of Tenant ("Tenant's
Work Statement") certifying that Tenant's Work has been completed and setting
forth in reasonable detail Tenant's Work Cost; (2) copies of all invoices in
respect of Tenant's Work Cost not theretofore furnished to Owner; (3) a
certification from Tenant's Architect certifying that Tenant's Work has been
completed (which certification shall be on the standard AIA form or on such
other form which is approved by Owner or its designated engineer or architect);
and (4) evidence reasonably satisfactory to Owner establishing that: (x)
materialmen have been paid, including without limitation lien waivers from such
contractors, subcontractors and materialmen; (y) all governmental authorities
(including without limitation the New York City Department of Buildings) and
fire underwriters have issued final approval of Tenant's Work as built and the
occupancy of the demised premises; and (z) Tenant's Work complies with all
Requirements.
(v) On or before the thirtieth (30th) day following the day on
which Owner receives Tenant's Work Statement and all of the other items
specified in subparagraph (iv) of this Paragraph (e), Owner shall, provided
Tenant is not in default hereunder beyond any notice and cure period herein set
forth, reimburse Tenant an amount equal to the excess of: (i) an amount equal to
the lower of: (x) Tenant's Work Cost; or (y) Owner's Maximum Contribution over
(ii) the aggregate of all amounts paid by Owner to or on behalf of Tenant
pursuant to this Paragraph (e).
(f) Nothing contained in this Article shall limit or qualify the terms,
covenants, agreements, provisions and conditions of Article 3 of this lease.
58. Renewal Option. Provided that: (a) this lease is in full force
and effect; (b) Tenant is not then in default hereunder as to which notice
has been given; and (c) Tenant has not more than three (3) times during the term
hereof defaulted in its obligation to pay rent as to which notice has been
given, Tenant shall have the right on one (1) occasion by giving Owner
unconditional written notice ("Tenant's Renewal
-23-
<PAGE> 41
Notice") of its exercise of such right at least nine (9) months prior to the
Expiration Date, time being of the essence, to extend the expiration date of
this lease from the Expiration Date to the date that is the fifth (5th)
anniversary of the Expiration Date (the period commencing on the Expiration Date
and ending on the fifth (5th) anniversary of the Expiration Date is hereinafter
referred to as the "Renewal Period"). Upon Tenant's exercise of its right to
extend as aforesaid, this lease shall automatically be deemed extended until the
date that is the fifth (5th) anniversary of the Expiration Date upon the terms
and conditions contained herein except that: (i) Tenant shall have no further
right to renew this lease or extend the term hereof; and (ii) the Base Rent
payable during the Renewal Period shall be the greater of: (A) the Base Rent
then payable hereunder plus additional rent payable under Article 37 hereof; or
(B) an amount per annum equal to $32.40 times the Wage Rate Multiple then
applicable (provided, however that if the Base Rent is determined in accordance
with this subclause (B), during the Renewal Period the Base Wage Rate for
purposes of calculating Tenant's payments pursuant to Article 37(b) of this
lease shall be deemed to be the Wage Rate for the calendar year 2007 and the Tax
Base for purposes of calculating Tenant's Tax payment shall be deemed to be the
Tax Year ending on June 30, 2007). In the event that Tenant exercises its right
to renew as aforesaid, upon the request of Owner, Tenant shall enter into an
amendment to this lease confirming the Base Rent payable hereunder with respect
to the Renewal Period. In no event shall the failure of Owner to request such an
amendment nor the refusal of Tenant to enter into such an amendment in any way
affect this lease, or any of Tenant's obligations hereunder including, without
limitation, Tenant's obligation to pay the Base Rent (as determined pursuant to
this Article) and additional rent herein reserved and to perform all of the
other covenants and agreements herein set forth.
59. Miscellaneous:
(a) If any of the provisions of this lease, or the application thereof
to any person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this lease, or the application of such provision
or provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby, and every
provision of this lease shall be valid and enforceable to the fullest extent
permitted by law.
(b) This lease shall be governed in all respects by the internal laws
of the State of New York.
(c) If, in connection with obtaining financing for the Building, a
bank, insurance company or other lending institution shall request reasonable
modifications to this lease as a condition to such financing, Tenant will not
unreasonably withhold, delay, condition or defer its consent thereto, provided
that such modifications do not materially increase the obligations of Tenant
hereunder, economic or otherwise, or materially adversely affect the leasehold
hereby created.
(d) Without incurring any liability to Tenant, Owner may permit access
to the demised promises and open same, whether or not Tenant shall be present,
upon demand of any receiver, trustee, assignee for the benefit of creditors,
sheriff, marshal or court officer entitled to, or presenting credentials and
documentary evidence indicating entitlement to, such access for the purpose of
taking possession of, or removing, Tenant's property or for any other lawful
purpose (but this provision and any action by Owner hereunder shall not be
deemed a recognition by Owner that the person or official making such demand has
any right or interest in or to this lease, or in or to the demised premises), or
upon demand of any representative of the fire,
-24-
<PAGE> 42
police, building, sanitation or other department of the city, state or federal
governments.
(e) Tenant shall not be entitled to exercise any right of expansion,
renewal, termination or other option granted to it by this lease at any time
after Tenant has received notice that it is in default in the performance or
observance of any of the covenants, terms, provisions or conditions on its part
to be performed or observed under this lease until such time as Tenant has cured
such default to the satisfaction of Owner.
(f) Tenant shall not place or permit to be placed any vending machines
in the demised premises except that Tenant may construct a pantry in accordance
with and subject to the terms and conditions of Article 3 of this lease and
place therein coffee, soda and candy machines and a microwave oven for warming
prepared foods for the exclusive use of Tenant and its employees and/or
licensees.
(g) Neither Tenant nor any corporation or other entity controlling,
controlled by or under common control with Tenant shall occupy any space in the
Building (whether by accepting an assignment or a lease, entering into a license
or sublease, or otherwise) other than the demised premises, except with the
prior written consent of Owner in each instance.
(h) Tenant agrees that its sole remedies in cases where It disputes
Owner's reasonableness in exercising its judgment or withholding its consent or
approval (as applicable) pursuant to a specific provision of this lease, or any
rider or separate agreement relating to this lease, if any, shall be those in
the nature of an injunction, declaratory judgment, or specific performance, the
rights to money damages or other remedies being hereby specifically waived.
(i) The Article headings of this lease are for convenience only and are
not to be given any effect whatsoever in construing this lease.
(j) This lease shall not be binding upon Owner unless and until it is
signed by Owner and a fully executed copy thereof is delivered to Tenant.
(k) Tenant agrees that Tenant will not at any time during the term
hereof, either directly or indirectly, use any contractors and/or labor and/or
materials if the use of such contractors and/or labor and/or materials would or
will create any difficulty with other contractors and/or labor engaged by
Tenant, Owner or others in the maintenance and/or operation of the Building or
any part thereof.
(l) The listing of any name other than that of Tenant, whether on the
doors of the demised premises, on the Building directory, if any, or otherwise,
shall not operate to vest in the named party any right or interest in this lease
or in the demised premises, nor shall it be deemed to constitute the consent of
Owner to any assignment or transfer of this lease, to any sublease of the
demised premises, or to the use or occupancy thereof by others.
(m) In the event of a conflict between the provisions of this rider and
the provisions of the printed portion of this lease comprised of Articles 1
through 36, the provisions of this rider shall govern and prevail.
(n) Owner shall provide Tenant the number of listings in the Building
directory which equals Tenant's Percentage of the total number of listings in
the Building directory.
-25-
<PAGE> 43
EXHIBIT A
[GRAPHIC - 21ST FLOOR PORTION]
21st Floor Portion
of Demised Premises
Not to Scale
All Dimensions are Approximate
<PAGE> 44
[B. DEAN MADDALENA ARCHITECT LETTERHEAD]
EXHIBIT B
September 13, 1996 (Revised 9-26-96)
115 Broadway
TRANSACTION INFORMATION SYSTEMS
Architectural Building Standards for Construction for:
20th & 21st Floors - Coordinating plans Sheets A-1, A-2 & A-3
DEMOLITION
Carefully demolish and remove existing partitions ceilings and finishes as
required to accommodate new construction. Reuse existing items in good
condition that meet the standard specifications stated here. (i.e., black iron,
doors, frames, partitions, etc.)
CONSTRUCTION
PARTITIONS
Demising- 2 layers sheetrock each side of 2-1/2" metal studs 16" o.c.
Both layers of sheetrock shall extend from slab to slab, with appropriate
rated dampers when required. Insulation shall be installed between layers
of sheetrock. Tape and spackle to receive paint.
Interior- 1 layer sheetrock each side of 2-1/2" metal studs 16" o.c.
Sheetrock shall extend 6" above finished ceiling, with studs running to
slab above. Tape and spackle to receive paint.
DOORS
Entrance- One pair of mahogany entrance doors with 3/4 hour rating.
Active leaf to be 3'-0" wide and inactive leaf to be 2'-0" wide. Height to
be 7'-0" or 8'-0" depending on finished ceiling height. Hardware will
include four pair of butt hinges, one Schlage Rhodes lock-set, flush bolt,
astragal and exposed door closer, door stop and silencers, all with
polished brass finish. Door frame to be 2" hollow metal from with 3/4 hour
rating and paint finish.
Interior- Three (3) feet wide flush hollow metal door sat in 2" hollow
metal frame, both non-rated and both with paint finish. Where possible,
frames are to have 1'-0" wide x full height integrated glass side lite with
1/4" clear tempered glass. Height to be 7'-0" or 8'-0" depending on
finished ceiling height. Hardware will include two pair of butt hinges, one
Schlage Rhodes latch-set, door stop and silencers, all with polished brass
finish.
<PAGE> 45
[B. DEAN MADDALENA ARCHITECT LETTERHEAD]
DT: September 26, 1996
TO: Jeff Najarian, TIS
Bruce Weinberg, ES Gordon
Billy Cohan, Newmark
Martin Lord, Newmark
Bob Cum, Newmark
Brandon Roth, ACM
FR: Dean Maddalena
RE: 115 Broadway, 20th & 21st Floor
Transaction Information Systems
FAX: 7 pages
Attached is the revised Architectural Work Letter for the above referenced
project. The revisions are based on clarifications that TIS and ES Gordon
reviewed with me via phone earlier today. The engineering comments were
forwarded to Laszia Bodak's office for their review and update of the
Engineering Work Letter. TIS and ES Gordon will transmit to all parties a
letter detailing our conversation.
The architectural items addressed are as follows:
1. All outlets shown on the Power/Telephone/Data Plan Sheet A-3 are new. TIS
and ESG said that the dedicated outlets were not detailed on the plan, but
further review shows that the original plan details them in the legend.
Existing outlets will be reused if they reset the location and
specification requirements.
2. There are ten (10) color breaks allowed for.
3. Lamps are to be warm white.
4. Shallow profile fluorescent fixtures will be specific where required to
maintain the highest ceiling heights possible.
5. The ceiling height on the 21st floor will be minimally the 7'-9" existing
ceiling height.
6. TIS and ESG commented that the carpet allowance was not stated for material
only, but further review shows that the original work letter did state for
material only.
7. Damaged plumbing fixtures, toilet partitions and vanities are to be
replaced. But if the damage is minor and can be easily fixed like new, the
contractor will do so.
8. Radiator enclosures and covers that are damaged are to be replaced. But if
the damage is minor and can be easily fixed like new, the contractor will
do so.
Please review the revised work letter. If there are any further comments,
please contact me immediately.
<PAGE> 46
[B. DEAN MADDALENA ARCHITECT LOGO]
Closet- One pair of sliding hollow metal doors with integral pull set in
2" hollow metal frame. Width of doors will depend on opening size but will
be of equal size and have a 1" overlap. Height to be 7'-0" or 8'-0"
depending on finished ceiling height. Hardware will include heavy duty ball
bearing sliding mechanism, paintable metal fascia and silencers.
NOTE: All existing, non-decorative hardware is to be replaced with
building standard lever hardware.
CEILINGS
Acoustical Ceiling- Furnish and install 2' x 2' natural fissured exposed
15/16" spline suspended acoustical ceiling. Ceiling tiles to be Travertone
fine fissured. All finishes white. Ceiling heights are to be kept as high
as possible, coordinating all functions housed in plenum space.
FLOOR COVERING & BASE
Carpeting will be upgraded from building standard 30 oz. cut pile to a
$20.00 / square yard material allowance. Carpet application will be direct
glue down after floor slab is prepared as required for smooth application.
In all rooms with raised flooring, low static carpet tiles will be used.
Provide a $35.00 / square yard material allowance for carpet tiles. Base
will be 4" rubber base where there is not an existing wood base that will
refinished and reused.
WINDOW TREATMENT
All windows will be fitted with 1" Levelor Riviera mini blinds.
RADIATOR COVERS
Metal- All existing damaged metal radiator enclosures will be replaced
with new to match existing. Any missing and damaged covers will be replaced
with new to match existing.
Wood- All existing damaged wood radiator enclosures will be replaced with
new to match existing. Any missing and damaged covers will be replaced with
new to match existing.
Any minor damages which can be easily repaired to look like new will be
repaired.
<PAGE> 47
[B. DEAN MADDALENA ARCHITECT LOGO]
Painting
Prepare and paint all drywall surfaces with one (1) coat primer sealer and
two (2) coats eggshell or semi-gloss high quality latex paint. Up to ten
(10) color breaks to be chosen by tenant.
Electric
Lighting--Furnish and install 2' x 4', three (3) T8 lamp and 2' x 2', two
(2) T8 lamp lay-in parabolic fixtures as per plan. Furnish and install
emergency battery pack fixtures as required by code requirements. Lamps to
be warm white. Use shallow profile fixtures where applicable to maintain
highest ceiling heights possible.
Wall Outlets--Furnish and install lutron designer series electric outlets
and light switches as per plan.
Voice/Data--Furnish and install voice and data stub ups with 1-1/2" conduit
feed.
Exit Lights--As required by code.
Life Safety Systems--As required by code and building standard. Tie in all
new systems to building's system.
NOTE: All outlets shown on plan A-2 are new. Existing outlets to be used
when applicable to the specification. See engineering work letter for full
information.
HVAC
NOTE: See engineering work letter for full information.
Closet
Provide and install painted birch hat rack and chrome pole in all closets.
Windows
All windows are to be in good operating condition. Repair operating
mechanisms, broken glass, etc., as required. Seal glass at framing with
caulking and clean glass, inside and out.
<PAGE> 48
[B. DEAN MADDALENA ARCHITECT LOGO]
21st FLOOR
Provide and install Building Standard Construction for floors 20 & 21 as shown
on plans. Variations to standards for this floors are as follows:
1. Ceiling height to minimally match existing 7'-9" height. Doors to be 7'-0"
high.
2. Repair and/or replace existing perimeter sheetrock wall soffit housing main
duct work.
3. Provide and install full height tinted tempered glass partition at all
railing locations, matching the detail and finish of existing railing
glass partitions.
4. Public Elevator Lobby and public restrooms to be upgraded to modified
building standard.
5. Refer to engineering work letter for HVAC, plumbing, electrical, and life
safety.
20th FLOOR
Provide and install Building Standard Construction for floors 20 & 21 as shown
on plans. Additional general items are specific to this floor as follows:
1. All damaged wood paneling is to be repaired and/or replaced to match
existing details and finishes. Loose joints are to be sealed. The condition
of the wood itself in the existing paneling is good and requires cleaning
and conditioning.
2. All existing decorative plaster ceilings are to remain. Any existing
damaged plaster, plaster damaged during construction, and areas that were
previously patched improperly are to be repaired to match remaining space
harmoniously.
3. All existing decorative pilasters, columns, arches and soffits are to
remain. Any existing (or damaged during construction) scratched, damaged,
broken, and worn pieces are to be repaired and/or replaced to match
existing. All surfaces are to be cleaned and faux finishes are to be
touched up and repainted to create consistent appearance. Any existing
decorative items that were previously painted over are to be repainted to
match existing faux finishes.
4. The existing raised flooring is to be reused. Repair and/or replace any
damaged structural or tile pieces. If additional raised flooring is
required in the new layout, it is to match the existing in quality and
style.
5. Repair and/or replace any damaged stained glass, mirror mosaic and lead and
wood frames for each.
6. Repair and/or replace all lighting and wiring, as required, for light
plenum behind double height stained glass "Story of Law".
7. Upgrade all existing built in soffit and sconce lighting to low voltage
lamps in order to increase light level to 15 foot-candles.
8. The existing demountable glass partitions located on the raised flooring
will be reused by the tenant. They are to be cleaned and repaired, as
required, to be like new.
________________________________________________________________________________
<PAGE> 49
[B. DEAN MADDALENA ARCHITECT LOGO]
9. All existing rooms that have wallcovering will have new wallpaper hung.
Existing wallpaper will be removed and walls prepared for new wallcovering.
New wallcovering will have a $11.00/yard allowance.
10. All existing sponged/stippled painted surfaces are to be repainted to match
existing finish but with new colors to be selected by tenant.
11. Existing fireplace flues are to be sealed.
12. All existing light fixtures that are to be reused are to be relamped and
switches rewired as required to accommodate new layout.
13. All existing outlet face plates are to be replaced with new Lutron designer
series so that there is one type throughout space.
14. Areas with existing sheetrock ceilings will remain sheetrock ceilings.
Ceiling is to be repaired and replaced as required to accommodate any new
construction required in the ceiling.
15. All outlets and jacks in areas of raised flooring are to be floor mount
type outlets to access wiring in floor plenum.
The following are specific room requirements for the 20th floor:
1. Men's & Women's Restrooms - Replace damaged existing toilet partitions and
vanity. Install an exhaust system. Provide and install new building standard
ceiling and light fixtures. Install new ceramic tile flooring and walls.
Repair and/or replace all existing fixtures. Existing faucets and
accessories are to be replaced with building standard. Any minor damages to
existing items that can easily be replaced like new will be done so.
2. Room A01 - Provide and Install new custom millwork reception desk to match
detailing of existing reception area. Provided is a $15,000 allowance for
the millwork and installation. The existing wood parquet flooring in the
20th floor elevator lobby and decorative stair to the 21st floor will be
refinished, stained and polished if it is salvageable. This will be
determined upon completion of demolition. If the existing wood flooring is
too damaged to be refinished, wall to wall carpeting will be installed.
3. Room A02 - Provide and install indirect lighting mounted from furniture
workstations provided by tenant.
4. Room A03 - Provide and install movable partition with 35 STC and required
structural supports. Finish of partitions to be vinyl wallcovering to match
wallcovering in remainder of room. Provide and install wiring for future
motorized video screen. Finish panelling as required at location of new
movable partition.
5. Room A04 - Pantry: Remove existing range and hood. Repair existing
cabinetry by relaminating and replacing any damaged millwork pieces and
hardware. Repair any damaged plumbing and plumbing fixtures. Provide and
install full size (22 cu. Ft.) refrigerator, microwave and dishwasher.
6. Room B12 - Repair to new working condition the existing bifold closet wood
doors. Provide and install wiring and support for motorized video screen.
Provide and install floor mount junction box.
<PAGE> 50
[B. DEAN MADDALENA ARCHITECT LOGO]
for table top media control panel with conduit connection through
plenum to speaker system, lighting, PC, etc., display wall that will
be mounted in the existing closet.
7. Rooms B13 & 14- Extend existing style panelling on to new walls in
rooms. Reuse existing panelling removed during demolition in same
room.
8. Room B19- Upgrade two existing decorative pendant light fixtures with
efficient, energy saving lamps and controls. Replace existing damaged
direct mount ceiling tiles with new and paint all to coordinate with
decorative beams and new fixtures. Provide and install new surface
mount can fixtures as per plan for general lighting.
9. Room B21- Provide and install black out window screens at all windows
in this room.
<PAGE> 51
LASZLO BODAK ENGINEER, P.C. (Letterhead)
(Revised September 30, 1996)
(Revised September 27, 1996)
(Revised September 20, 1996)
September 13, 1996
Mr. Robert Cum
Newmark & Company
111 Broadway, 11th floor
New York, NY 10007
Re: T.I.S.
115 Broadway, 20th & 21st floors
LFWS No. 96238
Dear Mr. Cum:
We have reviewed the MBP systems serving the above referenced space and met with
TIS personnel earlier this week. The purpose of these meetings was to develop a
criteria for required MBP work. The following is a summary of the required work
with items that are above building standard construction outlined.
Mechanical:
1. The existing air cooled air conditioning units will be replaced with new
air cooled air conditioning units. The units will nominally be rated as
follows. Units will have adequate static pressures to operate bypass boxes.
20th floor:
-----------
AC-20-1 20 tons
AC-20-2 10 tons
AC-20-3 10 tons
AC-20-4 10 tons
21st floor:
-----------
AC-21-1 10 tons
AC-21-2 5 tons
AC-21-3 10 tons
2. The existing supply air ductwork serving the 7 existing air conditioning
units will be maintained to the extent possible. New branch taps will be
provided in accordance with new architectural layouts. The existing zone
layout will be maintained and no VAX boxes will be provided. New diffusers
and grills will be furnished throughout.
<PAGE> 52
Mr. Robert Cum
Revised September 30, 1996
Page 2
3. A new chilled water system will be provided to serve the existing 20th
floor rooms 20-A02, 20-A06, 20-A07, 20-A08, 20-A09, and 20-A10 that are
presently not air conditioned. The chilled water system will consist of the
following:
a. A new air cooled chiller nominally rated at 15 tons to be provided on
the roof.
b. Chilled water pump on the roof.
c. New copper chilled water piping from the roof down to the 20th floor.
The piping will run to the ceiling of the 19th floor and core up to
fan coil locations on the 20th floor.
d. Perimeter chilled water fan coil units to serve the rooms. Allow for
up to 12 fan coil units in the room. Fan coil units shall be floor
mounted cabinet type as manufactured by International, York, Trane,
or McQuay. Fan coil units shall be furnished with integral
thermostatic controls. The fan coil units shall be generally installed
at the perimeter of the rooms adjacent to the existing steam
radiators.
4. Existing perimeter steam radiation shall be maintained throughout. New
thermostatic control valves to be provided.
5. New toilet exhaust systems will be provided for the 20th & 21st floor
toilets.
Tenant Requested Systems above building standard:
1. Provide a year round, 24 hour dedicated air conditioning system to serve
the computer room. System to be air cooled with low ambient controls and
furnished completed with condenser air and ventilation air louvers. System
shall be nominally rated for 3 tons.
2. VAV or bypass boxes where required by variable loads. New ductwork will be
provided and/or existing ductwork modified as necessary to obtain the
required zone control.
3. Provide a smoke exhaust system for one conference room No. 20-A09.
Electrical:
1. Provide building standard power wiring for all receptacles and light
fixtures indicated on the architectural drawings. Existing distribution
equipment will be maintained to the extent possible and new panelboards
provided as required.
2. Maintaining existing lighting controls where possible and provide new where
required by architectural layout.
<PAGE> 53
Mr. Robert Cum
Revised September 30, 1996
Page 3
3. Total power delivered to the floor will be 6 watts/square foot exclusive of
air conditioning.
4. Provide power and control wiring for all HVAC equipment as outlined in
the mechanical section.
5. Provide standard 1" empty conduit stub ups with drag lines for tenant
low voltage systems. Tenant's contractor shall install all low voltage
cabling. Building's contractor to coordinate this work with the
tenant's contractor.
6. Provide lighting fixtures as indicated on the architects reflected
ceiling plans. Provide emergency lighting and exit signage as required
by local law No. 16.
7. Provide life safety systems as required by local law Nos. 5, 16, and
58.
Tenant requested work above building standard:
1. Provide a separate electrical panel board in the computer room with an
isolated ground bus. Panelboard to be rated at 120/208 volt, 3 phase,
4 wire, 60 ampere, 18 pole.
2. Provide uninterrupted power supply (UPS) system to serve the computer
room. UPs to be nominally rated for approximately 10 Kw. The UPS will be
furnished with automatic switchover upon sensing the power loss and
manual by-pass switch for serving. The battery system will allow for
10 minutes of backup at full load for orderly shutdown. The UPS shall
be manufactured by Exide, Deltec, IPM, or Best.
3. Provide isolated grounding receptacles in the computer room, approximately
12 duplex receptacles are required.
4. Provide 1-1/2" stub ups with drag lines for tenant cabling in lieu of the
building standard 1". Also, provide 4" sleeves and conduit to all access
of cabling from 21st floor down to the 20th floor computer room.
5. Provide isolated ground outlets for tenant communications hubs. One quad
required on each, 20th and 21st floor. Wire outlets back to the isolated
ground panelboard in the computer room. See sheet A-3 for locations.
<PAGE> 54
Mr. Robert Cum
Revised September 30, 1996
Page 4
Plumbing:
1. Replace existing damaged plumbing fixtures as required to make water
closet, urinals, and lavatories operational. Provide cold and hot water piping
to new pantries as required. Refer to architectural plans and scope of work for
further plumbing work description.
These items outlined above should be incorporated in the work letter for this
space. Please call if further information or clarification is required.
Very truly yours,
/s/ David Rosini
- ---------------------------
David Rosini
DR/cae
cc: Mr. Martin Lord
Mr. Richard Doolittle
Mr. Dean Maddalena
<PAGE> 55
EXHIBIT B-1
Not to Scale
All Dimensions are Approximate
[20th & 21st floor proposed plan]
<PAGE> 56
EXHIBIT B-2
Not to Scale
All Dimensions are Approximate
[20th & 21st floor proposed reflected ceiling plan]
<PAGE> 57
EXHIBIT B-3
Not to Scale
All Dimensions are Approximate
[20th & 21st floor proposed power/telephone/data
location plan]
<PAGE> 58
EXHIBIT B-4(a)
Not to Scale
All Dimensions are Approximate
[Hames Street]
<PAGE> 59
EXHIBIT B-4(b)
Not to Scale
All Dimensions are Approximate
[Hames Street]
<PAGE> 60
EXHIBIT B-4(c)
Not to Scale
All Dimensions are Approximate
[Hames Street]
<PAGE> 61
EXHIBIT C
BUILDING STANDARD CLEANING SPECIFICATIONS
A. The following general cleaning shall be performed nightly, five times per
week, Monday through Friday, except union or other legal holidays, state
or federal:
1. Sweep all uncarpeted flooring using a chemically treated dust mop to
prevent dust dispersion.
2. Sweep all private stairway structures nightly and mop once (1) per
month.
3. All carpeting and rugs to be vacuum cleaned weekly, and carpet swept
nightly.
4. Empty and clean all ashtrays and screen all sand urns.
5. Empty wastebaskets and other trash receptacles of waste paper and
normal office refuse and remove to designated areas within the
building. Plastic liners to be supplied by Tenant.
6. Hand dust and wipe clean with chemically treated cloth all furniture,
file cabinets, desk lamps, window sills and convector enclosed tops
within arm's reach.
7. Dust desks and equipment and phones thereon.
8. Remove all gum and foreign matter on sight.
9. Scour and wash clean all water coolers and fountains.
10. All slop sink and storage areas to be kept neat and clean.
11. Upon completion of cleaning operations, reasonable efforts are to be
made to turn off all lights.
B. From time to time, as necessary, smudges, finger marks and other marks
will be removed from painted surfaces on doors and areas around electric
light wall switches and door jambs.
C. The following general cleaning shall be performed once every four months:
1. Dust all vertical surfaces such as partitions, fixtures, ventilating
louvres, high moldings, walls, etc. not reached in nightly cleaning.
2. Dust all window frames.
3. Dust overhead pipes, air conditioning louvres, ducts, etc. not
reached in nightly cleaning.
4. Hand dust pictures, frames, charts, graphs and similar wall hangings
not reached in nightly cleaning.
<PAGE> 62
EXHIBIT D
SUBORDINATION, ATTORNMENT AND
NONDISTURBANCE AGREEMENT
BETWEEN
GENERAL ELECTRIC CAPITAL CORPORATION
("MORTGAGEE")
AND
TRANSACTION INFORMATION SERVICES, INC.
("TENANT")
DATED AS OF _______________________, 1996
RECORD AND RETURN TO:
LATHAM & WATKINS
885 THIRD AVENUE, SUITE 1000
NEW YORK, NEW YORK 10022-4802
ATTENTION: RICHARD L. CHADAKOFF, ESQ.
(L&W FILE NO. 021745-0013)
<PAGE> 63
SUBORDINATION, ATTORNMENT AND NONDISTURBANCE AGREEMENT
THIS AGREEMENT, made as of ________________________, 1996 (the "EFFECTIVE
DATE"), by and between GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation having an office at 125 Park Avenue, 9th Floor, New York, New York
10017 ("MORTGAGEE"), and TRANSACTION INFORMATION SERVICES, INC., a New York
corporation, having an office c/o Stetford-Shaw-Najarian Associates, Ltd., 111
Broadway, New York, New York 10006 ("TENANT").
W I T N E S S E T H:
WHEREAS, Mortgagee is the owner and holder of the mortgages between
Mortgagee, as mortgagee, and 111-115 BROADWAY LIMITED PARTNERSHIP, as mortgagor,
set forth on EXHIBIT "A" annexed hereto and made a part hereof (said mortgages,
as the same have been or may hereafter be amended, increased, renewed,
refinanced, modified, consolidated, replaced, combined, supplemented,
substituted, spread and extended being hereinafter collectively referred to as
the "MORTGAGE"), encumbering the land located in the City, County and State of
New York, which land is more particularly described on EXHIBIT "B" annexed
hereto and made a part hereof, and the buildings, improvements, and other items
of property more fully described in the Mortgage (such land, buildings,
improvements and other property being hereinafter referred to collectively as
the "MORTGAGED PREMISES");
WHEREAS, Tenant has entered into a lease with 111-115 BROADWAY LIMITED
PARTNERSHIP, as landlord ("LANDLORD"), dated as of _________________, 1996 (the
"LEASE"), by which Landlord demised to Tenant a portion of the Mortgaged
Premises (the "LEASED PREMISES");
WHEREAS, a true and complete copy of the Lease has been delivered to
Mortgagee by Tenant, the receipt of which is hereby acknowledged;
WHEREAS, Mortgagee, as a condition to making the loan(s) secured by the
Mortgage, required that all leases affecting the Mortgaged Premises be and
continue to be subordinate in every respect to the Mortgage; and
WHEREAS, Mortgagee and Tenant desire to confirm the subordination of the
Lease to the Mortgage and to provide for the nondisturbance of Tenant by
Mortgagee as set forth herein.
NOW, THEREFORE, in consideration of the covenants and agreements contained
herein, and intending to be legally bound, Mortgagee and Tenant agree as
follows:
1. The Lease, its terms and conditions, and the lien thereof (if any) now
are and shall at all times continue to be subject and subordinate in each and
every respect to the Mortgage (including all advances made thereunder), its
terms and the lien thereof. The provisions of this Agreement shall be
self-operative, and no further instrument shall be necessary to effectuate the
terms hereof. Nevertheless, Tenant, upon request, shall execute and deliver any
certificate or other instrument that Mortgagee may reasonably request to confirm
the subordination by Tenant referred to above.
2. Tenant certifies that (a) the Lease is presently in full force and
effect and unmodified, and represents the entire agreement between Landlord and
Tenant with respect to the Mortgaged Premises or any portion thereof; (b) no
rental payable under the Lease has been paid more than one (1) month in
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advance of its due date; (c) no event has occurred that constitutes a default
under the Lease by Landlord or Tenant or that, with the giving of notice, the
passage of time, or both, would constitute such a default; (d) as of the
Effective Date, Tenant has no charge, defense, lien, claim, counterclaim,
offset or setoff under the Lease or against any amounts payable thereunder;
(e) all conditions to the effectiveness or continuing effectiveness of the
Lease required to be satisfied as of the Effective Date have been satisfied;
(f) the commencement date of the Lease shall occur on , 1996; and
(g) the rent commencement date of the Lease shall occur on , 1996.
3. The terms and conditions of the Lease constitute a primary inducement
to Mortgagee to enter into this Agreement. Accordingly, Tenant agrees that
Tenant shall not cancel, surrender, terminate, amend or modify, or enter into
any agreement to cancel, surrender, terminate, amend or modify the Lease,
without the prior written approval of Mortgagee, except as expressly provided
for in the Lease in connection with casualty to or condemnation of the Mortgaged
Premises and/or the Leased Premises, and in connection with the performance by
Landlord of Owner's Work (as such term is defined in the Lease). Any
cancellation, surrender, termination, amendment or modification of the Lease
made without Mortgagee's prior written approval shall not bind Mortgagee or any
Successor (as defined below).
4. In the event of any default on the part of Landlord, arising out of or
accruing under the Lease, whereby the validity or the continued existence of
the Lease might be impaired or terminated by Tenant, or Tenant might have a
claim for partial or total eviction or abatement of rent, Tenant shall not
pursue any of its rights with respect to such default or claim, and no notice
of termination of the Lease as a result of such default shall be effective,
unless and until Tenant has given written notice of such default or claim to
Mortgagee at the address set forth herein, or Mortgagee's successor or assign
whose name and address previously shall have been furnished to Tenant in
writing (but not later than the time that Tenant notifies Landlord of such
default or claim) and granted to Mortgagee a reasonable time, which shall be
not less than the greater of (i) the period of time granted to Landlord under
the Lease, or (ii) thirty (30) days, after the giving of such notice by Tenant
to Mortgagee, to cure or to undertake the elimination of the basis for such
default or claim, after the time when Landlord shall have become entitled under
the Lease to cure the cause of such default or claim; it being expressly
understood that (a) if such default or claim cannot reasonably be cured within
such cure period, Mortgagee shall have such additional period of time to cure
same as it reasonably determines is necessary, so long as it continues to
pursue such cure with reasonable diligence, and (b) Mortgagee's right to cure
any such default or claim shall not be deemed to create any obligation for
Mortgagee to cure or to undertake the elimination of any such default or claim.
5. As long as (i) the term of the Lease shall have commenced pursuant to
the provisions thereof, (ii) Tenant shall be in possession of the Leased
Premises, (iii) the Lease shall be in full force and effect, and (iv) Tenant is
in compliance with the terms of this Agreement and no default exists under the
Lease beyond applicable cure periods, nor has any event occurred which would
cause, without any further action by Landlord, the termination of the Lease or
would entitle Landlord to dispossess Tenant under the Lease (conditions "i"
through "iv," collectively, the "NONDISTURBANCE CONDITIONS"). Mortgagee shall
not name Tenant as a party defendant in any action for foreclosure of the
Mortgage or other enforcement thereof (unless required by law), nor shall the
Lease be terminated by Mortgagee in connection with or by reason of foreclosure
or other proceedings for the enforcement of the Mortgage or by reason of a
transfer of Landlord's interest in the Mortgaged Premises or under the Lease
pursuant to a conveyance in lieu of foreclosure (or similar device)(any of the
foregoing, a "FORECLOSURE"), nor shall Tenant's use or possession of the Leased
Premises be interfered with by Mortgagee.
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<PAGE> 65
6. If Landlord's interest in the Mortgaged Premises or under the Lease is
terminated by reason of a Foreclosure (the party succeeding to the Landlord's
interest in the Mortgaged Premises being hereinafter referred to, together with
such party's successors and assigns, as "Successor"), then upon Successor's
succeeding to Landlord's interest in the Mortgaged Premises or under the Lease,
Tenant shall be bound to Successor, and, except as provided in this Agreement,
Successor shall be bound to Tenant, under all the terms, covenants and
conditions of the Lease for the balance of the term thereof remaining, with the
same force and effect as if Successor were Landlord, and Tenant does hereby
agree to attorn to Successor, including Mortgagee if it be the Successor, as
Tenant's landlord; affirm Tenant's obligations under the Lease; and make
payments of all sums due under the Lease to Successor. Such attornment,
affirmation and agreement shall be effective and self-operative without the
execution of any further instruments. Tenant waives the provisions of any
statute or rule of law now or hereafter in effect that may give or purport to
give Tenant any right or election to terminate or otherwise adversely affect the
Lease or the obligations of Tenant thereunder by reason of any Foreclosure.
7. Notwithstanding anything to the contrary in the Lease, any New Lease, or
this Agreement, any Successor shall not (a) be subject to any credits, offsets,
defenses, claims, counterclaims or demands that Tenant might have against any
prior landlord (including, without limitation, Landlord), except as expressly
provided for in the Lease; (b) be bound by any previous modification or
amendment of the Lease or by any rent or additional rent that Tenant might have
paid for more than the current month to any prior landlord, unless such
modification or prepayment shall have been made with Mortgagee's prior written
consent; (c) be liable for any accrued obligation, act or omission of any prior
landlord (including, without limitation, Landlord), whether prior to or after
Foreclosure; (d) be bound by any covenant to undertake or complete any
improvement to the Mortgaged Premises, the Leased Premises or the "Expansion
Space" (as such term is defined in the Lease), or to reimburse or pay Tenant for
the cost of any such improvement, including, without limitation, the covenants
set forth in Sections 42, 56 and 57 of the Lease; provided however, that
Successor shall recognize Tenant's right to a credit as set forth in Section 42
of the Lease and Tenant's right to receive a "First Refusal Notice" (as such
term is defined in the Lease), and Successor shall allow Tenant to (i) offset
against rent due and payable under the Lease in lieu of Successor's making any
portion of the "Owner's Maximum Contribution" towards "Tenant's Work" (as such
terms are defined in the Lease) as set forth in Sections 56 and 57 of the Lease,
and (ii) perform the work required of Landlord under Sections 42, 56 and 57 of
the Lease and receive a credit therefor against rent due under the Lease; (e) be
required to perform or provide any services not related to possession or quiet
enjoyment of the Leased Premises; (f) be required to account for any security
deposit other than any security deposit actually delivered to Successor,
including any of the security deposits held in accordance with Sections 34, 55
and 53(b) of the Lease;(g) be required to abide by any provisions for the
diminution or abatement of rent (other than in connection with casualty to or
condemnation of the Leased Premises), except as expressly provided for in the
Lease; (h) be liable or responsible in any way for any brokerage fees or
commissions whatsoever in connection with the Lease or the Leased Premises (or
indemnities against claims in connection therewith), including, but not limited
to those set forth in Section 46 of the Lease; or (i) be liable for any refunds
to Tenant of "Taxes" (as such term is defined in the Lease), including those set
forth in Section 37(c)(iii) of the Lease, unless Successor actually receives the
funds which are the basis for such refund.
8. Notwithstanding anything to the contrary in this Agreement, the Lease,
or any New Lease, if Successor acquires Landlord's interest in the Mortgaged
Premises, then Successor's liability for its obligations under the Lease (or
any New Lease) and this Agreement shall be limited to Successor's interest in
the Mortgaged Premises. Tenant shall not look to any other property or assets
of Successor or the property or assets of any of the partners, shareholders,
directors, officers and principals, direct and indirect, of Successor in
seeking either to enforce Successor's obligations under the Lease (or any New
Lease) and this Agreement or to satisfy a judgment for Successor's failure to
perform such obligations.
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<PAGE> 66
9. If and to the extent that the Lease or any provision of law shall
entitle Tenant to notice of any mortgage, Tenant acknowledges and agrees that
this Agreement shall constitute said notice to Tenant of the existence of the
Mortgage.
10. This Agreement may not be modified except by an agreement in writing
signed by the parties hereto or their respective successors in interest. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
(and shall benefit any Successor), and the heirs, representatives, successors
and assigns of the foregoing, provided, however, this Agreement shall not be
binding upon any assignee of Mortgagee acquiring the loan secured by the
Mortgage in connection with a refinancing thereof.
11. Nothing contained in this Agreement shall in any way impair or affect
the lien created by the Mortgage or modify the terms thereof. By executing and
delivering this Agreement, Mortgagee shall not be deemed to have (i) waived any
default under the Mortgage, (ii) modified the Mortgage in any manner, or (iii)
waived any rights or remedies it possesses under the Mortgage or otherwise. In
the event any conflict, inconsistency or ambiguity exists between the terms,
covenants and conditions of the Lease and the terms, covenants and conditions of
the Mortgage, the terms, covenants and conditions of the Mortgage shall control,
except as specifically and expressly set forth herein.
12. Tenant agrees and confirms that this Agreement satisfies any condition
or requirement in the Lease or otherwise relating to the granting of a
nondisturbance agreement, including, without limitation, the provisions of
Sections 7 and 40 of the Lease. Tenant further agrees that if there is any
inconsistency between the terms and provisions hereof and the terms and
provisions of the Lease relating to nondisturbance by Mortgagee, the terms and
provisions hereof shall be controlling.
13. Tenant acknowledges that it has notice that the Lease and the rent and
all other sums due thereunder have been assigned by Landlord to Mortgagee. If
Mortgagee notifies Tenant of Mortgagee's election under the Mortgage or any
other loan document to collect rent and all other sums due under the Lease, and
demands that Tenant pays same to Mortgagee, Tenant agrees that it will honor
such demand and pay its rent and all other sums due under the Lease directly to
Mortgagee or as directed by Mortgagee, notwithstanding any contrary claims,
directions, or instructions by Landlord.
14. Except as expressly provided for in Sections 11 and 41 of the Lease,
Tenant agrees that any Successor shall have the right to consent to or refuse
any proposed assignment or subletting of the Leased Premises in its sole
discretion.
15. All notices, demands or requests made pursuant to, under, or by virtue
of this Agreement must be in writing and mailed to the party to whom the
notice, demand or request is being made by certified or registered mail, return
receipt requested, at its address set forth above. A copy of all notices to
Mortgagee shall also be sent to Latham & Watkins, 885 Third Avenue, Suite 1000,
New York, New York 10022-4802, Attention: Richard L. Chadakoff, Esq. A copy of
all notices to Tenant shall also be sent to Esanu Katsky Korins & Siger, 605
Third Avenue, New York, New York 10158-0038, Attention: Stephen Swiatkiewitz,
Esq. Any party may change the place that notices and demands are to be sent by
written notice delivered in accordance with this Agreement.
16. This Agreement shall be governed by the laws of the State of New York.
If any term of this Agreement or the application thereof to any person or
circumstances shall to any extent be invalid or unenforceable, the remainder of
this Agreement or the application of such term to any person or circumstances
other than those as to which it is invalid or unenforceable shall not be
affected thereby, and each term of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
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<PAGE> 67
17. Each party shall execute and deliver, upon the request of the other,
such documents and instruments (in recordable form, if requested) as may be
necessary or appropriate to fully implement or to further evidence the
understandings and agreements contained in this Agreement. This Agreement may
be executed in any number of counterparts.
IN WITNESS WHEREOF, the parties hereto have hereunto caused this Agreement
to be duly executed as of the Effective Date.
MORTGAGEE
GENERAL ELECTRIC CAPITAL CORPORATION
By: ____________________________________________
Name:
Title:
TENANT
TRANSACTION INFORMATION SERVICES, INC.
By: /s/ Jeffrey Najarian
____________________________________________
Name: Jeffrey Najarian
Title: President
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<PAGE> 68
GUARANTY
FOR VALUE RECEIVED, and in consideration for, and as an inducement to Owner
making the within lease with Tenant, the undersigned guarantees to Owner,
Owner's successors and assigns, the full performance and observance of all the
covenants, conditions and agreements, therein provided to be performed and
observed by Tenant, including the "Rules and Regulations" as therein provided,
without requiring any notice of non-payment, non-performance, or non-observance,
or proof, or notice, or demand, whereby to charge the undersigned therefor, all
of which the undersigned hereby expressly waives and expressly agrees that the
validity of this agreement and the obligations of the guarantor hereunder shall
in no wise be terminated, affected or impaired by reason of the assertion by
Owner against Tenant of any of the rights or remedies reserved to Owner pursuant
to the provisions of the within lease. The undersigned further covenants and
agrees that this guaranty shall remain and continue in full force and effect as
to any renewal, modification or extension of this lease and during any period
when Tenant is occupying the premises as a "statutory tenant." As a further
inducement to Owner to make this lease and in consideration thereof, Owner and
the undersigned covenant and agree that in any action or proceeding brought by
either Owner or the undersigned against the other on any matters whatsoever
arising out of, under, or by virtue of the terms of this lease or of this
guarantee that Owner and the undersigned shall and do hereby waive trial by
jury.
19
Dated: _____________________________________________________
____________________________________________________________
Guarantor
____________________________________________________________
Witness
____________________________________________________________
Guarantor's Residence
____________________________________________________________
Business Address
____________________________________________________________
Firm Name
STATE OF NEW YORK ) ss.:
COUNTY OF )
On this day of , 19 , before me personally
came to me known and known to me to be the
individual described in, and who executed the foregoing Guaranty and
acknowledged to me that he executed the same.
______________________________________
Notary
IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 33.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery
by Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber
tires and sideguards. If said premises are situated on the ground floor of the
building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and plumbing fixtures shall not be used
for any purposes other than those for which they were designed or constructed
and no sweepings, rubbish, rags, acids or other substances shall be deposited
therein, and the expense of any breakage, stoppage, or damage resulting from
the violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw or permit to be
swept or thrown from the demised premises any dirt or other substances into any
of the corridors or halls, elevators, or out of the doors or windows or
stairways of the building and Tenant shall not use, keep or permit to be used
or kept any foul or noxious gas or substance in the demised premises, or permit
or suffer the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the building by reason of noise,
odors, and/or vibrations, or interfere in any way with other Tenants or those
having business therein, nor shall any animals or birds be kept in or about the
building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the building is prohibited.
4. No awnings or other projections shall be attached to the outside
walls of the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if
the same is visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance
door of the premises. In the event of the violation of the foregoing by any
Tenant, Owner may remove same without any liability, and may charge the expense
incurred by such removal to Tenant or Tenants violating this rule. Interior
signs on doors and directory tablet shall be inscribed, painted or affixed for
each Tenant by Owner at the expense of such Tenant, and shall be of a size,
color and style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any
part of the demised premises or the building of which they form a part. No
boring, cutting or stringing of wires shall be permitted, except with the prior
written consent of Owner, and as Owner may direct. No Tenant shall lay
linoleum, or other similar floor covering, so that the same shall come in
direct contact with the floor of the demised premises, and, if linoleum or
other similar floor covering is desired to be used an interlining of builder's
deadening felt shall be first affixed to the floor, by a paste or other
material, soluble in water, the use of cement or other similar adhesive
material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any Tenant, nor shall any changes be made in existing
locks or mechanism thereof. Each Tenant must, upon the termination of his
Tenancy, restore to Owner all keys of stores, offices and toilet rooms, either
furnished to, or otherwise procured by, such Tenant, and in the event of the
loss of any keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter
of any description shall be delivered to and removed from the premises only on
the freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease of which these Rules and Regulations are a part.
9. Canvassing, soliciting and peddling in the building is prohibited and
each Tenant shall cooperate to prevent the same.
10. Owner reserves the right to exclude from the building between the
hours of 6 P.M. and 8 A.M. and at all hours on Sundays, and legal holidays all
persons who do not present a pass to the building signed by Owner. Owner will
furnish passes to persons for whom any Tenant requests same in writing. Each
Tenant shall be responsible for all persons for whom he requests such pass and
shall be liable to Owner for all acts of such persons.
11. Owner shall have the right to prohibit any advertising by any Tenant
which in Owner's opinion, tends to impair the reputation of the building or its
desirability as a as a building for offices, and upon written notice from
Owner, Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible or explosive fluid, material,
chemical or substance, or cause or permit any odors of cooking or other
processes, or any unusual or other objectionable odors to permeate in or
emanate from the demised premises.
13. If the building contains central air conditioning and ventilation,
Tenant agrees to keep all windows closed at all times and to abide by all rules
and regulations issued by the Owner with respect to such services. If Tenant
requires air conditioning or ventilation after the usual hours, Tenant shall
give notice in writing to the building superintendent prior to 3:00 P.M. in the
case of services required on week days, and prior to 3:00 P.M. on the day prior
in the case of after hours service required on weekends or on holidays.
14. Tenant shall not move any safe, heavy machinery, heavy equipment,
bulky matter, or fixtures into or out of the building without Owner's prior
written consent. If such safe, machinery, equipment, bulky matter or fixtures
requires special handling, all work in connection therewith shall comply with
the Administrative Code of the City of New York and all other laws and
regulations applicable thereto and shall be done during such hours as Owner may
designate.
SEE FOLLOWING PAGE FOR ADDITIONAL RULES AND REGULATIONS
Address
Premises
===========================================
TO
===========================================
STANDARD FORM OF
[NEW YORK [NEW YORK
BOARD OF OFFICE LEASE BOARD OF
REAL ESTATE REAL ESTATE
LOGO] LOGO]
The Real Estate Board of New York, Inc.
(C) Copyright 1983. All rights Reserved.
Reproduction in whole or in part prohibited.
===========================================
Dated 19
Rent per Year
Rent per Month
Term
From
To
Drawn by ___________ Checked by ___________
Entered by _________ Approved by __________
===========================================
<PAGE> 69
ADDITIONAL RULES AND REGULATIONS
15. No noise or other activity, including the playing of musical
instruments, radio, television or other sound reproduction system, which would,
in Owner's judgment, disturb other tenants in the Building, shall be made or
permitted by Tenant, and no cooking shall be done in the demised premises,
except as expressly approved in writing by Owner.
16. All entrance doors in the demised premises shall be left locked by
Tenant when the demised premises are not in use. Entrance doors shall be kept
closed at all times.
17. All locks affording access to the demised premises and to circulation
within the demised premises shall be conformed to Owner's master key system.
18. The requirements of Tenant will be attended to only upon application
to the Building superintendent at his office in the Building. Building
employees shall not be requested by Tenant, and will not be permitted, to
perform any work or services specially for Tenant, unless expressly authorized
to do so by the Building superintendent.
19. Owner reserves the right to rescind, alter, waive, expand or add any
rule or regulation at any time prescribed for the Building when, in its
judgment, it deems it necessary, desirable or proper for its best interests
and for the best interests of the tenants thereof, and no alteration or waiver
of any rule or regulation in favor of one tenant shall operate as an alteration
or waiver in favor of any other tenant. Owner shall not be responsible to
Tenant for the non-observance or violation by any other tenant of any of the
rules and regulations at any time prescribed for the Building.
20. If attendance of Owner's personnel and/or service contractors shall be
required, as determined by Owner in its sole discretion, in connection with
the use by Tenant of freight elevators or other Building services or equipment,
Tenant shall pay to Owner on demand, as additional rent, such amount as Owner
shall determine to be appropriate as a charge for Owner's personnel and/or
service contractors.
21. Tenant shall not at any time store or keep any material, supplies,
furniture, furnishings or equipment of any kind in any machine room or in any
mechanical or electrical equipment room in the Building whether such room be
within or outside the demised premises.
22. Owner may charge Tenant for changes to the Building's directory
subsequent to the initial listings. All requests for directory listings shall
be in writing on Tenant's letterhead signed by an authorized officer of Tenant.
23. In no event and under no circumstances shall hand trucks be brought
into or used in any passenger elevators in the Building, it being understood
that all freight, furniture, business equipment and bulky matters of every
description shall be moved into and out of the Building and between floors
therein only on the freight elevator and otherwise in accordance with Rule 8 and
the other Rules annexed to this lease.
<PAGE> 70
FIRST AMENDMENT TO LEASE
First Amendment to Lease (this "Amendment") dated as of October 20, 1998
by and between ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation
having an office c/o Newmark & Company Real Estate, Inc., 125 Park Avenue, New
York, New York 10017 ("Owner"), and TRANSACTION INFORMATION SYSTEMS, INC., a
Delaware corporation having its principal office and place of business at 115
Broadway, New York, New York 10006 ("Tenant").
W I T N E S S E T H:
WHEREAS, Tenant is the tenant of the entire rentable portion of the
twentieth (20th) floor and a portion of the twenty-first (21st) floor (the
"Current Space") in the building at 115 Broadway, New York, New York (the
"Building") pursuant to a lease dated as of August 28, 1996 (the "Lease")
between Owner's predecessor-in-interest and Tenant; and
WHEREAS, Owner and Tenant wish to provide for the letting by Tenant of
the entire rentable portion of the second (2nd) floor of the Building
substantially as depicted on Exhibit B annexed hereto and made a part hereof
(the "New Space") in addition to the Current Space, and to modify certain
provisions of the Lease;
NOW, THEREFORE, in consideration of the sum of ten ($10.00) dollars and
other good and valuable consideration, the receipt and sufficiency of which are
hereby mutually acknowledged, Owner and Tenant hereby agree that from and after
the mutual execution and delivery of this Amendment the Lease shall be amended,
modified and supplemented as follows:
1. All words, terms or phrases used herein and defined in the Lease shall
have the meanings herein that are ascribed to them in the Lease unless herein
otherwise expressly specified.
2. From and after the New Space Date (as hereinafter defined) all
references in the Lease to the demised premises shall be deemed to refer to
both the Current Space and the New Space to the end that such combined space
shall, from and after the New Space Date, constitute the demised premises but
Article 42 of the Lease shall be inapplicable to the New Space. Tenant has
examined the New Space and agrees to accept same in its existing condition, "as
is" and further agrees that, except as otherwise expressly specified in this
Amendment, Owner shall have no obligation to perform any work, supply any
materials or incur any cost in preparation for Tenant's occupancy of the New
Space except that Owner shall, at Owner's expense, perform the work described
in Exhibit A annexed hereto and made a part hereof ("the Base Building Work")
in accordance with all applicable Legal Requirements including, without
limitation, the Americans with Disabilities Act of 1990. Upon the completion of
the Base Building Work, Owner shall deliver to Tenant an ACP-5 in respect of
the New Space. The "New Space Date" shall be the earlier of: (i) the day
following the day on which the Base Building Work is substantially completed;
or (ii) the day Tenant first takes possession of all or any part of the New
Space. As used herein, "substantially completed" shall mean that the portion of
the Base Building Work remaining to be performed, if any, shall have reached
the stage of completion such that Tenant can use and occupy all or
substantially all of the New Space (other than, perhaps, a deminimis portion
thereof) and operate its business therein with not more than minimal
interference by reason of those items still required to complete the Base
Building Work. The taking of possession of the New Space or any portion or
portions thereof shall be conclusive evidence that the same are in any event in
satisfactory condition at the time such possession is so taken and that the
Base Building Work has been satisfactorily completed except for the "punch
list" items of
<PAGE> 71
which Owner is notified in writing by Tenant within ten (10) business days
thereafter, (it being understood that Tenant's performance of work in the New
Space pursuant to subparagraph C of Article 5 of this Amendment shall not be
deemed to mean that Tenant has taken possession of the New Space for the
purposes of this sentence). Within ten (10) days after the occurrence of the New
Space Date, Owner and Tenant shall execute and deliver a certificate confirming
the New Space Date and the New Space Rent Commencement Date. In no event shall
the failure of either party to request such certificate or the failure or
refusal of either party to execute any such certificate in any way affect the
Lease, this Amendment, the term of the Lease or any obligations under the Lease
or this Amendment including, without limitation, Tenant's obligation to pay the
Base Rent and additional rent reserved in the Lease and each of the parties'
obligations to perform all of the other covenants and agreements set forth in
the Lease and this Amendment. If Owner has not substantially completed the Base
Building Work by the date that is sixty (60) days after the mutual execution and
delivery of this Amendment, as such date may be extended: (x) by not more than
thirty (30) days for any of the reasons set forth in Article 27 of the Lease;
and/or (y) by one (1) day for each day that Tenant delays, interferes with or
prohibits Owner from performing and/or completing the Base Building Work in
whole or in part, then the New Space Rent Commencement Date (as hereinafter
defined) shall be delayed by one (1) day for each day after the 60th day that
elapses before Owner substantially completes the Base Building Work and an
additional one (1) day for each day after the 90th day that elapses before Owner
substantially completes the Base Building Work.
3. A. The Base Rent, reserved in the Lease shall, with respect to the
demised premises (including both the Current Space and the New Space), be
increased to:
(i) $982,910.04 per annum from the New Space Rent Commencement Date
through and including the day that is one (1) day prior to the first anniversary
of the New Space Tent Commencement Date;
(ii) $994,531.00 per annum from the first anniversary of the New Space
Rent Commencement Date through and including the day that is one (1) day prior
to the second anniversary of the New Space Rent Commencement Date;
(iii) $1,006,443.00 per annum from the second anniversary of the New
Space Rent Commencement Date through and including the day that is one (1) day
prior to the third anniversary of the New Space Rent Commencement Date;
(iv) $1,018,653.00 per annum from the third anniversary of the New Space
Rent Commencement Date through and including June 30th of that year and
$1,036,823.63 per annum from July 1st of the same year through and including the
day that is one (1) day prior to the fourth anniversary of the New Space Rent
Commencement Date;
(v) $1,052,824.00 per annum from the fourth anniversary of the New Space
Rent Commencement Date through and including the day that is one (1) day prior
to the fifth anniversary of the New Space Rent Commencement Date;
(vi) $1,104,283.00 per annum from the fifth anniversary of the New Space
Rent Commencement Date through and including the day that is one (1) day prior
to the sixth anniversary of the New Space Rent Commencement Date;
(vii) $1,118,483.00 per annum from the sixth anniversary of the New
Space Rent Commencement Date through and including the
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day that is one (1) day prior to the seventh anniversary of the New Space Rent
Commencement Date;
(viii) $1,133,038.00 per annum from the seventh anniversary of the New
Space Rent Commencement Date through and including the day that is one (1) day
prior to the eighth anniversary of the New Space Rent Commencement Date;
(ix) $1,147,958.00 per annum from the eighth anniversary of the New
Space Rent Commencement Date through and including the Expiration Date.
B. Provided that Tenant is not in default under the Lease beyond the
expiration of any applicable notice and cure period in the Lease set forth,
Tenant shall not be required to pay $38,737.50 of the Base Rent allocable to
each of the first six (6) months following the New Space Rent Commencement Date
(the "New Space Abatement Period"). The abatement of rent granted to Tenant in
this paragraph B is intended to be in addition to the abatement of rent
specified on the first page of the Lease.
C. The New Space Rent Commencement Date shall be the date that is
ninety (90) days after the New Space Date.
4. A. Article 37 of the Lease shall be deemed unmodified hereby in
its application to the Current Space but shall be deemed modified as herein
specified and, as so modified, shall be applicable to the New Space, it being
the intent of Owner and Tenant that Article 37 of the Lease, as the same existed
prior to the execution of this Amendment, shall be deemed reprinted at length
herein with the changes hereinafter specified and as so reprinted shall apply to
the New Space. The provisions of Article 37 of the Lease, as applicable to the
New Space, shall be deemed amended as follows: (i) the number "6.1%" which
appears in subparagraph (a)(iv) of Article 37 of the Lease shall be and be
deemed to be deleted therefrom and the number "4.66%" shall be and be deemed to
be substituted therefor solely with respect to the application of Article 37 to
the New Space; and (ii) the number "24,288" which appears in subparagraph
(a)(viii) of Article 37 of the Lease shall be and be deemed to be deleted
therefrom and the number "18,594" shall be substituted therefor solely with
respect to the application of Article 37 to the New Space; and (iii) the dates
"July 1, 1996" and "June 30, 1997" which appear in subparagraph (a)(iii) of
Article 37 of the Lease shall be and be deemed to be deleted therefrom and the
dates "July 1, 1998" and "June 30, 1999" shall be substituted respectively
therefor solely with respect to the application of Article 37 to the New Space;
and (iv) the term "Owner's Work" which appears in subparagraph (i)(iv) of
Article 37 of the Lease shall be and be deemed to be deleted therefrom and the
term "the Base Building Work" shall be substituted therefor solely with respect
to the application of Article 37 to the New Space; and (v) the term "demised
premises" which appears in subparagraph (i)(iv) of Article 37 of the Lease shall
be and be deemed to be deleted therefrom and the term "New Space" shall be
substituted therefor solely with respect to the application of Article 37 to the
New Space; and (vi) subparagraphs (a)(v) through (a)(vii) of Article 37 of the
Lease and subparagraph (a)(ix) of Article 37 of the Lease shall be and be deemed
to be deleted therefrom solely with respect to the application of Article 37 to
the New Space.
B. Paragraphs (b) and (e) of Article 37 of the Lease shall be
deemed unmodified hereby in their application to the Current Space but shall be
inapplicable to the New Space in respect of the period from the New Space Date
to the Expiration Date.
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C. Article 38 of the Lease shall be deemed unmodified hereby in its
application to the Current Space but shall be deemed modified as herein
specified and, as so modified, shall be applicable to the New Space, it being
the intent of Owner and Tenant that Article 38 of the Lease, as the same existed
prior to the execution of this Amendment, shall be deemed reprinted at length
herein with the changes hereinafter specified and as so reprinted shall apply to
the New Space. The provisions of Article 38 of the Lease, as applicable to the
New Space, shall be deemed amended as follows: the words "seven (7) watts" which
appear in paragraph (b) shall be deleted therefrom and the words "six (6) watts"
shall be substituted therefor solely with respect the application of Article 38
to the New Space.
D. In the event Tenant properly renews the Lease pursuant to Article
58 thereof, subparagraphs A. and B. of this Article shall be inapplicable with
respect to the Renewal Period only, and Article 37 of the Lease as it applies to
the Renewal Period only shall be deemed amended as follows: (i) the number
"6.1%" which appears in subparagraph (a)(iv) of Article 37 of the Lease shall be
and be deemed to be deleted therefrom and the number "10.76%" shall be and be
deemed to be substituted therefor; and (ii) the number "24,288" which appears in
subparagraph (a)(viii) of Article 37 of the Lease shall be and be deemed to be
deleted therefrom and the number "42,882" shall be substituted therefor.
5. A. As a material inducement to Owner to enter into this Amendment,
Tenant hereby agrees to improve, fixture and decorate the New Space to create
first class offices ("Tenant's New Space Work") in accordance with the plans and
specifications listed on Exhibit B annexed hereto and made a part hereof
("Tenant's New Space Plans").
B. (i) Owner shall reasonably cooperate with Tenant in obtaining
any permits which must be obtained in connection with Tenant's New Space Work.
Tenant's New Space Plans shall not be changed by Tenant without the prior
approval of Owner which shall not be unreasonably withheld or delayed. All
contractors or materialmen Tenant proposes to employ shall be subject to Owner's
prior approval, which approval shall not be unreasonably withheld, conditioned
or delayed.
(ii) (a) Promptly after the date hereof, Tenant shall file for
and secure or cause to be secured: (1) all necessary approvals of Tenant's New
Space Plans from all governmental authorities having jurisdiction thereover; and
(2) all permits and licenses necessary to perform Tenant's New Space Work.
Tenant shall furnish Owner with two (2) copies of Tenant's New Space Plans as
approved by such governmental authorities and two (2) copies of such permits and
licenses. In the event that Tenant is unable to obtain governmental approval of
Tenant's New Space Plans or any permits or licenses necessary to perform
Tenant's New Space Work solely due to the existence of violations of record
against the Building, Owner shall have the right to retain an expediter and
attempt to obtain approval of Tenant's New Space Plans or obtain such necessary
permits and licenses. If Owner or its expediter is unsuccessful in obtaining
approval of Tenant's New Space Plans and/or the necessary permits and licenses,
Owner shall remedy such violations to the extent necessary to obtain such
approvals, permits and licenses.
(b) Tenant shall enter into a construction contract with a
construction manager or general contractor reasonably acceptable to Owner. The
parties acknowledge that Owner has approved National Construction Group, Ltd. as
a construction manager for Tenant's New Space Work. Such construction contract
shall be subject to Owner's prior written approval, which shall not be
unreasonably withheld or delayed
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provided it includes indemnification, insurance and retainage provisions
acceptable to Owner and shall otherwise comply with the terms of the Lease and
this Amendment. Tenant shall furnish Owner with a copy of such executed
contract.
(iii) Following compliance by Tenant with its obligations under
subparagraphs B.(i) and (ii) of this Article and after furnishing to Owner one
(1) or more certificates evidencing that Tenant and Tenant's contractor or
construction manager have procured all of the insurance specified in Articles 3
and 44 of the Lease, Tenant shall promptly commence or cause to be commenced
Tenant's New Space Work and shall complete or cause the same to be completed
expeditiously in accordance with Tenant's New Space Plans, in a good and
workmanlike manner, in accordance with all applicable Requirements and in
accordance with Owner's work regulations for the Building. All of Tenant's New
Space Work shall be performed in a manner so as not to interfere with other
contractors, if any, in the Building. Passenger elevators shall not be used by
Tenant or its contractors to transport construction material and/or workers to
the New Space or any other part of the demised premises. Owner shall furnish
freight elevator service to the New Space for Tenant's performance of Tenant's
New Space Work during normal business hours on a nonexclusive "first come first
served basis" at no charge to Tenant and on non-business days and outside
normal business hours on business days at the Building standard rate then
charged by Owner. The current charge for overtime freight elevator service is
$75.00 per hour. At all times during the progress of Tenant's New Space Work,
Tenant shall permit Owner, its architect and other representatives of Owner
access to the New Space for the purpose of inspecting same, verifying
conformance of Tenant's New Space Work with Tenant's New Space Plans and
otherwise viewing the progress of Tenant's New Space Work.
(iv) Tenant shall pay its contractors, laborers, subcontractors,
materialmen and suppliers in accordance with their respective agreements and
shall not cause or suffer any liens, mortgages, chattel liens, or other title
retention or security agreements to be placed on the Building, the New Space,
any other part of the demised premises or any improvements therein. All
contracts or agreements made by Tenant with any third party or parties in
connection with Tenant's New Space Work or any other alterations, improvements,
changes, decorations or additions shall expressly provide that said third party
or parties shall look solely to Tenant for any and all payments to be made
pursuant to such contract or agreement and that Owner shall not have any
responsibility or liability for the payment thereof.
(v) (a) Subject to and in accordance with the provisions in this
subparagraph B.(v) set forth, Owner shall reimburse Tenant for an amount equal
to the lesser of: (x) Tenant's actual out-of-pocket cash payments for the
permanent leasehold improvements constituting part of Tenant's New Space Work
("Tenant's New Space Work Cost"), (except that it is agreed that up to
$32,540.00 of the cost of any moveable partitions, business or trade fixtures,
furniture, furnishings or other articles of personalty may be included but the
cost of no such items in excess of such amount shall be included in Tenant's
New Space Work Cost); or (y) $677,790.00.
(b) From time to time during the performance of Tenant's New
Space Work, but not more frequently than once a month, Tenant may submit to
Owner an Interim Statement setting forth in reasonable detail the amount of
Tenant's New Space Work Cost theretofore paid in respect of Tenant's New Space
Work theretofore completed and requesting reimbursement of a portion thereof
provided that the aggregate
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<PAGE> 75
amount of the reimbursement then requested by Tenant combined with any amounts
previously reimbursed pursuant to this subparagraph B.(v) does not exceed
$677,790.00. Tenant shall include with each Interim Statement: (1) copies of all
invoices in respect of all of Tenant's New Space Work theretofore performed; (2)
a certification from Tenant's architect certifying that the portion of Tenant's
New Space Work relating to such Tenant's New Space Work Cost has been completed;
and (3) evidence reasonably satisfactory to Owner establishing that all sums due
and owing to contractors, subcontractors and materialmen in respect of such
portion of Tenant's New Space Work have been paid including, without limitation,
lien waivers from such contractors, subcontractors and materialmen.
(c) On or before the thirtieth (30th) day after Owner receives an
Interim Statement, provided that Tenant is not in default under the Lease beyond
any notice and cure period set forth in the Lease, Owner shall reimburse Tenant
the amount properly requested in the Interim Statement.
(d) After Tenant has completed Tenant's New Space Work, Tenant
shall submit to Owner: (1) an affidavit executed by an officer of Tenant
("Tenant's New Space Work Statement") certifying that Tenant's New Space Work
has been completed and setting forth in reasonable detail Tenant's New Space
Work Cost; (2) copies of all invoices in respect of Tenant's New Space Work Cost
not theretofore furnished to Owner; (3) a certification from Tenant's architect
certifying that Tenant's New Space Work has been completed (which certification
shall be on the standard AIA form or on such other form which is approved by
Owner or its designated engineer or architect); and (4) evidence reasonably
satisfactory to Owner establishing that: (x) materialmen have been paid
including, without limitation, lien waivers from such contractors,
subcontractors and materialmen; (y) all governmental authorities (including,
without limitation, the New York City Department of Buildings) and fire
underwriters have issued final approval of Tenant's New Space Work as built and
the occupancy of the New Space; and (z) Tenant's New Space Work complies with
all Requirements.
(e) On or before the thirtieth (30th) day following the day on
which Owner receives Tenant's New Space Work Statement and all of the other
items specified in subparagraph B.(v)(d), Owner shall, provided Tenant is not in
default under the Lease beyond any notice and cure period set forth in the
Lease, reimburse Tenant in an amount equal to the excess of: (1) an amount equal
to the lower of: (x) Tenant's New Space Work Cost; or (y) $677,790.00 over (2)
the aggregate of all amounts paid by Owner to or on behalf of Tenant pursuant to
this subparagraph B.(v).
(iv) Nothing contained in this Article shall limit or qualify the
terms, covenants, agreements, provisions and conditions of Article 3 of the
Lease.
C. Owner shall permit Tenant, Tenant's contractors and materialmen to
perform Tenant's New Space Work in the New Space during the period that Owner is
performing the Base Building Work; provided, however, that Tenant shall not
delay, impede or interfere with the performance of the Base Building Work and
provided, further, that: (i) Owner shall have no responsibility for: (a) any
damage to or loss of any materials used or stored in the New Space; and (b) any
damage to the New Space caused by the performance of Tenant's New Space Work;
(ii) Owner shall have the right to bar Tenant and/or its contractors and/or
materialmen and/or agents from the New Space prior to the date the Base Building
Work is substantially completed if Owner determines, in its sole discretion,
that the performance of Tenant's New Space Work is delaying, impeding or
interfering with
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<PAGE> 76
the performance of the Base Building Work; and (iii) there shall be a one (1)
day reduction in the New Space Abatement Period for each day that the
performance of the Base Building Work is delayed solely by reason of the
performance of Tenant's New Space Work (such reduction in the New Space
Abatement Period shall be applied against the portions of the New Space
Abatement Period first occurring after the New Space Rent Commencement Date).
D. Tenant acknowledges that the Building heating system may not provide
sufficient heat to the New Space. As part of Tenant's New Space Work, Tenant
shall install such supplemental heating as it deems appropriate to adequately
heat the New Space. Owner and Tenant have adjusted the reimbursement amounts
set forth in this Article to account for such supplemental heating work.
6. A. Tenant shall, simultaneously with the execution and delivery of this
Amendment, remit to Owner additional security in the amount of $250,000.00
which, together with the $250,000.00 security deposit that Owner is currently
holding ($500,000.00 in the aggregate), shall be held by Owner in accordance
with Article 34 of the Lease and paragraphs (a) through (d) of Article 55 of
the Lease and paragraph B of this Article, it being understood that paragraph B
of this Article shall replace paragraph (e) of Article 55 of the Lease as
though said paragraph (e) had been deleted from the Lease and paragraph B
hereof had been inserted in its place and stead.
B. Provided, in each instance, that: (i) Tenant is not then in default
under the Lease as to which notice has been given; (ii) on or before the first
day of March and the first day of September of each year during the term of the
Lease Tenant has delivered to Owner a certificate prepared in each instance by
an independent certified public accountant reasonably acceptable to Owner, which
unconditionally states that, in accordance with generally accepted accounting
principles, Tenant has a net worth of at least $2,500,000.00; and (iii) within
ninety (90) days after the end of each calendar year Tenant has delivered to
Owner audited financial statements which indicate that Tenant has a net worth of
at least $2,500,000.00; then: (x) on the second anniversary of the Commencement
Date and on each anniversary of the Commencement Date thereafter occurring
through and including the ninth anniversary of the Commencement Date, the amount
of the security on deposit with Owner under the Lease shall, if Tenant so
requests, be reduced by Twenty-Five Thousand and 00/100 ($25,000.00) Dollars;
and (y) on the fifth anniversary of the New Space Date only, the amount of the
security on deposit with Owner under the Lease shall, if Tenant so requests, be
reduced by Two Hundred Seventeen Thousand Four Hundred Twenty-Four and 64/100
($217,424.64) Dollars. Notwithstanding the foregoing, in no event shall the
amount of security on deposit with Owner be less than Eighty-Two Thousand Five
Hundred Seventy-Five and 36/100 ($82,575.36) Dollars. Owner agrees that in each
case, Tenant may deliver to Owner an amended letter of credit for the applicable
reduced amount and Owner shall surrender the letter of credit then held by Owner
in exchange therefor provided that such amended letter of credit conforms to the
requirements of paragraph (b) of Article 55 of the Lease and is otherwise in
form and substance satisfactory to Owner. The failure of Tenant to meet the
requirements set forth in clauses (i), (ii) and (iii) of this paragraph B. in
any calendar year shall not preclude Tenant from meeting those requirements in
any subsequent calendar year and thereafter seeking a reduction in the security
deposit on the anniversary of the Commencement Date occurring in the next
succeeding year.
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7. A. Owner hereby notifies Tenant that in accordance with sections 305,
306, 309 or 310 of Title 25, Chapter 3 of the Administrative Code of the City
of New York (the "Landmarks Law") Tenant must obtain a permit from the
Landmarks Preservation Commission of the City of New York before commencing any
exterior or interior work in or to the Current Space or the New Space, except
for ordinary repair and maintenance as that term is defined in subdivision (r)
of section 302 of the Landmarks Law.
B. Owner hereby advises Tenant that the Building has been inspected
for asbestos containing material ("ACM") by an independent testing and
consulting service. Such report indicates ACM at the following locations: (i)
roof materials; (ii) floor tiles at certain locations; and (iii) pipe
insulation in certain enclosed columns.
C. Owner hereby represents to Tenant that there is no outstanding
mortgage affecting the Building.
8. Article 46 of the Lease shall be deemed unmodified hereby in its
application to the Current Space, but shall be deemed modified as herein
specified and, as so modified, shall be applicable to the New Space, it being
the intent of Owner and Tenant that Article 46 of the Lease, as the same
existed prior to this Amendment, shall be deemed reprinted at length herein
with the changes hereinafter specified and, as so reprinted, shall apply to the
New Space. The provisions of Article 46 of the Lease, as applicable to the New
Space, shall be deemed amended as follows: the words "this lease" wherever they
appear in Article 46 of the Lease shall be deleted therefrom and the words
"this Amendment" shall be substituted therefore solely with respect to the
application of Article 46 to the New Space.
9. The Lease is hereby amended by deleting the words "Chemical Bank (New
York)" from Article 48 of the Lease and substituting the words "The Chase
Manhattan Bank" in their place and stead.
10. Article 56 of the Lease is hereby deleted therefrom.
11. Article 41(i) of the Lease is hereby deleted therefrom and the
following is inserted in its place and stead: "A transfer of fifty (50%)
percent or greater interest (whether stock, partnership or otherwise) of Tenant
shall be deemed to be an assignment of this lease, either in one transaction or
in any series of transactions unless: (i) such transfer is accomplished by
means of a public offering of stock which is registered with the Securities and
Exchange Commission; (ii) such transfer is by a Principal (as hereinafter
defined) to a member of, or a direct lineal descendant of a member of, his
nuclear family or to an entity owned and controlled by, or a trust created for
the benefit, or a member of, or a direct lineal descendant of, his nuclear
family; or (iii) following such transfer: (a) one or more Principals shall,
individually or in the aggregate, at all times continue to own no less than
twenty-five (25%) percent of the voting stock of Tenant; and (b) one or more
Principals shall, individually or in the aggregate, at all times operate
Tenant. For purposes hereof, the term: (x) "Principal" shall mean each of
Jeffrey Najarian, Edward Shaw, George Stetford, Robert Gold and Mark
Arzoomanian; and (y) "operate" shall mean the possession of the power to direct
the management, policies and day-to-day operation of Tenant as well as the
distribution of Tenant's profits. Tenant represents and warrants to and for the
benefit of Owner that, as of the date hereof, Jeffrey Najarian, Edward Shaw and
George Stetford each own 11.66% of Tenant's voting stock, Robert Gold owns
10.3% of Tenant's voting stock and Mark Arzoomanian owns 8.93% of Tenant's
voting stock. Tenant hereby represents that as of the date hereof all of
Tenant's outstanding stock is voting stock."
12. Except as herein expressly amended, modified and supplemented, all of
the terms, conditions and provisions of the
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<PAGE> 78
Lease remain in full force and effect as heretofore written and, as hereby
amended, modified and supplemented, are hereby ratified and confirmed in every
respect. Tenant takes the occasion of the execution of this Amendment to confirm
that: (i) Tenant has been in possession of the Current Space for approximately
one (1) year and, as of the date hereof, is satisfied with the condition of the
Current Space and Owner is not required to do any work to or in respect of the
Current Space; (ii) as of the date hereof, Owner has fully and properly
fulfilled all of its obligations under the Lease; (iii) Tenant acknowledges that
it has no claims against Owner nor any setoffs under or in connection with the
Lease or otherwise; (iv) the Commencement Date (as defined in the Lease) was
July 1, 1997 and, accordingly, the fifth anniversary of the Commencement Date
will be July 1, 2002; and (v) the Expiration Date is December 31, 2007.
13. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York and shall, once it has been mutually executed
and delivered by Owner and Tenant, be binding upon the parties hereto and their
respective successors-in-interest and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above set forth.
ITW MORTGAGE INVESTMENTS III, INC.
By: GE Capital Realty Group,
Inc., its servicer
By: /s/ Jerry Tonn
------------------------------
Name: Jerry Tonn
Title: VP
TRANSACTION INFORMATION SYSTEMS, INC.
By: /s/ Jeffrey Najarian
------------------------------
Name: Jeffrey Najarian
Title: Chief Executive Officer
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<PAGE> 79
EXHIBIT A
1. Demolish the premises.
2. Repair the floor in the demised premises. Specifically, the floor slab in
the perimeter adjacent to the building should have holes filled, damaged
areas repaired and fire separations maintained to meet code requirements.
3. Repair and furr-out columns and exterior/core walls.
4. Repair/restore windows and panes as necessary and make operable including
replacing damaged window sills, jams and heads to underside of hung ceiling
which shall be agreed by both parties. All window treatments above will be
as per Owner's direction. Insulate the windows that will fall above the new
ceiling.
5. Insure that the new HVAC systems are functional and are of adequate tonnage
for building standard installation which will be detailed under separate
cover. Install main branch to demising wall of a/c room.
6. Repair or replace all valves, thermostats on all perimeter-heating units and
maintain all heating units, valves, stats and piping. Landlord to supply
new radiator covers, provide new Dan-Foss control valves on the perimeter
radiators and install radiators where radiators previously existed.
7. Provide a distribution system capable of 6 watts of power demand per
rentable square foot over and above HVAC power requirements. This will be
verified under separate cover.
8. Provide a main distribution panel for both power and lighting within the
space, as existing.
9. Repair entry doors, call button panels, and directional signals above
elevator cabs. Fire warden stations and fire alarm pull boxes to be located
as per building standard and in compliance with ADA requirements.
10. Provide fire alarm panels and tie-in to the building's Class E system.
(Points for Tenant's requirements will be provided by Owner, at Tenant's
expense.)
11. Create building standard mens and ladies lavatories with provisions for ADA
accessibility. Provide unisex lavatory if this is the best solution. Tenant
to give input on tile color selection.
12. All exposed structural steel members should be fire proofed as required by
code.
13. As required, install new doors, frames and hardware for all core related
spaces within the demised premises.
14. For building systems only, Owner to provide all necessary access doors to
valves, piping, etc., as required.
15. Furnish and install enclosing walls which form the a/c rooms and the ADA
unisex lavatory.
16. Additional air sensors are to be installed and tie into the Building's
Automated System. (Tenant to provide control panel board, FCD8
(approximate cost $1,200.00) at Tenant's sole cost and expense.)
<PAGE> 80
EXHIBIT B
[115 BROADWAY
2ND FLOOR]
-NOT TO SCALE-
ALL DIMENSIONS ARE APPROXIMATE
<PAGE> 81
SECOND AMENDMENT TO LEASE
Second Amendment to Lease (this "Amendment") dated as of December 4, 1998
by and between ITW MORTGAGE INVESTMENTS III, INC., a Delaware corporation
having an office c/o Newmark & Company Real Estate, Inc., 125 Park Avenue, New
York, New York 10017 ("Owner"), and TRANSACTION INFORMATION SYSTEMS, INC., a
Delaware corporation having its principal office and place of business at 115
Broadway, New York, New York 10006 ("Tenant").
W I T N E S S E T H :
WHEREAS, Tenant is the tenant of the entire rentable portion of the
twentieth (20th) floor and a portion of the twenty-first (21st) floor
(collectively, the Original Premises) and the entire rentable portion of the
second (2nd) floor (collectively, the "Presently Demised Premises") in the
building at 115 Broadway, New York, New York (the "Building") pursuant to a
lease dated as of August 28, 1996 (the "Original Lease") between Owner's
predecessor-in-interest and Tenant and a first amendment to lease (the "First
Amendment") dated as of October 20, 1998 (the Original Lease as amended by the
First Amendment is hereinafter referred to as the "Lease"); and
WHEREAS, Owner and Tenant wish to provide for the letting by Tenant of the
remaining rentable portion of the twenty-first (21st) floor of the Building
substantially as depicted on Exhibit A annexed hereto and made a part hereof
(the "Expansion Space") in addition to the Presently Demised Premises, and to
modify certain provisions of the Lease;
NOW, THEREFORE, in consideration of the sum of ten ($10.00) dollars and
other good and valuable consideration, the receipt and sufficiency of which are
hereby mutually acknowledged, Owner and Tenant hereby agree that from and after
the mutual execution and delivery of this Amendment the Lease shall be amended,
modified and supplemented as follows:
1. All words, terms or phrases used herein and defined in the Lease shall
have the meanings herein that are ascribed to them in the Lease unless herein
otherwise expressly specified.
2. From and after the Expansion Space Date (as hereinafter defined) all
references in the Lease to the demised premises shall be deemed to refer to both
the Presently Demised Premises and the Expansion Space to the end that such
combined space shall, from and after the Expansion Space Date, constitute the
demised premises but Article 42 of the Lease shall be inapplicable to the
Expansion Space. Tenant has examined the Expansion Space and agrees to accept
same in its existing condition, "as is" and further agrees that, except as
otherwise expressly specified in this Amendment, Owner shall have no obligation
to perform any work, supply any materials or incur any cost in preparation for
Tenant's occupancy of the Expansion Space except that Owner shall, at Owner's
expense, perform the work described in Exhibit B annexed hereto and made a part
hereof ("Owner's Expansion Space Work") in accordance with all applicable Legal
Requirements including, without limitation, the Americans with Disabilities Act
of 1990. Upon the completion of Owner's Expansion Space Work, Owner shall
deliver to Tenant an ACP-5 in respect of the Expansion Space. The "Expansion
Space Date" shall be the earlier of: (i) the day following the day on which
Owner's Expansion Space Work is substantially completed; or (ii) the day Tenant
first takes possession of all or any part of the Expansion Space. As used
herein, "substantially completed" shall mean that the portion of Owner's
Expansion Space Work remaining to be performed, if any, shall have reached the
stage of completion such that Tenant can use and occupy all or
<PAGE> 82
substantially all of the Expansion Space (other than, perhaps, a deminimis
portion thereof) and operate its business therein with not more than minimal
interference by reason of those items still required to complete Owner's
Expansion Space Work. The taking of possession of the Expansion Space or any
portion or portions thereof shall be conclusive evidence that the same are in
any event in satisfactory condition at the time such possession is so taken and
that Owner's Expansion Space Work has been satisfactorily completed except for
the "punch list" items of which Owner is notified in writing by Tenant within
ten (10) business days thereafter, (it being understood that Tenant's
performance of work in the Expansion Space pursuant to subparagraph C of Article
5 of this Amendment shall not be deemed to mean that Tenant has taken possession
of the Expansion Space for purposes of this sentence). Within ten (10) days
after the occurrence of the Expansion Space Date, Owner and Tenant shall execute
and deliver a certificate confirming the Expansion Space Date and the Expansion
Space Rent Commencement Date. In no event shall the failure of either party to
request such certificate or the failure or refusal of either party to execute
any such certificate in any way affect the Lease, this Amendment, the term of
the Lease or any obligations under the Lease or this Amendment including,
without limitation, Tenant's obligation to pay the Base Rent and additional rent
reserved in the Lease and each of the parties' obligations to perform all of the
other covenants and agreements set forth in the Lease and this Amendment. If
Owner has not substantially completed Owner's Expansion Space Work by the date
that is sixty (60) days after the mutual execution and delivery of this
Amendment, as such date may be extended: (x) by not more than thirty (30) days
for any of the reasons set forth in Article 27 of the Lease; and/or (y) by one
(1) day for each day that Tenant delays, interferes with or prohibits Owner from
performing and/or completing Owner's Expansion Space Work in whole or in part,
then the Expansion Space Rent Commencement Date (as hereinafter defined) shall
be delayed by one (1) day for each day after the 60th day that elapses before
Owner substantially completes Owner's Expansion Space Work and an additional one
(1) day for each day after the 90th day that elapses before Owner substantially
completes Owner's Expansion Space Work.
3. A. In addition to the Base Rent set forth in the Lease for the
Presently Demised Premises, Tenant shall pay Base Rent with respect to the
Expansion Space in the amount of:
(i) $180,757.00 per annum from the Expansion Space Rent
Commencement Date through and including the day that is one (1) day prior to
the first anniversary of the Expansion Space Rent Commencement Date;
(ii) $185,275.93 per annum from the first anniversary of the
Expansion Space Rent Commencement Date through and including the day that is
one (1) day prior to the second anniversary of the Expansion Space Rent
Commencement Date;
(iii) $189,907.82 per annum from the second anniversary of the
Expansion Space Rent Commencement Date through and including the day that is
one (1) day prior to the third anniversary of Expansion Space Rent Commencement
Date;
(iv) $194,655.52 per annum from the third anniversary of the
Expansion Space Rent Commencement Date through and including the day that is
one (1) day prior to the fourth anniversary of the Expansion Space Rent
Commencement Date;
(v) $215,239.91 per annum from the fourth anniversary of the
Expansion Space Rent Commencement Date through and including the day that is
one (1) day prior to the fifth anniversary of the Expansion Space Rent
Commencement Date;
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<PAGE> 83
(vi) $220,620.90 per annum from the fifth anniversary of the Expansion
Space Rent Commencement Date through and including the day that is one (1) day
prior to the sixth anniversary of the Expansion Space Rent Commencement Date;
(vii) $226,136.43 per annum from the sixth anniversary of the Expansion
Space Rent Commencement Date through and including the day that is one (1) day
prior to the seventh anniversary of the Expansion Space Rent Commencement Date;
(viii) $231,789.84 per annum from the seventh anniversary of the
Expansion Space Rent Commencement Date through and including the day that is one
(1) day prior to the eighth anniversary of the Expansion Space Rent Commencement
Date;
(xi) $237,584.58 per annum from the eighth anniversary of the
Expansion Space Rent Commencement Date through and including the Expiration
Date.
B. Provided that Tenant is not in default under the Lease beyond the
expiration of any applicable notice and cure period in the Lease set forth,
Tenant shall not be required to pay $15,063.08 of the Base Rent allocable to
each of the first four (4) months following the Expansion Space Rent
Commencement Date (the "Expansion Space Abatement Period"). The abatement of
rent granted to Tenant in this paragraph B is intended to be in addition to the
abatement of rent specified on the first page of the Original Lease and
Paragraph 3(B) of the First Amendment.
C. The Expansion Space Rent Commencement Date shall be the date that
is ninety (90) days after the Expansion Space Date.
4. A. Article 37 of the Original Lease shall be deemed unmodified
hereby in its application to the Presently Demised Premises but shall be deemed
modified as herein specified and, as so modified, shall be applicable to the
Expansion Space, it being the intent of Owner and Tenant that Article 37 of the
Original Lease, as the same existed prior to the execution of the First
Amendment, shall be deemed reprinted at length herein with the changes
hereinafter specified and as so reprinted shall apply to the Expansion Space.
The provisions of Article 37 of the Original Lease, as applicable to the
Expansion Space, shall be deemed amended as follows: (i) the number "6.1%" which
appears in subparagraph (a)(iv) of Article 37 of the Lease shall be and be
deemed to be deleted therefrom and the number "1.97%" shall be and be deemed to
be substituted therefor solely with respect to the application of Article 37 to
the Expansion Space; and (ii) the number "24,288" which appears in subparagraph
(a)(viii) of Article 37 of the Original Lease shall be and be deemed to be
deleted therefrom and the number "7,859" shall be substituted therefor solely
with respect to the application of Article 37 to the Expansion Space; and (iii)
the dates "July 1, 1996" and "June 30, 1997" which appear in subparagraph
(a)(iii) of Article 37 of the Original Lease shall be and be deemed to be
deleted therefrom and the dates "July 1, 1999" and "June 30, 2000" shall be
substituted respectively therefor solely with respect to the application of
Article 37 to the Expansion Space; and (iv) the term "Owner's Work" which
appears in subparagraph (i)(iv) of Article 37 of the Original Lease shall be and
be deemed to be deleted therefrom and the term "Owner's Expansion Space Work"
shall be substituted therefor solely with respect to the application of Article
37 to the Expansion Space; and (v) the term "demised premises" which appears in
subparagraph (i)(iv) of Article 37 of the Original Lease shall be and be deemed
to be deleted therefrom and the term "Expansion Space" shall be substituted
therefor solely with respect to the application of Article 37 to the Expansion
Space; and (vi) subparagraphs (a)(v) through (a)(vii) of Article 37 of the Lease
and subparagraph
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<PAGE> 84
(a) (ix) of Article 37 of the Original Lease shall be and be deemed to be
deleted therefrom solely with respect to the application of Article 37 to the
Expansion Space.
B. Paragraphs (b) and (e) of Article 37 of the Lease shall be
deemed unmodified hereby in their application to the Original Premises but
shall be inapplicable to the Expansion Space in respect of the period from the
Expansion Space Date to the Expiration Date.
C. Article 38 of the Original Lease shall be deemed unmodified
hereby in its application to the Presently Demised Premises but shall be deemed
modified as herein specified and, as so modified, shall be applicable to the
Expansion Space, it being the intent of Owner and Tenant that Article 38 of the
Original Lease, as the same existed prior to the execution of this Amendment,
shall be deemed reprinted at length herein with the changes hereinafter
specified and as so reprinted shall apply to the Expansion Space. The
provisions of Article 38 of the Original Lease, as applicable to the Expansion
Space, shall be deemed amended as follows: the words "seven (7) watts" which
appear in paragraph (b) shall be deleted therefrom and the words "six (6)
watts" shall be substituted therefor solely with respect the application of
Article 38 to the Expansion Space.
D. In the event Tenant properly renews the Lease pursuant to
Article 58 of the Original Lease, subparagraphs A. and B. of this Article shall
be inapplicable with respect to the Renewal Period only, and Article 37 of the
Original Lease as it applies to the Renewal Period only shall be deemed amended
as follows: (i) the number "6.1%" which appears in subparagraph (a)(iv) of
Article 37 of the Original Lease shall be and be deemed to be deleted therefrom
and the number "12.72%" shall be and be deemed to be substituted therefor; and
(ii) the number "24,288" which appears in subparagraph (a)(viii) of Article 37
of the Original Lease shall be and be deemed to be deleted therefrom and the
number 50,741 shall be substituted therefor.
5. A. As a material inducement to Owner to enter into this Amendment,
Tenant hereby agrees to improve, fixture and decorate the Expansion Space to
create first class offices ("Tenant's Expansion Space Work") in accordance with
the plans and specifications listed on Exhibit C annexed hereto and made a part
hereof ("Tenant's Expansion Space Plans").
B. (i) Owner shall reasonably cooperate with Tenant in obtaining
any permits which must be obtained in connection with Tenant's Expansion Space
Work. Tenant's Expansion Space Plans shall not be changed by Tenant without the
prior approval of Owner which shall not be unreasonably withheld or delayed.
All contractors or materialmen Tenant proposes to employ shall be subject to
Owner's prior approval, which approval shall not be unreasonably withheld,
conditioned or delayed.
(ii) (a) Promptly after the date hereof, Tenant shall file for
and secure or cause to be secured: (1) all necessary approvals of Tenant's
Expansion Space Plans from all governmental authorities having jurisdiction
thereover; and (2) all permits and licenses necessary to perform Tenant's
Expansion Space Work. Tenant shall furnish Owner with two (2) copies of
Tenant's Expansion Space Plans as approved by such governmental authorities and
two (2) copies of such permits and licenses. In the event that Tenant is unable
to obtain governmental approval of Tenant's Expansion Space Plans or any
permits or licenses necessary to perform Tenant's Expansion Space Work solely
due to the existence of violations of record against the Building, Owner shall
have the right to retain an expediter and attempt to obtain approval of Tenant's
Expansion Space Plans or obtain such necessary permits and licenses. If Owner
or its expediter is
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<PAGE> 85
unsuccessful in obtaining approval of Tenant's Expansion Space Plans and/or the
necessary permits and licenses, Owner shall remedy such violations to the
extent necessary to obtain such approvals, permits and licenses.
(b) Tenant shall enter into a construction contract with a
construction manager or general contractor reasonably acceptable to Owner. The
parties acknowledge that Owner has approved National Construction Group, Ltd.
as a construction manager for Tenant's Expansion Space Work. Such construction
contract shall be subject to Owner's prior written approval, which shall not be
unreasonably withheld or delayed provided it includes indemnification,
insurance and retainage provisions acceptable to Owner and shall otherwise
comply with the terms of the Lease and this Amendment. Tenant shall furnish
Owner with a copy of such executed contract.
(iii) Following compliance by Tenant with its obligations
under subparagraphs B. (i) and (ii) of this Article and after furnishing to
Owner one (1) or more certificates evidencing that Tenant and Tenant's
contractor or construction manager have procured all of the insurance specified
in Articles 3 and 44 of the Lease, Tenant shall promptly commence or cause to
be commenced Tenant's Expansion Space Work and shall complete or cause the same
to be completed expeditiously in accordance with Tenant's Expansion Space
Plans, in a good and workmanlike manner, in accordance with all applicable
Requirements and in accordance with Owner's work regulations for the Building.
All of Tenant's Expansion Space Work shall be performed in a manner so as not
to interfere with other contractors, if any, in the Building. Passenger
elevators shall not be used by Tenant or its contractors to transport
construction material and/or workers to the Expansion Space or any other part
of the demised premises. Owner shall furnish freight elevator service to the
Expansion Space for Tenant's performance of Tenant's Expansion Space Work
during normal business hours on a nonexclusive "first come first served basis"
at no charge to Tenant and on non-business days and outside normal business
hours on business days at the Building standard rate then charged by Owner. The
current charge for overtime freight elevator service is $75.00 per hour. At all
times during the progress of Tenant's Expansion Space Work, Tenant shall permit
Owner, its architect and other representatives of Owner access to the Expansion
Space for the purpose of inspecting same, verifying conformance of Tenant's
Expansion Space Work with Tenant's Expansion Space Plans and otherwise viewing
the progress of Tenant's Expansion Space Work.
(iv) Tenant shall pay its contractors, laborers,
subcontractors, materialmen and suppliers in accordance with their respective
agreements and shall not cause or suffer any liens, mortgages, chattel liens,
or other title retention or security agreements to be placed on the Building,
the Expansion Space, any other part of the demised premises or any improvements
therein. All contracts or agreements made by Tenant with any third party or
parties in connection with Tenant's Expansion Space Work or any other
alterations, improvements, changes, decorations or additions shall expressly
provide that said third party or parties shall look solely to Tenant for any
and all payments to be made pursuant to such contract or agreement and that
Owner shall not have any responsibility or liability for the payment thereof.
(v) (a) Subject to and in accordance with the provisions
in this subparagraph B. (v) set forth, Owner shall reimburse Tenant for an
amount equal to the lesser of: (x) Tenant's actual out-of-pocket cash payments
for the permanent leasehold improvements constituting part of Tenant's
Expansion Space Work ("Tenant's Expansion Space Work Cost"), (except that it is
agreed that up to $13,750 of the cost of any moveable
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<PAGE> 86
partitions, business or trade fixtures, furniture, furnishings or other articles
of personalty may be included but the cost of no such items in excess of such
amount shall be included in Tenant's Expansion Space Work Cost); or (y)
$275,065.
(b) From time to time during the performance of Tenant's
Expansion Space Work, but not more frequently than once a month, Tenant may
submit to Owner an Interim Statement setting forth in reasonable detail the
amount of Tenant's Expansion Space Work Cost theretofore paid in respect of
Tenant's Expansion Space Work theretofore completed and requesting
reimbursement of a portion thereof provided that the aggregate amount of the
reimbursement then requested by Tenant combined with any amounts previously
reimbursed pursuant to this subparagraph B.(v) does not exceed $275,065. Tenant
shall include with each Interim Statement: (1) copies of all invoices in
respect of all of Tenant's Expansion Space Work theretofore performed; (2) a
certification from Tenant's architect certifying that the portion of Tenant's
Expansion Space Work relating to such Tenant's Expansion Space Work Cost has
been completed; and (3) evidence reasonably satisfactory to Owner establishing
that all sums due and owing to contractors, subcontractors and materialmen in
respect of such portion of Tenant's Expansion Space Work have been paid
including, without limitation, lien waivers from such contractors,
subcontractors and materialmen.
(c) On or before the thirtieth (30th) day after Owner
receives an Interim Statement, provided that Tenant is not in default under the
Lease beyond any notice and cure period set forth in the Lease, Owner shall
reimburse Tenant the amount properly requested in the Interim Statement.
(d) After Tenant has completed Tenant's Expansion Space Work,
Tenant shall submit to Owner: (1) an affidavit executed by an officer of Tenant
("Tenant's Expansion Space Work Statement") certifying that Tenant's Expansion
Space Work has been completed and setting forth in reasonable detail Tenant's
Expansion Space Work Cost; (2) copies of all invoices in respect of Tenant's
Expansion Space Work Cost not theretofore furnished to Owner; (3) a
certification from Tenant's architect certifying that Tenant's Expansion Space
Work has been completed (which certification shall be on the standard AIA form
or on such other form which is approved by Owner or its designated engineer or
architect); and (4) evidence reasonably satisfactory to Owner establishing
that: (x) materialmen have been paid including, without limitation, lien
waivers from such contractors, subcontractors and materialmen; (y) all
governmental authorities (including, without limitation, the New York City
Department of Buildings) and fire underwriters have issued final approval of
Tenant's Expansion Space Work as built and the occupancy of the Expansion
Space; and (z) Tenant's Expansion Space Work complies with all Requirements.
(e) On or before the thirtieth (30th) day following the day
on which Owner receives Tenant's Expansion Space Work Statement and all of the
other items specified in subparagraph B.(v)(d), Owner shall, provided Tenant is
not in default under the Lease beyond any notice and cure period set forth in
the Lease, reimburse Tenant in an amount equal to the excess of: (1) an amount
equal to the lower of: (x) Tenant's Expansion Space Work Cost; or (y) $275,065
over (2) the aggregate of all amounts paid by Owner to or on behalf of Tenant
pursuant to this subparagraph B.(v).
(vi) Nothing contained in this Article shall limit or qualify
the terms, covenants, agreements, provisions and conditions of Article 3 of the
Lease.
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<PAGE> 87
C. Owner shall permit Tenant, Tenant's contractors and materialmen to
perform Tenant's Expansion Space Work in the Expansion Space during the period
that Owner is performing Owner's Expansion Space Work; provided, however, that
Tenant shall not delay, impede or interfere with the performance of Owner's
Expansion Space Work and provided, further, that: (i) Owner shall have no
responsibility for: (a) any damage to or loss of any materials used or stored in
the Expansion Space; and (b) any damage to the Expansion Space caused by the
performance of Tenant's Expansion Space Work; (ii) Owner shall have the right to
bar Tenant and/or its contractors and/or materialmen and/or agents from the
Expansion Space prior to the date Owner's Expansion Space Work is substantially
completed if Owner determines, in its sole discretion, that the performance of
Tenant's Expansion Space Work is delaying, impeding or interfering with the
performance of Owner's Expansion Space Work; and (iii) there shall be a one (1)
day reduction in the Expansion Space Abatement Period for each day that the
performance of Owner's Expansion Space Work is delayed solely by reason of the
performance of Tenant's Expansion Space Work (such reduction in the Expansion
Space Abatement Period shall be applied against the portions of the Expansion
Space Abatement Period first occurring after the Expansion Space Rent
Commencement Date).
6. A. Tenant shall, simultaneously with the execution and delivery of
this Amendment, remit to Owner additional security in the amount of $36,461.01
which, together with the $500,000.00 security deposit that Owner is currently
holding ($536,461.01 in the aggregate), shall be held by Owner in accordance
with Article 34 of the Original Lease and paragraphs (a) through (d) of Article
55 of the Original Lease and Paragraph 6(B) of the First Amendment.
B. The amount "Eighty-Two Thousand Five Hundred Seventy-Five and
36/100 ($82,575.36) Dollars" which appears in Paragraph 6(B) of the First
Amendment is hereby deleted therefrom and the amount One Hundred Nineteen
Thousand Thirty-Six and 37/100 ($119,036.37) Dollars is substituted in its
place and stead.
7. Article 46 of the Lease shall be deemed unmodified hereby in its
application to the Presently Demised Premises, but shall be deemed modified as
herein specified and, as so modified, shall be applicable to the Expansion
Space, it being the intent of Owner and Tenant that Article 46 of the Lease, as
the same existed prior to this Amendment, shall be deemed reprinted at length
herein with the changes hereinafter specified and, as so reprinted, shall apply
to the Expansion Space. The provisions of Article 46 of the Lease, as
applicable to the Expansion Space, shall be deemed amended as follows: the
words "this lease" wherever they appear in Article 46 of the Lease shall be
deleted therefrom and the words "this Amendment" shall be substituted therefore
solely with respect to the application of Article 46 to the Expansion Space.
8. A. Owner hereby notifies Tenant that in accordance with sections
305, 306, 309 or 310 of Title 25, Chapter 3 of the Administrative Code of the
City of New York (the "Landmarks Law") Tenant must obtain a permit from the
Landmarks Preservation Commission of the City of New York before commencing any
exterior or interior work in or to the Presently Demised Premises or the
Expansion Space except for ordinary repair and maintenance as that term is
defined in subdivision (r) of section 302 of the Landmarks Law.
B. Owner hereby advises Tenant that the Building has been inspected
for asbestos containing material ("ACM") by an independent testing and
consulting service. Such report indicates ACM at the following locations: (i)
roof materials;
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<PAGE> 88
(ii) floor tiles at certain locations; and (iii) pipe insulation in certain
enclosed columns.
C. Owner hereby represents to Tenant that there is no outstanding
mortgage affecting the Building.
9. Articles 56 and 57 of the Lease are hereby deleted therefrom.
10. Except as herein expressly amended, modified and supplemented, all of
the terms, conditions and provisions of the Lease remain in full force and
effect as heretofore written and, as hereby amended, modified and supplemented,
are hereby ratified and confirmed in every respect. Tenant takes the occasion
of the execution of this Amendment to confirm that: (i) Tenant has been in
possession of the Original Premises for approximately one (1) year and, as of
the date hereof, is satisfied with the condition of the Original Premises and
Owner is not required to do any work to or in respect of the Original Premises
as of the date hereof; (ii) as of the date hereof, Owner has fully and properly
fulfilled all of its obligations under the Lease other than its obligations to
perform the Base Building Work as set forth in the First Amendment and Owner's
Expansion Space Work as set forth herein; and (iii) Tenant acknowledges that it
has no claims against Owner nor any setoffs under or in connection with the
Lease or otherwise.
11. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York and shall, once it has been mutually executed
and delivered by Owner and Tenant, be binding upon the parties hereto and their
respective successors-in-interest and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above set forth.
ITW MORTGAGE INVESTMENTS III, INC.
By: GE Capital Realty Group, Inc.,
its servicer
By: /s/ Jerry Tonn
-----------------------------------
Name: Jerry Tonn
Title: VP
TRANSACTION INFORMATION SYSTEMS, INC.
By: /s/ Mark Arzoornanian
---------------------------------------
Name: Mark Arzoornanian
Title: SVP - Treasurer
-8-
<PAGE> 89
EXHIBIT A
[DIAGRAM OF ORIGINAL PREMISES (PART) AND EXPANSION SPACE]
[DESCRIPTION TO COME]
Not to Scale
All Dimensions are Approximate
<PAGE> 90
EXHIBIT B
- - Repair any leaks in the Building's roof.
- - Demolish the existing installation in the Expansion Space.
- - Repair drywall at columns and perimeter walls.
- - Provide a new HVAC system (tonnage to be detailed under separate cover) and
install main branch from mechanical room to demising wall of Expansion
Space.
- - Landlord to install air sensors and tie into Building automated systems.
(Tenant to provide control panel board and FCD8 at Tenant's sole cost and
expense.)
- - Repair or replace all valves and thermostats on all perimeter-heating units
and maintain all heating units, valves, thermostats, and piping.
- - Fire proof all exposed structural steel.
- - Install new doors, frames and hardware for all core-related spaces within
the Expansion Space. Install access doors to valves, piping, etc. as
required.
- - Provide a main distribution switch for both power and lighting connected to
the new bus riser switch on the 21st floor that serves only the Tenant's
premises.
- - Provide fire alarm panels.
- - Repair and/or restore all windows and panes as reasonably necessary
including making them operable, replacing damaged sills, jams and heads to
the underside of the hung ceiling.
- - Provide an electric distribution system capable of 6 watts demand load per
rentable square foot over and above HVAC power requirements.
<PAGE> 91
EXHIBIT C
[NEWMARK LETTERHEAD]
February 25, 1999
Mr. Jeff Najarian
Transaction Information Systems, Inc.
115 Broadway, 20th Floor
New York, NY 10006
Re: 115 Broadway, 21st Floor
Dear Jeff,
We have reviewed and approved the Transaction Information Systems drawings AA,
AB, A-1 through A-4 dated February 11, 1999; drawing A-6 dated February 12,
1999; drawings M-1 through M-3, E-1 through E-4, FA-1 and P-1 through P-2 dated
February 16, 1999; and drawings E-5 through E-7 not dated; prepared by The
Phillips Group.
As presented and with reference to the attached letter dated February 25, 1999
directed to Kevin Driscoll, the aforementioned plans and specifications do not
call for the construction of any specialty alteration, as defined in the
subject lease.
Very truly yours,
Newmark & Co. Real Estate, Inc. as agent for
I.T.W. Mortgage Investments III
/s/ Robert Cum
By: Robert Cum
Building Manager
<PAGE> 92
[NEWMARK LETTERHEAD]
February 25, 1999
Mr. Kevin Driscoll
The Phillips Group
11 West 42nd Street
New York, NY 10036
RE: TRANSACTION INFORMATION SYSTEMS
115 BROADWAY, 21ST FLOOR
Dear Kevin,
As discussed the furniture layout prohibits access to base building heating
systems and should be designed to allow a minimum one foot (1') clearance from
the convector line.
Very truly yours,
Newmark & Co. Real Estate, Inc. as agent for
I.T.W. Mortgage Investments III
/s/ Robert Cum
By: Robert Cum
Building Manager
<PAGE> 1
Exhibit 10.5
[MERRILL LYNCH LETTERHEAD]
November 17, 1998
Mr. Mark Gutterman
Transaction Information Systems, Inc.
115 Broadway, 20th Floor
New York, NY 10006
Re: WCMA LINE OF CREDIT INCREASE AND EXTENSION
Dear Mr. Gutterman,
I am pleased to advise you that the request of Transaction Information Systems,
Inc. for an increase and extension of its WCMA Line of Credit and letter of
credit availability has been approved upon the terms set forth in the enclosed
Letter Agreement. NOTE THAT THE EXTENSION IS FOR AN ADDITIONAL TWO-YEAR PERIOD.
Please note that THERE IS AN OPTION IN THE LETTER AGREEMENT TO PAY THE ANNUAL
LETTER OF CREDIT COMMITMENT FEE EITHER BY PAYING IT DIRECTLY BY CHECK OR
AUTHORIZING US TO CHARGE THE WCMA ACCOUNT. If there is no line of credit
availability under the WCMA Line of Credit, I recommend that you pay this fee
by check to avoid an overdraft in the WCMA Account.
Note further that, among other conditions in said Letter Agreement, in order
for this increase and extension to become effective, one copy of the enclosed
Letter Agreement must be fully executed and returned to me within 14 days from
the date hereof.
If you have any questions, please call me at (312) 269-4483.
Very truly yours,
MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC.
By: /s/ Nicole Bustos
------------------------
Nicole Bustos
Assistant Vice President
cc: Duncan McCallum
<PAGE> 2
[MERRILL LYNCH LETTERHEAD]
November 17,1998
Transaction Information Systems, Inc.
115 Broadway, 20th Floor
New York, NY 10006
RE: WCMA LINE OF CREDIT INCREASE AND EXTENSION
Ladies and Gentlemen:
This Letter Agreement will serve to confirm certain agreements of Merrill
Lynch Business Financial Services Inc. ("MLBFS") and Transaction Information
Systems, Inc. ("Customer") with respect to: (i) that certain WCMA NOTE, LOAN
AND SECURITY AGREEMENT NO. 405-07578 between MLBFS and Customer (including any
previous amendments and extensions thereof), and (ii) all other agreements
between MLBFS and Customer or any party who has guaranteed or provided
collateral for Customer's obligations to MLBFS (a "Guarantor") in connection
therewith (collectively, the "Loan Documents"). Capitalized terms used herein
and not defined herein shall have the meaning set forth in the Loan Documents.
Subject to the terms hereof, effective as of the "Effective Date" (as defined
below) the Loan Documents are hereby amended as follows:
(a) Customer has merged with Transaction Information Systems, Inc., a
corporation organized and existing under the laws of the State of Delaware.
Pursuant to the merger, all references to Customer shall now mean Transaction
Information Systems, Inc., a Delaware Corporation.
(b) The "Maturity Date" of the WCMA Line of Credit is hereby extended to
October 31, 2000.
(c) The "Maximum WCMA Line of Credit" is hereby increased to an amount equal to
the lesser of: (A) 80% of Customer's and each Business Guarantor's domestic
Accounts and Chattel Paper, as shown on its regular books and records
(excluding Accounts over 90 days old, Chattel Paper with installments or other
sums more than 90 days past due, and Accounts and Chattel Paper directly or
indirectly due from any person or entity not domiciled in the United States or
from any shareholder, officer, or employee of Customer or any affiliated
entity), less the Maximum WCMA Line of Credit of Setford-Shaw-Najarian
Associates, Ltd, WCMA No. 405-07553 and the Maximum WCMA Line of Credit of TIS
Equipment Corp., WCMA NO. 405-07664 or (B) $9,000,000.00. Increases and
decreases in the Maximum WCMA Lien of Credit may be made by MLBFS pursuant to
said formula at any time or times without notice. However, MLBFS will not in
any event be obligated to make any increase in the Maximum WCMA Line of Credit
pursuant to said formula more than once in any calendar month.
(d) MLBFS has further approved an extension until the new Maturity Date of the
letter of credit availability for Customer under the WCMA Line of Credit, in an
aggregate amount up to the lesser of: (i) $500,000.00 or (ii) the remaining
availability under Customer's WCMA Line of Credit after
<PAGE> 3
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
Transaction Information Systems, Inc.
November 17, 1998
Page No. 2
giving effect to all outstanding WCMA Loans and amounts reserved for
outstanding letters of credit. In connection with said extension, Customer
hereby authorizes MLBFS to charge to Customer's WCMA Account via the Funds
Transfer Service: (a) a Letter of Credit Facility Commitment Fee in the amount
of $1,250.00 on the Effective Date, and again at the expiration of each full
year of the renewal term; and (b) all other fees from time to time payable in
accordance with the terms of the Letter of Credit Supplement included in the
Loan Documents. In lieu of authorizing MLBFS to charge the Letter of Credit
Commitment Fee using FTS, Customer may pay said fee by check concurrently with
the execution and return of this Letter Agreement.
(e) "Obligation" shall mean all liabilities, indebtedness and other obligations
of Customer, Setford-Shaw-Najarian Associates, Ltd. or TIS Equipment Corp. to
MLBFS, howsoever created, arising or evidenced, whether now existing or
hereafter arising, whether direct or indirect, absolute or contingent, due or
to become due, primary or secondary or joint or several, and, without limiting
the foregoing, include all present and future liabilities, indebtedness and
obligations of Customer under this Loan Agreement, under that certain, Working
Capital Management Account Agreement and related WCMA Note and Security
Agreement No. 405-07553, and under that certain WCMA Loan and Security
Agreement No. 405-07664.
(f) The annual "Line Fee" during the period ending October 31, 2000, shall be
$67,500.00. Customer hereby authorizes and directs MLBFS to charge said amount
to WCMA Account No. 405-07578 on or at any time after the Effective Date, and
again at the expiration of each year of the renewal term.
(g) The term "Interest Rate" shall mean a variable per annum rate of interest
equal to the sum of 2.50% and the 30-Day Commercial Paper Rate. The "30-Day
Commercial Paper Rate" shall mean, as of the date of any determination, the
interest rate from time to time published in the "Money Rates" section of The
Wall Street Journal for 30-day high-grade unsecured notes sold through dealers
by major corporations. The Interest Rate will change as of the date of
publication in The Wall Street Journal of a 30-Day Commercial Paper Rate that
is different from that published on the preceding Business Day. In the event
that The Wall Street Journal shall, for any reason, fail or cease to publish
the 30-Day Commercial Paper Rate, MLBFS will choose a reasonably comparable
index or source to use as the basis for the Interest Rate.
(h) Within 120 days after the close of each fiscal year of Customer and each
Business Guarantor, Customer shall furnish or cause to be furnished to MLBFS a
copy of the annual audited financial statements of Customer and each Business
Guarantor, consisting of at least a consolidated balance sheet as at the close
of such fiscal year and related statements of income, retained earnings and
cash flows, certified by their current independent certified public accountants
or other independent certified public accountants reasonably acceptable to
MLBFS.
(i) Within 45 days after the close of each fiscal quarter of Customer and each
Business Guarantor, Customer shall furnish or cause to be furnished to MLBFS:
(i) their statement of profit and loss for the fiscal quarter then ended, and
(ii) a balance sheet as at the close of each fiscal quarter all in reasonable
detail and certified by their respective chief financial officer.
(j) Within 15 days after the close of each fiscal month of Customer and each
Business Guarantor, Customer shall furnish or cause to be furnished to MLBFS an
aging of Accounts and Chattel Paper for Customer as of the end of such fiscal
month, in reasonable detail and certified by its chief financial officer.
<PAGE> 4
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
Transaction Information Systems, Inc.
November 17, 1998
Page No. 4
MLBFS shall have reviewed and approved this Letter Agreement as being consistent
in all respects with the original internal authorization hereof.
Notwithstanding the foregoing, if Customer and the Guarantors do not execute
and return the duplicate copy of this Letter Agreement within 14 days from the
date hereof, or if for any other reason (other than the sole fault of MLBFS)
the Effective Date shall not occur within said 14-day period, then all of said
amendments and agreements will, at the sole option of MLBFS, be void.
Very truly yours,
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
By: /s/ Nicole Bustos
-----------------------------------------
Nicole Bustos
Assistant Vice President
Accepted:
TRANSACTION INFORMATION SYSTEMS, INC.
By: /s/ Jeffrey Najarian
-----------------------------------------
Printed Name: Jeffrey Najarian
Title: President
Approved:
SETFORD-SHAW-NAJARIAN ASSOCIATES, LTD
By: /s/ Jeffrey Najarian
-----------------------------------------
Printed Name: Jeffrey Najarian
Title:
TIS EQUIPMENT CORP.
By: /s/ Jeffrey Najarian
-----------------------------------------
Printed Name: Jeffrey Najarian
Title:
<PAGE> 5
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
Transaction Information Systems, Inc.
November 17, 1998
Page No. 5
/s/ Edward Shaw
- -------------------------------------
Edward Shaw
/s/ Jeffrey Najarian
- -------------------------------------
Jeffrey Najarian
/s/ Johnathan Todar
- -------------------------------------
Johnathan Todar
/s/ Mark Arzoomanian
- -------------------------------------
Mark Arzoomanian
/s/ George Setford
- -------------------------------------
George Setford
/s/ Robert Gold
- --------------------------------------
Robert Gold
/s/ Mitchell Fass
- --------------------------------------
Mitchell Fass
<PAGE> 6
[Merrill Lynch logo] UNCONDITIONAL GUARANTY
- -------------------------------------------------------------------------------
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend credit
or lease property to or for the benefit of, or modify its credit relationship
with, or enter into any other financial accommodations with TRANSACTION
INFORMATION SYSTEMS, INC., a corporation organized and existing under the laws
of the State of Delaware (with any successor in interest, including, without
limitation, any successor by merger or by operation of law, herein collectively
referred to as "Customer") under: (a) that certain WCMA NOTE, LOAN AND SECURITY
AGREEMENT NO. 405-07578 between MLBFS and Customer (the "Loan Agreement"), (b)
any "Additional Agreements", as that term is defined in the Loan Agreement, and
(c) all present and future amendments, restatements, supplements and other
evidences of any extensions, increases, renewals, modifications and other
changes of or to the Loan Agreement or Additional Agreements (collectively, the
"Guaranteed Documents"), the undersigned (individually, "Guarantor", and
collectively "Guarantors") hereby jointly and severally unconditionally
guarantee to MLBFS (subject, however, to the limitation of liability hereinafter
set forth): (i) the prompt and full payment when due, by acceleration or
otherwise, of all sums now or any time hereafter due from Customer to MLBFS
under the Guaranteed Documents, (ii) the prompt, full and faithful performance
and discharge by Customer of each and every other covenant and warranty of
Customer set forth in the Guaranteed Documents, and (iii) the prompt and full
payment and performance of all other indebtedness, liabilities and obligations
of Customer to MLBFS, howsoever created or evidenced, and whether now existing
or hereafter arising (collectively, the "Obligations"). Guarantors further agree
to pay all reasonable costs and expenses (including, but not limited to, court
costs and reasonable attorneys' fees) paid or incurred by MLBFS in endeavoring
to collect or enforce performance of any of the Obligations, or in enforcing
this Guaranty. Guarantors acknowledge that MLBFS is relying on the execution and
delivery of this Guaranty in advancing moneys to or extending or continuing to
extend credit to or for the benefit of Customer.
Subject to the limitation of liability hereinafter set forth, this Guaranty is
absolute, unconditional and continuing and shall remain in effect until all of
the Obligations shall have been fully and indefeasibly paid, performed and
discharged. Upon the occurrence and during the continuance of any Event of
Default under the Guaranteed Documents, any or all of the indebtedness hereby
guaranteed then existing shall, at the option of MLBFS, become immediately due
and payable from Guarantors (it being understood, however, that upon the
occurrence of any "Bankruptcy Event", as defined in the Guaranteed Documents,
all such indebtedness shall automatically become due and payable without action
on the part of MLBFS). Notwithstanding the occurrence of any such event, this
Guaranty shall continue and remain in full force and effect. To the extent that
MLBFS receives payment with respect to the Obligations, and all or any part of
such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside, required to be repaid by MLBFS or is repaid by MLBFS
pursuant to a settlement agreement, to a trustee, receiver or any other person
or entity, whether under any Bankruptcy law or otherwise (a "Returned
Payment"), this Guaranty shall continue to be effective or shall be reinstated,
as the case may be, to the extent of such payment or repayment by MLBFS, and
the indebtedness or part thereof intended to be satisfied by such Returned
Payment shall be revived and continued in full force and effect as if said
Returned Payment had not been made.
The liability of Guarantors hereunder shall in no event be affected or impaired
by any of the following, any of which may be done or omitted by MLBFS from
time to time, without notice to or the consent of any Guarantor: (a) any
renewals, amendments, modifications or supplements of or to any of the
Guaranteed Documents, or any extensions, forbearances, compromises or releases
of any of the Obligations or any of MLBFS' rights under any of the Guaranteed
Documents; (b) any acceptance by MLBFS of any collateral or security for, or
other guarantees of, any of the Obligations; (c) any failure, neglect or
omission on the part of MLBFS to realize upon or protect any of the
Obligations, or any collateral or security therefor, or to exercise any lien
upon or right of appropriation of any moneys, credits or property of Customer
or any other guarantor, possessed by or under the control of MLBFS or any of
its affiliates, toward the liquidation or reduction of the Obligations; (d) any
invalidity, irregularity or unenforceability of all or any part of the
Obligations, or any collateral security for the Obligations, or the Guaranteed
Documents; (e) any application of payments or credits by MLBFS; (f) the
granting of credit from time to time by MLBFS to Customer in excess of the
amount set forth in the Guaranteed Documents; or (g) any other act of commission
or omission of any kind or at any time upon the part of MLBFS or any of its
affiliates or any of their respective employees or agents with respect to any
matter whatsoever. MLBFS shall not be required at any time, as a condition of
Guarantors' obligations hereunder, to resort to payment from Customer or other
persons or entities whatsoever, or any of their properties or estates, or
resort to any collateral or pursue or exhaust any other rights or remedies
whatsoever.
No release or discharge in whole or in part of any one or more of the
Guarantors or any other guarantor of the Obligations shall release or discharge
any of the other Guarantors or any other guarantor, unless and until all of the
Obligations shall have been indefeasibly fully paid and discharged. Guarantors
expressly waive presentment, protest, demand, notice of dishonor or default,
notice of acceptance of this Guaranty, notice of advancement of funds under the
Guaranteed Documents and all other notices and formalities to which Customer or
Guarantors might be entitled, by statute or otherwise, and, so long as there
are any Obligations or MLBFS is committed to extend credit to Customer,
Guarantors waive any right to revoke or terminate this Guaranty without the
express written consent of MLBFS.
So long as there are any Obligations, Guarantors shall not have any claim,
remedy or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security when MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantors at any time during the
continuance of an Event of Default under the Loan Agreement or any other of the
Guaranteed Documents or in respect of any of the Obligations, in its sole
discretion and without demand or notice of any kind, to appropriate, hold, set
off and apply toward the payment of any amount due hereunder, in such order of
application as MLBFS may elect, all cash, credits, deposits, accounts,
financial assets, investment property, securities and any other property of any
Guarantor which is in transit to or in the possession, custody or control of
MLBFS or Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), or any
of their respective agents, bailees or affiliates. Guarantors hereby
collaterally assign and grant to MLBFS a continuing security interest in all
such property as additional security for the Obligations. Upon the occurrence
and
<PAGE> 7
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may
otherwise from time to time reasonably request. Guarantor further hereby
irrevocably authorizes MLBFS and each of its affiliates, including without
limitation MLPF&S, to at any time (whether or not an Event of Default shall
have occurred) obtain from and disclose to each other any and all financial and
other information about Guarantor.
No delay on the part of MLBFS in the exercise of any right or remedy under the
Guaranteed Documents, this Guaranty or any other agreement shall operate as a
waiver thereof, and, without limiting the foregoing, no delay in the
enforcement of any security interest, and no single or partial exercise by
MLBFS or any right or remedy shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. This Guaranty may be
executed in any number of counterparts, each of which counterparts, once they
are executed and delivered, shall be deemed to be an original and all of which
counterparts taken together, shall constitute but one and the same Guaranty.
This Guaranty shall be binding upon Guarantor and its successors and assigns,
and shall inure to the benefit of MLBFS and its successors and assigns. If
there are more than one guarantor of the Obligations, all of the obligations
and agreements of Guarantor are joint and several with such other guarantors.
This Guaranty shall be governed by the laws of the State of Illinois. WITHOUT
LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS GUARANTY IN ANY JURISDICTION AND
VENUE PERMITTED BY APPLICABLE LAW, GUARANTOR AGREES THAT THIS GUARANTY MAY AT
THE OPTION OF MLBFS BE ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN WHICH
ANY OF THE GUARANTEED DOCUMENTS MAY BE ENFORCED. GUARANTOR AND MLBFS HEREBY
EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER
PARTY IN ANY WAY RELATED TO OR ARISING OUT OF THIS GUARANTY OR THE OBLIGATIONS.
Wherever possible each provision of this Guaranty shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Guaranty shall be prohibited by or invalid under such law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Guaranty. No modification or waiver of any of the
provisions of this Guaranty shall be effective unless in writing and signed by
both Guarantor and an officer of MLBFS. Each signatory on behalf of Guarantor
warrants that he or she has authority to sign on behalf of Guarantor, and by so
signing, to bind Guarantor hereunder.
Dated as of November 17, 1998.
TRANSACTION INFORMATION SYSTEMS, INC.
By: /s/ Jeffrey Najarian
--------------------------------------------
Signature (2) Signature (2)
Jeffrey Najarian
--------------------------------------------
Printed Name Printed Name
Pres.
--------------------------------------------
Title Title
Address of Guarantor:
115 BROADWAY, 20TH FLOOR
NEW YORK, NY 10006
-2-
<PAGE> 8
FOR THE PURPOSES HEREOF, SAID MAXIMUM LIABILITY SHALL BE BASED UPON CUSTOMER'S
OBLIGATIONS OUTSTANDING AT THE TIME MLBFS PROVIDES GUARANTORS WITH A "PAYMENT
DEMAND" (AS HEREAFTER DEFINED), SAID MAXIMUM LIABILITY SHALL BE INCREASED BY;
(i) INTEREST, FROM THE DATE WHICH IS 5 BUSINESS DAYS AFTER THE DATE OF RECEIPT
BY GUARANTORS OF A PAYMENT DEMAND TO THE DATE OF PAYMENT, AT THE HIGHEST
"INTEREST RATE" UNDER THE GUARANTEED DOCUMENTS, (ii) ANY ADDITIONAL ADVANCES BY
MLBFS TO CUSTOMER AFTER THE DATE OF SUCH PAYMENT DEMAND NOT REPAID BY CUSTOMER,
AND (iii) ALL OUT-OF-POCKET COSTS AND EXPENSES OF MLBFS IN ENFORCING THIS
GUARANTY, INCLUDING REASONABLE ATTORNEYS' FEES AND EXPENSES. THE MAXIMUM
LIABILITY OF GUARANTORS HEREUNDER SHALL NOT BE REDUCED OR AFFECTED BY ANY
COLLATERAL FURNISHED BY CUSTOMER OR ANY GUARANTOR, AND NO RECOVERY BY MLBFS FROM
ANY SUCH COLLATERAL SHALL BE CONSIDERED PAYMENT ON ACCOUNT OF SUCH MAXIMUM
LIABILITY (EXCEPT THAT IN NO EVENT WILL THE TOTAL AMOUNT RECOVERABLE BY MLBFS
EXCEED THE TOTAL OBLIGATIONS). AS USED HEREIN, "PAYMENT DEMAND" SHALL MEAN A
WRITTEN DEMAND BY MLBFS TO GUARANTORS STATING THAT ONE OR MORE EVENTS OF DEFAULT
UNDER THE GUARANTEED DOCUMENTS HAVE OCCURRED AND ARE CONTINUING, GENERALLY
STATING THE NATURE OF SUCH EVENT OR EVENTS OF DEFAULT, STATING THE DOLLAR AMOUNT
DUE UNDER THIS GUARANTY, AND DEMANDING PAYMENT FROM GUARANTORS OF SUCH AMOUNT.
Date as of November 17, 1998.
Guarantor. Address: List all
/s/ Edward Shaw
- -----------------------------
EDWARD SHAW
/s/ Jeffery Najarian
- -----------------------------
JEFFERY NAJARIAN
/s/ Johnathan Toder
- -----------------------------
JOHNATHAN TODER
/S/ Mark Arzoomanian
- -----------------------------
MARK ARZOOMANIAN
/s/ George Setford
- -----------------------------
GEORGE SETFORD
/s/ Robert Gold
- -----------------------------
ROBERT GOLD
/s/ Mitchell Fass
- -----------------------------
MITCHELL FASS
Witness: /s/ Cynthia Lopez
--------------------
Printed Name X CYNTHIA LOPEZ
---------------
-3-
<PAGE> 1
Exhibit 10.6
PREFERRED STOCK
PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.,
THE SHAREHOLDERS OF
TRANSACTION INFORMATION SYSTEMS, INC.,
GS CAPITAL PARTNERS III, L.P.,
GS CAPITAL PARTNERS III OFFSHORE, L.P.
GOLDMAN, SACHS & CO. VERWALTUNGS GmbH
STONE STREET FUND 1998, L.P. AND
BRIDGE STREET FUND 1998, L.P.
<PAGE> 2
TABLE OF CONTENTS
Page
----
SECTION 1. Issuance and Sale of the Series A Preferred Stock.............. 2
1.1. The Purchase.................................................. 2
1.2. The Use of Proceeds from the Purchase......................... 2
1.3. Pro Rata Redemption; Option Cashout........................... 3
1.4. The Closing .................................................. 3
1.5. Actions at the Closing........................................ 3
1.6. Deliveries at the Closing..................................... 5
1.7. Dividend ..................................................... 5
1.8. Shareholders Equity Adjustment................................ 6
1.9. Post-Closing Adjustment....................................... 8
1.10. Additional Issuances; Purchase Price Adjustment.............. 12
SECTION 2. Representations and Warranties of the Corporation.............. 13
2.1. Organization and Good Standing; Power and Authority;
Qualifications........................................... 13
2.2. Authorization of the Documents................................ 13
2.3. Capitalization................................................ 14
2.4. Authorization and Issuance of Capital Stock................... 15
2.5. Subsidiaries.................................................. 16
2.6. Financial Statements.......................................... 17
2.7. Absence of Undisclosed Liabilities............................ 17
2.8. Absence of Changes............................................ 18
2.9. No Conflict................................................... 19
2.10. Agreements .................................................. 19
2.11. Intellectual Property Matters................................ 20
2.12. "Year 2000."................................................. 22
2.13. Corporate Minute Books....................................... 22
2.14. Personal Property; Real Property............................. 22
2.15. Employee Benefit Plans....................................... 24
2.16. Labor Relations; Employees................................... 26
2.17. Litigation; Orders........................................... 27
2.18. Compliance with Laws; Permits................................ 27
2.19. Commissions, Etc............................................. 27
2.20. Offering Exemption........................................... 28
2.21. Related Transactions......................................... 28
2.22. Taxes ....................................................... 29
2.23. Consents .................................................... 31
2.24. Insurance ................................................... 31
2.25. Brokers ..................................................... 31
- i -
<PAGE> 3
2.26. Suppliers and Customers...................................... 31
2.27. Investment Banking Services.................................. 32
2.28. Suitability.................................................. 32
2.29. Use of Proceeds.............................................. 32
2.30. Disclosure .................................................. 32
2.31. Contribution of TIS Equipment Stock.......................... 32
2.32. Closing Actions.............................................. 33
SECTION 3. Representations and Warranties of Each Investor................ 33
SECTION 4. Certain Covenants.............................................. 34
4.1. Access to Records............................................. 34
4.2. Financial Reports............................................. 34
4.3. System of Accounting.......................................... 36
4.4. Maintenance of Corporate Existence, Etc....................... 37
4.5. Compliance with Laws.......................................... 37
4.6. Maintenance of Properties and Leases.......................... 37
4.7. Insurance .................................................... 37
4.8. Licenses and Permits.......................................... 37
4.9. Employee Nondisclosure Agreements............................. 37
4.10. Disclosure of Investment..................................... 38
4.11. Restrictive Covenant........................................ 38
4.12. Change in Tax Accounting Method............................. 38
4.13. TIS Equipment Options....................................... 39
SECTION 5. Certain Taxes ................................................. 39
SECTION 6. Legends; Exchanges; Lost, Stolen or Mutilated Certificates..... 39
SECTION 7. Survival of Representations, Warranties, Agreements and
Covenants, Etc............................................. 41
SECTION 8. Expenses ...................................................... 41
SECTION 9. Indemnification................................................ 41
9.1. General Indemnification....................................... 42
9.2. Indemnification Principles.................................... 43
9.3. Claim Notice.................................................. 43
SECTION 10. Special Indemnification of the Corporation.................... 44
SECTION 11. Appointment of Agent for the Existing Stockholders............ 45
SECTION 12. Remedies ..................................................... 46
- ii -
<PAGE> 4
SECTION 13. Further Assurances............................................ 46
SECTION 14. Successors and Assigns........................................ 46
SECTION 15. Entire Agreement.............................................. 47
SECTION 16. Notices ...................................................... 47
SECTION 17. Amendments; Enforcement....................................... 49
SECTION 18. Counterparts ................................................. 49
SECTION 19. Headings ..................................................... 49
SECTION 20. Nouns and Pronouns............................................ 49
SECTION 21. Governing Law ................................................ 50
SECTION 22. Severability ................................................. 50
- iii -
<PAGE> 5
Schedules
Schedule 1.2 Option Cashout
Schedule 1.3 Pro Rata Percentage
Schedule 1.7 Shareholder Allocation
Schedule 2.1 Qualifications in Certain Jurisdictions
Schedule 2.3(a)/(b) Capitalization
Schedule 2.5 TIS and SSN Options
Schedule 2.7 Liabilities
Schedule 2.8 Adverse Changes
Schedule 2.10 Agreements
Schedule 2.11 Intellectual Property Matters
Schedule 2.11(a) Intellectual Property Rights
Schedule 2.11(b) Third Party Intellectual Property Rights
Schedule 2.14(a)/(b) Personal Property, Real Property
Schedule 2.15/(a) Employee Benefits Matters
Schedule 2.16 Labor
Schedule 2.17 Litigation
Schedule 2.18 Compliance with Laws, Permits
Schedule 2.19 Commissions, Etc.
Schedule 2.21(a) Related Transactions
Schedule 2.22(a)/(b)(i)/(b)(ii)/(d) Taxes
Schedule 2.23 Consents
Schedule 2.24 Insurance
Schedule 2.27 Investment Banking Services
- iv -
<PAGE> 6
Exhibits
Exhibit A Form of Dividend Notes
Exhibit B Form of Option Purchase Agreement
Exhibit C Form of Notes
Exhibit D Form of Stockholders Agreement
Exhibit E Form of Registration Rights Agreement
Exhibit F Form of Amendment to Certificate of Incorporation
Exhibit G Form of Certificate of Designations
Exhibit H Form of Amended By-Laws
Exhibit I Form of Corporation Secretary's Certificate
Exhibit J Form of Opinion of Counsel to the Corporation
Exhibit K Form of Employee Nondisclosure Agreements
Exhibit L Investor Purchase Option Agreements
Exhibit M Existing Stockholder Purchase Option Agreement
Annexes
Annex I List of Existing Stockholders
Annex II List of Investors
Annex III List of Shares Being Repurchased
- v -
<PAGE> 7
INDEX OF DEFINED TERMS
Term Section
- ---- -------
AAA Amount.........................................................Recitals
Accounting Firm.........................................................2.6
Accredited Investor....................................................3(e)
Actual Income........................................................1.9(i)
Adjusted Shareholders Equity.........................................1.8(a)
Agent for the Existing Stockholders......................................11
Aggregate Redemption Price..............................................1.3
Arbitrator...........................................................1.8(c)
Benefit Plan........................................................2.15(a)
Bridge 1998........................................................Preamble
By-Laws..............................................................1.5(h)
Cash Payment............................................................1.3
Certificate of Designations..........................................1.5(g)
Certificate of Incorporation.........................................1.5(g)
Claim Notice............................................................9.3
Closing.................................................................1.4
Closing Actions.........................................................1.5
Closing Date............................................................1.4
Code...............................................................Recitals
Common Stock.......................................................Recitals
Contract............................................................2.10(a)
Contribution.........................................................1.5(b)
Conversion Shares....................................................2.3(b)
Corporation........................................................Preamble
Dividend...........................................................Recitals
Dividend Amount....................................................Recitals
Dividend Notes.....................................................Recitals
Documents............................................................1.5(e)
Employee............................................................2.15(a)
Employee Agreement..................................................2.15(a)
Employee Nondisclosure Agreements......................................2.16
Encumbrances........................................................2.14(a)
Environmental Laws..................................................2.14(c)
ERISA...............................................................2.15(a)
Exchange Act........................................................2.21(a)
Existing Options.................................................2.3(a)(ii)
- iv -
<PAGE> 8
Existing Stockholders..............................................Preamble
FGM Audited Financial Statements........................................2.6
Final Post-Closing Statement.........................................1.8(d)
Final Shareholders Equity Amount.....................................1.8(d)
Fully Diluted Basis.....................................................1.1
GAAP.................................................................1.8(a)
GS Germany.........................................................Preamble
GSCP...............................................................Preamble
GSCP Offshore......................................................Preamble
Hazardous Substances................................................2.14(c)
HMO ................................................................2.15(e)
Hurdle Amount........................................................1.9(i)
Income Excess Percentage.............................................1.9(i)
Income Shortfall Percentage..........................................1.9(i)
Income Target........................................................1.9(i)
Indemnitors.............................................................9.1
Initial Amount..........................................................1.1
Intellectual Property Rights........................................2.11(c)
Investor Indemnitee.....................................................9.1
Investor(s)........................................................Preamble
Law ....................................................................2.9
Leased Real Property................................................2.14(b)
Litigation.............................................................2.17
Losses..................................................................9.2
Management Letter....................................................4.2(a)
Management Options...............................................2.3(a)(ii)
Material Adverse Effect.................................................2.8
Measurement Period...................................................1.9(i)
Monthly Financials...................................................4.2(a)
Negative Amount......................................................1.8(f)
Note Amount.............................................................1.3
Notes...................................................................1.3
Option Cashout..........................................................1.2
Option Cashout Amount...................................................1.2
Permitted Encumbrances..............................................2.14(a)
Post-Closing Financials..............................................1.9(b)
Post-Closing Statement...............................................1.8(a)
Preferred Stock...................................................2.3(a)(i)
Pro Rata Percentage.....................................................1.3
Pro Rata Redemption.....................................................1.2
Purchase................................................................1.1
- vii -
<PAGE> 9
Purchase Price..........................................................1.1
PW Audited Financial Statements.........................................2.6
Quarterly Financials.................................................4.2(b)
Registration Rights Agreement........................................1.5(e)
Sales Transaction....................................................1.9(i)
SEC .................................................................4.2(d)
Securities Act.........................................................2.20
Series A Preferred Stock...........................................Recitals
Share Percentage..................................................1.9(a)(i)
Shareholders Equity Amount...........................................1.8(a)
Software............................................................2.11(c)
Stockholders Agreement...............................................1.5(d)
Stone 1998.........................................................Preamble
Tax Return..........................................................2.22(e)
Tax(es).............................................................2.22(e)
Third Party Intellectual Property Rights............................2.11(c)
TIS Entities..............................................................2
TIS Entity................................................................2
TIS Equipment........................................................1.5(b)
- viii -
<PAGE> 10
TRANSACTION INFORMATION SYSTEMS, INC.
PREFERRED STOCK PURCHASE AGREEMENT
AGREEMENT, dated as of September 4, 1998, by and among
TRANSACTION INFORMATION SYSTEMS, INC., a corporation formed under the laws of
the State of Delaware (the "Corporation"), GS CAPITAL PARTNERS III, L.P., a
Delaware limited partnership ("GSCP"), GS CAPITAL PARTNERS III OFFSHORE, L.P.
("GSCP Offshore"), GOLDMAN, SACHS & CO. VERWALTUNGS GMBH ("GS Germany"), STONE
STREET FUND 1998, L.P. ("Stone 1998" ), BRIDGE STREET FUND 1998, L.P. ("Bridge
1998," collectively with GSCP, GSCP Offshore, GSCP Germany and Stone 1998, the
"Investors," each individually referred to as an "Investor") and the Existing
Stockholders listed in Annex I hereto (the "Existing Stockholders").
W I T N E S S E T H:
WHEREAS, on the day immediately prior to the date hereof, the
Corporation has (a) declared a dividend (the "Dividend") payable to the Existing
Stockholders, upon the terms in the board resolutions relating thereto, in an
aggregate amount (the "Dividend Amount" ), equal to the lesser of (i)
$4,500,000, or (ii) the aggregate amount of the Corporation's accumulated
adjustments account (as defined in Section 1368(e)(1) of the Internal Revenue
Code of 1986, as amended (the "Code")) as of the close of business on the day
immediately prior to the date hereof, computed as if the previous distributions
during 1998 of an aggregate of $503,000 to certain of the Existing Stockholders
had not been made (the "AAA Amount" "), and (b) issued the Dividend Notes;
WHEREAS, $503,000 of the Dividend has been previously paid to
certain of the Existing Stockholders by the Corporation, and the remainder of
the Dividend was paid by means of and in the form of the issuance by the
Corporation to the Existing Stockholders, on the day immediately prior to the
date hereof (as defined below), of subordinated notes, each substantially in the
form of Exhibit A hereto (the "Dividend Notes") each with a principal amount
determined as set forth herein with respect to each Existing Stockholder; and
WHEREAS, the Corporation wishes to sell to the Investors and
the Investors wish to purchase from the Corporation shares of newly issued
Series A Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock"), the terms of which will be set forth in the Certificate of
Designations; and a portion of the proceeds from such sale will be used to
purchase certain shares of
<PAGE> 11
Common Stock of the Corporation, par value $.01 per share ("Common Stock"), held
by the Existing Stockholders.
ACCORDINGLY, the parties hereto hereby agree as follows:
SECTION 1. Issuance and Sale of the Series A Preferred Stock.
1.1. The Purchase. At the Closing the Investors shall purchase from the
Corporation, and the Corporation shall sell to the Investors (as set forth on
Annex II hereto), an aggregate of 6,549,788 shares of Series A Preferred Stock
(the "Purchase") at a purchase price of $7.6339 per share and an aggregate
purchase price of $50,000,000 (the "Purchase Price"). Following the Purchase,
the Pro Rata Redemption and the Option Cashout, but prior to any adjustment
pursuant to Section 1.9, the Investors shall own 29.2% (the "Initial Amount") of
the shares of Common Stock on a fully diluted basis (i.e., assuming (i) the
conversion of all convertible securities and the exercise of all outstanding
options and warrants as of the Closing, and (ii) the issuance of 165,000 shares
of Common Stock reserved for issuance upon the future granting of 165,000 stock
options under the Corporation's stock option plan ("Fully Diluted Basis")).
1.2. The Use of Proceeds from the Purchase. The Corporation shall use
$45,500,000 in cash from the proceeds of the Purchase as funds in connection
with (a) the cashout (the "Option Cashout"), on October 1, 1998, of certain of
the Existing Options, in the amounts and from the holders thereof as set forth
on Schedule 1.2, upon execution and delivery of the option purchase agreements,
each substantially in the form of Exhibit B hereto, for an amount for each such
option equal to (i) $6.15, multiplied by (ii) the number of shares of Common
Stock covered by such option, for an aggregate amount of $1,368,375 for all such
options (the "Option Cashout Amount" ); (b) the redemption, which shall take
place immediately following the Closing, of Common Stock held by each Existing
Stockholder of the Corporation on a pro rata basis (the "Pro Rata Redemption")
in accordance with Section 1.3, the number of such shares being so redeemed
being set forth opposite the name of each Existing Stockholder on Annex III
hereto; and (c) the payment of the aggregate principal amount of the Dividend
Notes. The remaining $4,500,000 in cash of the proceeds of the Purchase shall be
used by the Corporation as funds for the repayment of indebtedness of the
Corporation outstanding on the date hereof (excluding the Notes) or as working
capital.
1.3. Pro Rata Redemption; Option Cashout. Subject to Section 1.8(f),
the aggregate redemption price to be paid to the Existing Stockholders for their
shares of Common Stock redeemed pursuant to the Pro Rata Redemption, which will
be paid immediately following the Closing, will be an amount (the "Aggregate
Redemption
- 2 -
<PAGE> 12
Price") equal to: (i) cash (the "Cash Payment") in the amount equal to (a)
$40,500,000 minus (b) the Option Cashout Amount, and (ii) subordinated notes
(the "Notes"), each substantially in the form attached as Exhibit C hereto, in
an aggregate principal amount (the "Note Amount") equal to (A) $2,250,000 plus
(B) the Final Shareholders Equity Amount (which Final Shareholders Equity Amount
may be a negative number), minus (C) the aggregate amount paid on the Dividend
Notes after the date hereof, plus (D) if the AAA Amount is less than $3,253,000,
the excess of $3,253,000 over the AAA Amount. In consideration of the shares of
Common Stock redeemed from each Existing Stockholder pursuant to the Pro Rata
Redemption, each Existing Shareholder shall receive a portion of the Cash
Payment and a Note in a principal amount calculated by multiplying the Cash
Payment and the Note Amount, respectively, by a fraction (the "Pro Rata
Percentage"), for such Existing Stockholder as set forth on Schedule 1.3.
1.4. The Closing. The closing of the transactions contemplated by the
Purchase (the "Closing") shall take place simultaneously with the execution and
delivery of this Agreement at the offices of Fried, Frank, Harris, Shriver &
Jacobson, One New York Plaza, New York, New York 10004 on September 4, 1998 or
on such other date as the Corporation and GSCP may mutually determine (such
date, the "Closing Date").
1.5. Actions at the Closing. Simultaneously with, or prior to, the
execution and delivery of this Agreement, the following actions shall occur (the
"Closing Actions"):
(a) The Corporation shall issue the Notes in an aggregate
principal amount equal to the Note Amount.
(b) Each of the Existing Stockholders shall contribute (the
"Contribution") all of their shares of capital stock of TIS Equipment Corp., a
Delaware corporation ("TIS Equipment" ) to the Corporation with no consideration
being paid for such shares.
(c) Except as set forth on Schedule 2.5, each of the options of
TIS Equipment will be canceled and each of the corresponding Existing Options
shall be amended to increase the exercise price thereof by the exercise price of
the corresponding TIS Equipment option.
(d) A stockholders' agreement (the "Stockholders' Agreement" )
among the Corporation, the Investors and the Existing Stockholders,
substantially in the form of Exhibit D hereto, shall be duly executed and
delivered by the parties thereto.
- 3 -
<PAGE> 13
(e) A registration rights agreement (the "Registration Rights
Agreement," together with this Agreement (including the exhibits hereto) and the
Stockholders' Agreement, the "Documents" ) among the Corporation, the Investors
and the Existing Stockholders, substantially in the form of Exhibit E hereto,
shall be duly executed and delivered by the parties thereto.
(f) Each TIS Entity shall deliver to the Investors long form
certificates of good standing from the jurisdictions set forth on Schedule 2.1
under its name dated as of a date no earlier than five days prior to the
Closing.
(g) The Corporation shall deliver to the Investors a copy of (i)
its amended certificate of incorporation (the "Certificate of Incorporation" )
certified by the Secretary of State of the State of Delaware, which Certificate
of Incorporation shall have been duly amended by the filing of (A) the amendment
to the Certificate of Incorporation, in the form of Exhibit F hereto, and (B)
the Certificate of Designations on the Series A Preferred Stock (the
"Certificate of Designations" ) in the form of Exhibit G hereto and (ii) a copy
of the certificate of incorporation, certified as set forth above, of each of
the TIS Entities other than the Corporation.
(h) The Corporation shall deliver to the Investors a certified
copy of (i) its amended by-laws (the "By-Laws"), which By-Laws shall have been
duly amended by the amendment to the By-Laws, in the form of Exhibit H hereto
and (b) the by-laws of each TIS Entity other than the Corporation.
(i) The Corporation shall deliver to the Investors a certificate
executed by its Secretary, substantially in the form of Exhibit I hereto,
certifying (i) resolutions authorizing the transactions contemplated in the
Documents and (ii) incumbency matters.
(j) The Investors shall receive from Esanu Katsky Korins & Siger,
LLP, counsel for the Corporation, an opinion addressed to the Investors, dated
as of the Closing, satisfactory in form and substance to the Investors, which
shall include the opinions set forth in Exhibit J hereto.
(k) Joseph Gleberman and Randall Blumenthal shall have been
elected to the board of directors of the Corporation and shall hold such
position as of the date hereof.
(l) All certificates representing shares of capital stock of the
Corporation outstanding as of the date hereof shall bear the legends required
pursuant to Section 6 hereof.
- 4 -
<PAGE> 14
(m) An option agreement (the "Existing Stockholder Purchase Option
Agreement") among the Investors and the Existing Stockholders, substantially in
the form of Exhibit M hereto, shall be duly executed and delivered by the
parties thereto.
(n) An option agreement (the "Investor Purchase Option Agreement")
among the Investors and the Existing Stockholders, substantially in the form of
Exhibit L hereto, shall be duly executed and delivered by the parties thereto.
1.6. Deliveries at the Closing. At the Closing, the Corporation shall
deliver to each Investor a certificate or certificates representing the shares
of Series A Preferred Stock purchased by such Investor, registered in the name
of such Investor or its nominee, against receipt at the Closing by the
Corporation from the Investors of the Purchase Price, which shall be paid by
wire transfer to an account designated at least one business day prior to the
Closing Date by the Corporation.
1.7. Dividend. On the day immediately prior to the day hereof, the
Corporation (a) declared the Dividend payable to the Existing Stockholders in an
amount equal to the Dividend Amount, and (b) paid that portion of the Dividend
equal to the Dividend Amount minus $503,000 by means of and in the form of the
issuance by the Corporation to the Existing Stockholders of the Dividend Notes.
The Corporation shall pay at the Closing, using proceeds of the Purchase,
$2,750,000 of the aggregate principal amount of the Dividend Notes (which
aggregate principal amount shall be subject to adjustment after the Closing as
set forth herein) to the Existing Shareholders in the amounts as set forth on
Schedule 1.7 with respect to each Existing Shareholder. The remaining aggregate
principal amount of the Dividend Notes, if any, shall be determined and shall be
payable following determination of the AAA Amount. In the event that the AAA
Amount is less than or equal to $3,253,000, then the Dividend Notes shall be
canceled and the Existing Stockholders shall be jointly and severally liable to
pay to the Corporation an aggregate amount equal to the excess of $3,253,000
over the AAA Amount, each Existing Stockholder being primarily responsible for
immediately paying to the Corporation an amount equal to (i) the excess of
$3,253,000 over the AAA Amount, multiplied by (ii) such Existing Stockholder's
Pro Rata Percentage. As soon as practicable after the Closing, the Corporation
shall determine the AAA Amount using the closing of the books method (it being
understood that if the AAA Amount is determined to be less than zero, it will be
deemed to be zero for purposes of this Section 1.7).
1.8. Shareholders Equity Adjustment. (a) As promptly as practicable,
but in no event more than 45 days after the Closing Date, the Corporation shall
cause its independent public accounting firm to prepare and deliver to the
Investors a statement (the "Post-Closing Statement") setting forth in reasonable
detail the accounting firm's calculation of the Shareholders Equity Amount. The
"Shareholders Equity Amount"
- 5 -
<PAGE> 15
shall mean (i) Adjusted Shareholders Equity, minus (ii) $5,000,000. The
"Adjusted Shareholders Equity" shall mean an amount equal to the shareholders
equity of the TIS Entities on a consolidated basis as of the close of business
on August 31, 1998, calculated in conformity with generally accepted accounting
principles ("GAAP"), applied on a basis consistent with the accounting
principles used in the preparation of the PW Audited Financial Statements except
that such calculation shall (A) assume that the TIS Entities are taxed under
Subchapter C (and not Subchapter S) of the Code and that an election was filed
for TIS and SSN to use the accrual method of accounting for federal and all
applicable state and local Tax purposes effective as of January 1, 1998; (B)
exclude, in the aggregate, up to but no more than $1,600,000 of accruals and
reserves for income Tax liabilities; (C) include accruals and reserves for Tax
liabilities for any taxable period or portion thereof beginning on or after
September 1, 1998 and ending on or prior to the date hereof, other than accruals
and reserves for Tax liabilities arising by reason of the ordinary operations of
the TIS Entities; (D) include as an asset the tax benefit to the Corporation
resulting from the Corporation's deduction of the Option Cashout Amount for
income Tax purposes, which asset shall be deemed to be equal to 44% of the
Option Cashout Amount; (E) exclude as an asset, property and equipment, net; (F)
exclude as a liability current and long-term obligations under capitalized
leases; (G) calculate progress revenues receivables in the manner which is
consistent with the methodologies used in calculating such receivables in the
June 30, 1998 balance sheet contained in the PW Audited Financial Statements;
(H) exclude as a liability any accruals or reserves for fees and expenses
payable (including, without limitation, fees and expenses payable pursuant to
Section 8) by the Corporation in connection with the negotiation and preparation
of the Documents and the documentation relating thereto; and (I) exclude the
Dividend Notes to the extent otherwise includable as a liability.
(b) From and after delivery of the Post-Closing Statement, the
Investors and their independent accountants, if any, shall be permitted to
examine the work papers and all back-up materials and memoranda used or
generated in connection with the preparation of the Post-Closing Statement.
(c) The Investors agree that the Post-Closing Statement and the
computation of the Shareholders Equity Amount set forth therein shall be
conclusive and binding upon the parties unless the Investors, within 30 days
after the delivery to the Investors of such Post-Closing Statement, notify the
Corporation in writing that the Investors dispute any of the amounts set forth
therein, specifying the nature of the dispute and the basis therefor. The
parties shall in good faith attempt to resolve any dispute, in which event the
Post-Closing Statement and the computation of the Shareholders Equity Amount, as
amended to the extent necessary to reflect the resolution of the dispute, shall
be conclusive and binding upon the parties. If any such dispute cannot be
resolved by the parties within ten days after the date of the notice
- 6 -
<PAGE> 16
of the dispute, it shall be referred to an arbitrator ("Arbitrator") who shall
be a mutually satisfactory independent public accounting firm of a national
stature, who shall consider only those amounts which the parties are unable to
resolve. If the parties cannot agree to a mutually satisfactory independent
public accounting firm of national stature, such accounting firm shall be
appointed as Arbitrator by the President of the American Arbitration
Association, upon the application of either party. The determination of the
Arbitrator shall be conclusive and binding on each party. The fees of any
arbitration (including the fees of the Arbitrator) pursuant to this clause shall
be borne by the Corporation.
(d) The Shareholders Equity Amount which is conclusive and binding
on each party as set forth in Section 1.8(c) above shall be the "Final
Shareholders Equity Amount," and the Post-Closing Statement, adjusted to reflect
the Final Shareholders Equity Amount shall be the "Final Post-Closing Statement"
which, subject to any re-computation pursuant to Section 10, shall be conclusive
for all purposes of this Agreement; provided, however, that this sentence shall
not limit the indemnification rights of the Investor Indemnities with respect to
breaches of representations or warranties contained in this Agreement.
(e) Promptly after (i) the Final Post-Closing Statement is
conclusive and binding on the parties pursuant to Section 1.8(c) above, and (ii)
the AAA Amount is determined, the Note Amount shall be calculated in accordance
with the terms of the Notes using the Final Shareholders Equity Amount.
(f) If the Note Amount, as calculated in accordance with Section
1.8(e), shall be zero or a negative number (the "Negative Amount"), (i) each
Note shall be canceled and each Existing Stockholder shall immediately pay to
the Corporation an amount equal to (A) the absolute value of the Negative
Amount, multiplied by (B) such Existing Stockholder's Pro Rata Percentage;
provided, however, that all the Existing Stockholders shall be jointly and
severally liable to the Corporation for the absolute value of the Negative
Amount, and (ii) the Aggregate Redemption Price shall be reduced by the Negative
Amount. If the Note Amount, as calculated in accordance with Section 1.8(e),
shall be positive, promptly after the final determination of the Note Amount and
the full payment by each Existing Stockholder to the Corporation of any amount
owing by such Existing Stockholder pursuant to Section 1.7, the Note Amount
shall be paid in accordance with the terms of the Notes.
1.9. Post-Closing Adjustment. (a) In the event that the Actual Income
for the Measurement Period differs from the Income Target for such Measurement
Period by more than the Hurdle Amount (as such terms are defined herein), then
as an adjustment to the purchase price paid by the Investors per share of Series
A Preferred Stock, the amount of shares of Series A Preferred Stock issued to
the Investors shall be adjusted as follows:
- 7 -
<PAGE> 17
(i) To the extent that Actual Income is greater than the
Income Target by an amount in excess of the Hurdle Amount, the Investors shall
return shares of Series A Preferred Stock in the amount, assuming that such
adjustment has occurred simultaneously with the Purchase, such that the
percentage of shares of Common Stock the Investors shall own on a Fully Diluted
Basis following the Repurchase and Option Cashout, as adjusted hereto, will
equal the Initial Amount decreased by a percentage of the Initial Amount equal
to twice the Income Excess Percentage (the Initial Amount, as adjusted pursuant
to this clause (i) or clause (ii) below, the "Share Percentage").
Notwithstanding the foregoing, the Investors shall not be required to return any
such shares to the extent doing so would decrease their ownership on a Fully
Diluted Basis by an amount in excess of ten percent (10%) of the Initial Amount,
and in no event will the Share Percentage be less than 90% of the Initial
Amount.
(ii) To the extent that the Income Target is greater than
Actual Income by an amount in excess of the Hurdle Amount, the Investors shall
be issued additional shares of Series A Preferred Stock in the amount, assuming
that such adjustment has occurred simultaneously with the Purchase, such that
the percentage of shares of Common Stock the Investors shall own on a Fully
Diluted Basis following the Repurchase and Option Cashout, as adjusted hereto,
will equal the Initial Amount increased by a percentage of the Initial Amount
equal to twice the Income Shortfall Percentage. Notwithstanding the foregoing,
the Investors shall not receive any such shares to the extent doing so would
increase their ownership on a Fully Diluted Basis by an amount in excess of ten
percent (10%) of the Initial Amount, and in no event will the Share Percentage
be greater than 110% of the Initial Amount.
(b) As promptly as practicable, but in no event more than 60 days
after the end of the Measurement Period, the Corporation shall prepare and
deliver to the Investors (i) balance sheets as of the end of such Measurement
Period, together with statements of income, retained earnings and cash flows for
such Measurement Period (the "Post-Closing Financials") prepared in accordance
with GAAP, applied on a basis consistent with the accounting principles used in
preparation of the PW Audited Financial Statements, and (ii) the computation of
Actual Income for such Measurement Period.
(c) From and after delivery of the Post-Closing Financials and
the computation of Actual Income annexed thereto, the Investors and their
independent accountants, if any, shall be permitted during the succeeding 30 day
period to examine the work papers and all back-up materials and memoranda used
or generated in connection with the preparation of the Post-Closing Financials
and the computation of Actual Income.
- 8 -
<PAGE> 18
(d) The Investors agree that the preparation of the Post-Closing
Financials and the computation of Actual Income annexed thereto shall be
conclusive and binding upon the parties unless the Investors, within 30 days
after the delivery to the Investors of such Post-Closing Financials, notify the
Corporation in writing that the Investors dispute any of the amounts set forth
therein, specifying the nature of the dispute and the basis therefor. The
parties shall in good faith attempt to resolve any dispute, in which event the
Post-Closing Financials and the computation of Actual Income, as amended to the
extent necessary to reflect the resolution of the dispute, shall be conclusive
and binding upon the parties. If any such dispute cannot be resolved by the
parties within ten days after the date of the notice of the dispute, it shall be
referred to an Arbitrator. If the parties cannot agree to a mutually
satisfactory independent public accounting firm of national stature, such
accounting firm shall be appointed as Arbitrator by the President of the
American Arbitration Association, upon the application of either party. The
determination of the Arbitrator shall be conclusive and binding on each party.
The fees of any arbitration (including the fees of the Arbitrator) pursuant to
this clause shall be borne by the Corporation.
(e) Promptly after the final computation of Actual Income is
binding on the parties pursuant to Section 1.9(d) above, the amount of shares of
Series A Preferred Stock issued to the Investors shall be adjusted in accordance
with Section 1.9(a) above.
(f) If at the time of any required purchase price adjustment
pursuant to Section 1.9(a) all shares of Series A Preferred Stock have been
converted into shares of Common Stock, the Corporation shall promptly issue to
the Investors, or the Investors shall promptly return to the Corporation, as the
case may be, as an adjustment to the purchase price paid by the Investors per
share of Series A Preferred Stock, an additional amount and kind of Common Stock
equal to the amount and kind of Common Stock issuable upon the conversion (based
on the conversion ratio in effect at the time the last shares of Series A
Preferred Stock were converted into shares of Common Stock) of the amount of
Series A Preferred Stock which would have been issued or returned, as the case
may be, with respect to such purchase price adjustment pursuant to Section
1.9(a) if such purchase price adjustment had been made immediately prior to the
time the last shares of Series A Preferred Stock were converted into shares of
Common Stock.
(g) Any adjustments to the Initial Amount and all additional
shares of Series A Preferred Stock and Common Stock issued to the Investors
pursuant to clause (i) of Section 1.9(a) shall be treated as if they were made
and issued on the date hereof and shall reflect any dividends or other
distributions which would have accrued or have been payable with respect to and
the application of any anti-dilution, ratable treatment or similar provisions
(as set forth in the Certificate of Incorporation,
- 9 -
<PAGE> 19
applicable law or otherwise) which would have been applicable to such shares of
Series A Preferred Stock and Common Stock had they been issued on the date
hereof.
(h) Any shares of Series A Preferred Stock or Common Stock
returned to the Corporation pursuant to clause (ii) of Section 1.9(a) shall be
treated as if they were returned on the date hereof and the Investors shall
reimburse the Corporation for any dividends or other distributions that have
been made with respect to such returned shares of Series A Preferred Stock or
Common Stock, as the case may be.
(i) In connection with any issuance of Series A Preferred Stock
pursuant to clause (i) of Section 1.9(a), the Corporation shall reserve a
sufficient number of shares of Common Stock for issuance to the Investors upon
the conversion of the shares of Series A Preferred Stock so issued. Any shares
of Series A Preferred Stock or Common Stock issued to the Investors pursuant to
this Section 1.9 shall, when issued, be validly issued and fully paid and
nonassessable with no personal liability attaching to the ownership thereof and
free and clear of all Encumbrances.
For purposes of this Section 1.9:
"Actual Income" means the net income on the consolidated financial
statements of the TIS Entities for such Measurement Period calculated in
conformity with GAAP, applied on a basis consistent with the accounting
principles used in the preparation of the PW Audited Financial Statements except
that such calculation shall take into account that the TIS Entities are taxed
under Subchapter C of the Code, plus (i) the amount of income Taxes (whether
paid or deferred) of the TIS Entities which was deducted in determining net
income, (ii) the amount of fees and expenses payable (including, without
limitation, fees and expenses payable pursuant to Section 8) by the Corporation
in connection with the negotiation and preparation of the Documents and the
documentation relating thereto which was deducted in determining net income, and
(iii) the Option Cashout Amount and inputed interest, if any, on the Notes to
the extent that such amounts were deducted in determining net income.
"Income Excess Percentage" means the amount by which (a) the
result, expressed as a percentage, of (Actual Income minus the Income Target)
divided by (the Income Target) (b) exceeds five percent.
"Income Shortfall Percentage" means the amount by which (a) the
result, expressed as a percentage, of (Income Target minus Actual Income)
divided by Income Target exceeds (b) five percent.
"Income Target" means the targets for Actual Income for the
Corporation as agreed to by the Corporation, the Existing Stockholders and the
- 10 -
<PAGE> 20
Investors. The parties have agreed that the Income Targets for each of the
Measurement Periods are as follows:
<TABLE>
<CAPTION>
Measurement Period
Ended: Income Target
------------------ -------------
<S> <C>
Fourth Quarter 1998 $ 3,300,000
First Quarter 1999 $ 6,700,000
Second Quarter 1999 $11,000,000
Third Quarter 1999 $16,000,000
Fiscal Year 1999 $19,000,000
</TABLE>
"Hurdle Amount" means an amount equal to the product of .05 and
the Income Target.
"Measurement Period" means the applicable period (determined as
set forth below) for the measurement of Actual Income. If there is an IPO (as
such term is defined in the Stockholders' Agreement) or a Sales Transaction
prior to the end of fiscal year 1999, then the applicable period for the
Measurement Period shall mean the period beginning with the fourth quarter of
fiscal year 1998 and ending with the most recent fiscal quarter ended prior to
the IPO or the consummation of the Sales Transaction (as the case may be). If
there is no IPO or Sales Transaction prior to the end of fiscal year 1999, then
the applicable period for the Measurement Period shall mean fiscal year 1999.
"Sales Transaction" means a transaction (by way of merger, sale
of stock or otherwise) pursuant to which all of the shares of Common Stock and
securities convertible into, or exchangeable for, shares of Common Stock are
sold or exchanged for cash or other property.
1.10. Additional Issuances; Purchase Price Adjustment. (a) In addition
to and without limitation of all other indemnities in this Agreement, in the
event that at any time after the Closing the representation and warranty set
forth in the last sentence of Section 2.3 is determined not to have been true
when made, the Corporation shall issue to the Investors (on a pro rata basis),
at no cost to the Investors, and as an adjustment to the purchase price paid by
the Investors per share of Series A Preferred Stock, an additional amount of
Series A Preferred Stock such that, if such issuance of additional Series A
Preferred Stock were made at the Closing, such representation and warranty would
have been true and accurate in all respects when made.
(b) If at the time of any required purchase price adjustment
pursuant to Section 1.10(a) all shares of Series A Preferred Stock have been
converted into
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shares of Common Stock, the Corporation shall promptly issue to the Investors
(on a pro rata basis), at no cost to the Investors and as an adjustment to the
purchase price paid by the Investors per share of Series A Preferred Stock, an
additional amount and kind of Common Stock equal to the amount and kind of
Common Stock issuable upon the conversion (based on the conversion ratio in
effect at the time the last shares of Series A Preferred Stock were converted
into shares of Common Stock) of the amount of Series A Preferred Stock which
would have been issued with respect to such purchase price adjustment pursuant
to Section 1.10(a) if such purchase price adjustment had been made immediately
prior to the time the last shares of Series A Preferred Stock were converted
into shares of Common Stock.
(c) Any additional shares of Series A Preferred Stock and Common
Stock issued to the Investors pursuant to this Section 1.10 shall be treated as
if they were issued on the date hereof and shall reflect any dividends or other
distributions which would have accrued or have been payable with respect to and
the application of any anti-dilution, ratable treatment or similar provisions
(as set forth in the Certificate of Incorporation, applicable law or otherwise)
which would have been applicable to such shares of Series A Preferred Stock and
Common Stock had they been issued on the date hereof.
(d) In connection with any issuance of Series A Preferred Stock
pursuant to this Section 1.10, the Corporation shall reserve a sufficient number
of shares of Common Stock for issuance to the Investors upon the conversion of
the shares of Series A Preferred Stock so issued. Any shares of Series A
Preferred Stock or Common Stock issued to the Investors pursuant to this Section
1.10 shall, when issued, be validly issued and fully paid and nonassessable with
no personal liability attaching to the ownership thereof and free and clear of
all encumbrances.
SECTION 2. Representations and Warranties of the Corporation. The
Corporation and each Existing Stockholder hereby jointly and severally represent
and warrant to the Investors as follows (each of the Corporation, TIS Equipment
and SSN, a "TIS Entity," each and collectively, the "TIS Entities"):
2.1. Organization and Good Standing; Power and Authority;
Qualifications. Each TIS Entity (i) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with
respect to the Corporation and TIS Equipment and New York, with respect to SSN,
(ii) has all requisite corporate power and authority to own, lease and operate
its properties, to carry on its business as presently conducted and as proposed
to be conducted. The Corporation has all requisite corporate power and authority
to enter into and carry out the transactions contemplated by the Documents and
the Certificate of Designations. Except as set forth on Schedule 2.1, each TIS
Entity is qualified to transact business as a foreign corporation in, and is in
good standing under the laws of, those jurisdictions listed on
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Schedule 2.1 under its name, which jurisdictions constitute all of the
jurisdictions wherein the character of the property owned or leased or the
nature of the activities conducted by it makes such qualification necessary.
2.2. Authorization of the Documents. The execution, delivery and
performance of each of the Documents has been duly authorized by all requisite
corporate action on the part of the Corporation, and each of the Documents
constitutes a legal, valid and binding obligation of the Corporation,
enforceable against the Corporation, in accordance with its terms except to the
extent that enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights generally.
2.3. Capitalization. (a) The capitalization of the Corporation consists
of, and immediately prior to the Closing, will consist of:
(i) Preferred Stock. 10,000,000 shares of Preferred Stock,
par value $.01 per share ("Preferred Stock") (of which 8,000,000 shares will be
designated Series A Preferred Stock prior to the Closing), none of which shares
of Preferred Stock are outstanding.
(ii) Common Stock. 35,000,000 shares of Common Stock, of
which (A) 20,000,000 shares of Common Stock are outstanding, and all such shares
have been validly issued and are fully paid and nonassessable, with no personal
liability attaching to the ownership thereof, (B) 1,898,000 shares of Common
Stock have been duly reserved for issuance upon the exercise of certain options
granted to persons as set forth in Schedule 2.3(a) which options have the
exercise price as set forth in Schedule 2.3(a) ("Existing Options") and (C)
165,000 shares of Common Stock have been duly reserved for issuance upon the
exercise of certain options to be granted to certain employees, which options
have not yet been granted. ("Management Options").
(b) Immediately after the Purchase and the Pro Rata Repurchase,
the capitalization of the Corporation will be as set forth in Section 2.3(a),
with (i) 6,549,788 shares of Series A Preferred Stock outstanding; (ii)
14,039,692 shares of Common Stock outstanding; (iii) 2,063,800 shares of Common
Stock reserved for issuance upon exercise of Existing Options and Management
Options as set forth in Section 2.3(a)(ii); and (iv) 6,549,788 shares of Common
Stock reserved for issuance upon the conversion of the Series A Preferred Stock
(the "Conversion Shares").
Except as set forth above, there will be no equity securities of
the Corporation outstanding immediately following the Closing. Schedule 2.3(a)
contains a list of (i) all holders of record of capital stock of the
Corporation, including the number of shares of capital stock held by each such
holder, and (ii) all outstanding
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warrants, options, agreements, convertible securities or other commitments
pursuant to which the Corporation is or may become obligated to issue any shares
of the capital stock or other securities of the Corporation, which names all
persons entitled of record to receive such shares or other securities, the
shares of capital stock or other securities required to be issued thereunder as
of the date hereof and the price per share, if any, payable with respect to the
issuance of any share of capital stock issuable thereunder. The Existing
Stockholders constitute all of the holders of record of capital stock of the
Corporation. Except as set forth on Schedule 2.3(b), to the best knowledge of
the Corporation or any Existing Stockholder, there are no other beneficial
owners of shares of capital stock who are not otherwise holders of record.
Except as set forth on Schedule 2.3(b) or as contemplated by the Documents there
are, and immediately after the Closing, there will be, no rights, including
preemptive or similar rights, to purchase or otherwise acquire shares or sell or
otherwise transfer shares of the capital stock of the Corporation pursuant to
any provision of law, the Certificate of Incorporation, the By-Laws, any
agreement to which the Corporation is a party or otherwise; and, except as set
forth on Schedule 2.3(b) or as contemplated by the Documents, the Corporation is
not a party to, and to the best knowledge of the Corporation or any Existing
Stockholder, there are, and immediately after the Closing, there will be, no
agreement, restriction or encumbrance (such as a right of first refusal, right
of first offer, proxy, voting agreement, voting trust, registration rights
agreement, stockholders' agreement, etc., whether or not the Corporation is a
party thereto) with respect to the purchase, sale or voting of any shares of
capital stock of the Corporation (whether outstanding or issuable upon
conversion or exercise of outstanding securities). Except as set forth on
Schedule 2.3(b) or as contemplated by the Documents or except for the right to
vote its shares of Common Stock for the election of directors, no person has the
right to nominate or elect one or more directors of the Corporation. Subject to
any adjustment pursuant to Section 1.8, the shares of Common Stock issuable upon
conversion of the Series A Preferred Stock issued to each Investor under this
Agreement, will represent, in the aggregate, 29.2% of the outstanding Common
Stock on a Fully Diluted Basis, of the Corporation on the Closing Date (after
giving effect to the Pro Rata Repurchase and the Option Cashout) and the voting
power of such issued shares of Series A Preferred Stock will represent, in the
aggregate, no less than 29.2% of the total number of votes able to be cast on
any matter by any voting securities on a Fully Diluted Basis of the Corporation
on the Closing Date (after giving effect to the Pro Rata Repurchase and the
Option Cashout), and the Share Percentage shall equal the Initial Amount after
giving effect to any adjustment in accordance with Section 1.9.
2.4. Authorization and Issuance of Capital Stock. The authorization,
issuance, sale and delivery of the Series A Preferred Stock pursuant to this
Agreement and the authorization, reservation, issuance, sale and delivery of the
Conversion Shares have been duly authorized by all requisite corporate action on
the part of the
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<PAGE> 24
Corporation, and when issued, sold and delivered in accordance with this
Agreement, the Series A Preferred Stock will be, and when issued and delivered
in accordance with the Certificate of Designations, the Conversion Shares will
be, validly issued and outstanding, fully paid and nonassessable with no
personal liability attaching to the ownership thereof, free of any Encumbrances
and not subject to preemptive or similar rights of the stockholders of the
Corporation or others. The terms, designations, powers, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions, of Series A Preferred Stock are as
stated in the Certificate of Incorporation.
2.5. Subsidiaries. The Corporation holds of record and owns all of the
shares of capital stock of SSN, and as of the Closing, will hold of record and
own all of the shares of capital stock of TIS Equipment, which shares are, or in
the case of TIS Equipment, will be as of the Closing Date, validly issued and
outstanding, fully paid and nonassessable with no personal liability attaching
to the ownership thereof, free of any Encumbrances. Except as set forth on
Schedule 2.5, as of the Closing there will be no outstanding warrants, options,
agreements, convertible securities, or other commitments pursuant to which SSN
or TIS Equipment is or may become obligated to issue any shares of the capital
stock or other securities of SSN or TIS Equipment. As of October 1, 1998, there
will be no equity securities of TIS Equipment outstanding except as owned by the
Corporation, and there will be no outstanding warrants, options, agreements,
convertible securities, or other commitments pursuant to which SSN or TIS
Equipment is or may become obligated to issue any shares of the capital stock or
other securities of SSN or TIS Equipment. No options of TIS Equipment are vested
as of the Closing Date, and no options of TIS Equipment will be vested as of
September 29, 1998. As of the date hereof, 51 of the 59 holders of TIS Equipment
options have consented to (i) the cancellation of such option and (ii) the
amendment of the Existing Options to increase the exercise price thereof by the
exercise price of the corresponding TIS Equipment option. Upon termination of
any Employee having a TIS Equipment option which is not vested, such Employee
will lose his or her option and have no rights thereunder or claims against any
TIS Entity relating thereto. In addition, there are no rights, including
preemptive or similar rights, to purchase or otherwise acquire shares or sell or
otherwise transfer shares of the capital stock of SSN and TIS Equipment pursuant
to any provision of law, the certificates of incorporation or by-laws of any of
the TIS Entities, any agreement to which any of the TIS Entities is a party or
otherwise; and, except as contemplated by the Documents, none of the TIS
Entities is a party to, and to the best knowledge of the Corporation or any
Existing Stockholder, there are not, and immediately after the Closing, there
will not be, any agreements, restrictions or Encumbrances (such as a right of
first refusal, right of first offer, proxy, voting agreement, voting trust,
registration rights agreement, stockholders' agreement, etc., whether or not any
of the TIS Entities is a party thereto) with respect to the purchase,
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<PAGE> 25
sale or voting of any shares of capital stock of SSN or TIS Equipment. Except
for SSN and TIS Equipment, the Corporation has never had, nor does it presently
have, any subsidiaries, nor has it owned, nor does it presently own, any capital
stock or other proprietary interest, directly or indirectly, in any corporation,
association, trust, partnership, joint venture or other entity.
2.6. Financial Statements. The Corporation has furnished to GSCP (a)
the audited combined balance sheets at December 31, 1997 and June 30, 1998, and
the related combined statements of income, retained earnings and cash flows for
the fiscal year ended December 31, 1997 and for the year to date ended June 30,
1998 of the Corporation, SSN and TIS Equipment (the "PW Audited Financial
Statements") and an opinion of PriceWaterhouseCoopers LLP (the "Accounting
Firm") to the Corporation to the effect that such combined financial statements
present fairly, in all material respects, the financial position of the
Corporation, SSN and TIS Equipment at December 31, 1997 and June 30, 1998, and
the results of their operations and cash flows for the years then ended in
conformity with GAAP, consistently applied, which opinion shall not contain any
qualification; and (b) the audited combined balance sheets as of December 31,
1995 and 1996 and the related combined statements of income, retained earnings
and cash flows of the Corporation and SSN (the "FGM Audited Financial
Statements"), together with the opinion of Feldman, Gutterman, Meinberg and
Company. The PW Audited Financial Statements and the FGM Audited Financial
Statements (i) are in accordance with the books and records of the TIS Entities;
(ii) have been prepared in accordance with GAAP consistently applied; and (iii)
fairly present the financial position of the Corporation and SSN, or the
Corporation, SSN and TIS Equipment at December 31, 1996, December 31, 1997 and
June 30, 1998, as the case may be, and the results of their operations and their
cash flows for the years then ended in conformity with GAAP, consistently
applied.
2.7. Absence of Undisclosed Liabilities. Except as disclosed on
Schedule 2.7, no TIS Entity has any liabilities or obligations (whether accrued,
absolute, contingent, unliquidated or otherwise, whether due or to become due)
other than (a) liabilities or obligations reserved against or otherwise
disclosed in the PW Audited Financial Statements and (b) liabilities or
obligations arising since June 30, 1998 which were incurred in the ordinary
course of business consistent (in amount and kind) with past practice (none of
which is a liability resulting from breach of contract, breach of warranty,
tort, infringement claim or lawsuit) and which do not, individually or in the
aggregate, exceed $100,000.
2.8. Absence of Changes. Except as set forth on Schedule 2.8 and except
for the execution and delivery of the Documents and the transactions
contemplated hereby and thereby, or referred to herein or therein, since
December 31, 1997, each TIS Entity has conducted its business in the ordinary
course, consistent with past
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<PAGE> 26
practice, and there has not been (a) any material adverse change having, or any
event or condition which has had, or is reasonably likely to have, a material
adverse effect on the business, operations, properties, assets, condition
(financial or other), prospects or results of operations of the TIS Entities
taken as a whole (a "Material Adverse Effect"), (b) any waiver of any valuable
right of any TIS Entity, the cancellation of any valuable right of any TIS
Entity, or the cancellation of any material debt or claim held by any TIS
Entity, (c) any payment or declaration of dividends on, or other distribution
with respect to, or any direct or indirect redemption or acquisition of, any
securities of any TIS Entity, (d) any issuance of any stock, bonds or other
securities of any TIS Entity other than pursuant to the exercise of the
previously outstanding options set forth on Schedule 2.8, (e) any sale,
assignment or transfer of any tangible or intangible assets of any TIS Entity,
except (i) in the ordinary course of business, and (ii) assets for which the
book value does not exceed $10,000 and which are not, individually or in the
aggregate, material, (f) any loan by any TIS Entity to any officer, director,
employee, consultant or shareholder of such TIS Entity (other than advances to
such persons in the ordinary course of business in connection with travel and
travel related expenses), (g) any damage, destruction or loss (whether or not
covered by insurance) materially and adversely affecting the assets, property,
financial condition or results of operations of any TIS Entity, (h) any
increase, direct or indirect, in the compensation paid or payable to any officer
or director of any TIS Entity, or, other than in the ordinary course of
business, to any other employee, consultant or agent of any TIS Entity, (i) any
change in the accounting or Tax methods, practices or policies or in any Tax
election of any TIS Entity (j) any indebtedness incurred for borrowed money
other than in the ordinary course of business or pursuant to an agreement set
forth on Schedule 2.8 to this Agreement, (k) any amendment to or termination of
any material agreement to which any TIS Entity is a party (other than amendments
to or terminations of agreements pursuant to or contemplated by this Agreement),
(l) any material adverse change with respect to the regulation of any TIS Entity
or its products by any administrative agency or governmental body, (m) any
material change in the manner of business or operations of any TIS Entity, (n)
any transaction except in the ordinary course of business or as otherwise
contemplated hereby, or (o) any agreement or commitment (contingent or
otherwise) to do any of the foregoing.
2.9. No Conflict. The execution, delivery and performance by the
Corporation and the Existing Stockholders of the Documents and the consummation
by the Corporation and the Existing Stockholders of the transactions
contemplated hereby and thereby; and the issuance, sale and delivery by the
Corporation of the Series A Preferred Stock, and the issuance and delivery of
the Conversion Shares in accordance with the Certificate of Designations, by the
Corporation will not (a) violate any provision of law, statute, rule or
regulation, or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other
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<PAGE> 27
governmental body ("Law") applicable to any of the TIS Entities, or any of their
properties or assets, (b) except as set forth in Schedule 2.23, conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute (with due notice or lapse of time, or both) a default (or give rise
to any right of termination, cancellation or acceleration) under, or result in
the creation of any Encumbrance upon any of the properties or assets of any of
the TIS Entities under, any Contract required to be set forth on Schedule 2.10
hereto or (c) violate the Certificate of Incorporation or the by-laws of any of
the TIS Entities.
2.10. Agreements. (a) Except as set forth on Schedule 2.10 hereto, no
TIS Entity is a party to any indenture, mortgage, guaranty, lease, license or
other contract, agreement or understanding, written or oral, (a "Contract")
other than any Contract which (i) pursuant to its terms, has expired, been
terminated or fully performed by the parties, and in each case, under which no
TIS Entity has any liability, contingent or otherwise or (ii) involves annual
aggregate payments to or from such TIS Entity of $100,000 or less (as opposed to
an indemnity agreement or similar contract under which a TIS Entity has any
contingent liability), and in each case, is not material to the business or
financial condition of such TIS Entity.
(b) Complete copies (or, if oral, full written descriptions) of
all Contracts required to be listed on Schedule 2.10 hereto, including all
amendments thereto, have been delivered to GSCP. Each of the Contracts is, as of
the date hereof, and will continue to be after the Closing, a legal, valid and
binding obligation of, enforceable against, and in full force and effect
against, the TIS Entity party thereto and, to the best knowledge of the
Corporation or any Existing Stockholder, the other parties thereto. Except as
set forth on Schedule 2.10 hereto, (i) there is no breach, violation or default
by any TIS Entity and no event which, with notice or lapse of time or both,
would (A) constitute a material breach, violation or default by such TIS Entity
under any Contract required to be listed on Schedule 2.10 or (B) give rise to
any lien or right of termination, modification, cancellation, prepayment,
suspension, limitation, revocation or acceleration against such TIS Entity under
any such Contract, and (ii) no other party to any of such Contracts is in
arrears in any material matter in respect of the performance or satisfaction of
the terms and conditions on its part to be performed or satisfied under any of
such Contracts, no waiver or indulgence has been granted by any of the parties
thereto and no party to any of such Contracts has repudiated any provision
thereof.
2.11. Intellectual Property Matters. (a)(i) Each TIS Entity owns or has
the right to use, pursuant to license, sublicense, Contract or permission, all
of the Intellectual Property Rights used in the operation of the business of
such TIS Entity as currently conducted and as currently proposed to be
conducted, and all such Intellectual Property Rights will be owned or available
for use by such TIS Entity on
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identical terms and conditions immediately subsequent to the Closing. Schedule
2.11(a) separately lists and identifies all of the Intellectual Property Rights
(other than trade secrets and trade secret rights, know-how and show-how) owned
by each TIS Entity with all registration numbers and dates of filing and
registration, if any or to the extent applicable, and the Corporation has
delivered to GSCP correct and complete copies of all written documentation
evidencing ownership and prosecution of each item identified in Schedule
2.11(a). The TIS Entities have taken all necessary and desirable action to
maintain and protect each of the Intellectual Property Rights. Except as
otherwise set forth on Schedule 2.11(a), none of the Intellectual Property
Rights are subject to any outstanding ruling, decree, rule, judgment, order or
injunction, nor are any of the Intellectual Property Rights owned by the
Corporation subject to any Encumbrances (other than Permitted Encumbrances). No
person has misappropriated any Intellectual Property Rights (including, without
limitation, any of the Software) or has or is violating or infringing any
Intellectual Property Rights owned by any TIS Entity. No TIS Entity has any
current agreement to indemnify any person for or against any interference,
infringement, misappropriation or other conflict with respect to any of the
Intellectual Property Rights.
(ii) Except as set forth on Schedule 2.11, no TIS Entity has
granted any license or rights to any other person with respect to any
Intellectual Property Rights owned by such TIS Entity.
(iii) Except as set forth on Schedule 2.11, there are no
contracts in effect with third parties for the conversions, modifications or
enhancement of Software. Except as set forth on Schedule 2.11, there are no
marketing agreements with third parties or other arrangements with third parties
relating to the direct or indirect marketing of Software.
(b) Schedule 2.11(b) separately lists and identifies all of the
Third Party Intellectual Property Rights licensed to any of the TIS Entities and
identifies the associated licenses. The Corporation has furnished to GSCP a
true, correct and complete copy of each license agreement identified on Schedule
2.11(b). All royalties due under said licenses have been paid and there exists
no default by any of the TIS Entities or by any other party under the terms of
said licenses, and no event has occurred which, upon the passage of time or the
giving of notice, or both, would result in any event of default by any of the
TIS Entities or by any other party to the license or prevent such TIS Entity
from exercising and obtaining the benefits of any options contained therein.
Except as set forth on Schedule 2.11(b), the relevant TIS Entity has all right,
title and interest of the licensee under the terms of said licenses, free of all
Encumbrances (other than Permitted Encumbrances), all such licenses are valid
and in full force and effect and enforceable against such TIS Entity and the
other
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parties thereto and such TIS Entity is in compliance with the terms thereof.
There is no default or basis for acceleration under any of said licenses as a
result of the transactions contemplated by this Agreement.
(c) None of the TIS Entities are, or as a result of the
transactions contemplated by the Documents will be, infringing upon, interfering
with or violating, any proprietary rights or Intellectual Property Rights of any
other person and none of the TIS Entities have received any notice of any such
infringement, violation or interference.
"Software" means all software and computer programs other than
off-the-shelf commercially available software (the cost of which does not exceed
$1,000 per unit) including all such software and computer programs in machine
readable source code forms and in machine executable object code forms and all
related specifications (including, without limitation, all logic architectures,
algorithms and logic flows and all physical, functional, operating and design
parameters), work in progress relating to corrections, modifications or
enhancements, current and prior versions, operating systems and procedures
(including development methodology), designs, design revisions, related
applications software in any language, concepts, ideas, processes, techniques,
software design and test tools, third party software interfaces written by them
and all methods of implementation and packaging, together with all associated
know-how and show-how and all related documentation.
"Intellectual Property Rights" means, (a) all patent rights and
all right, title and interest in and to all letters patent and applications for
letters patent, industrial models, industrial designs, petty patents, patents of
importation, utility models, certificates of invention and other government
issued or granted indicia of invention ownership including any reissue,
division, continuation or continuation-in-part applications throughout the
world; (b) all rights, title and interest in and to all trade secrets and trade
secret rights arising under any Law (including common law); (c) all copyright
rights, and all other author rights whether or not copyrightable; and all
rights, title and interest in and to all copyrights, copyright registrations,
certificates of copyright and copyrighted interests throughout the world; (d)
all rights, title and interest in and to all know-how and show-how whether or
not protectable by patent, copyright or trade secret law, or as a registered
mask work; (e) all trademarks, trade names and service marks, whether registered
or arising under the common law or any other Law, and all registrations thereof
and interests therein throughout the world; and (f) the Software.
"Third Party Intellectual Property Rights" means all Intellectual
Property Rights that are not owned by the Corporation or an affiliate of the
Corporation.
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2.12. "Year 2000." The Corporation's computer systems and software
(including all software and applications developed for or sold to any customer
or client) of the TIS Entities are able to accurately process in all material
respects date data, including but not limited to, calculating, comparing and
sequencing from, into and between the twentieth century (through year 1999), the
year 2000 and the twenty-first century, including leap year calculations. To the
best knowledge of the Corporation or any Existing Stockholder, there is no
inability on the part of any service provider of any of the TIS Entities to
timely remedy such service provider's own deficiencies in respect of the year
2000 problem.
2.13. Corporate Minute Books. The corporate records of each TIS Entity
are true and complete and accurately reflect all meetings of and resolutions of,
or written consents by, the shareholders or board of directors (or committee
thereof) of such TIS Entity since the day of corporate organization. The
Corporation has previously furnished to GSCP true and correct copies of all
minutes of meetings or other actions by the directors, stockholders or
incorporators of each of the TIS Entities since their respective inceptions.
2.14. Personal Property; Real Property. (a) Except as set forth on
Schedule 2.14(a), the Corporation has good and marketable title to all of its
assets and properties, free and clear of any mortgages, judgments, claims,
liens, security interests, pledges, escrows, charges or other encumbrances of
any kind or character whatsoever ("Encumbrances") except (i) Encumbrances for
taxes not yet due and payable; (ii) Encumbrances for taxes and charges and other
claims, the validity of which the Corporation is contesting in good faith in
appropriate proceedings, all of which, in the case of such Encumbrances on the
assets and properties of the Corporation, are disclosed in Schedule 2.14(a); or
(iii) Encumbrances which arise in the ordinary course of business and do not
materially impair the Corporation's ownership, use of any such asset or property
or the Corporation's ability to obtain financing by using such assets or
property as collateral (Encumbrances referenced in clauses (i), (ii) and (iii),
collectively referred to as "Permitted Encumbrances") and (iv) Encumbrances
listed on Schedule 2.14(a). The assets and properties owned by, or leased to,
any TIS Entity are sufficient for the conduct of the business and operation of
such TIS Entity as presently conducted.
(b) None of the TIS Entities nor any predecessors of any TIS
Entity, directly or indirectly, owns or has ever owned any real property.
Schedule 2.14(b) hereto sets forth all of the real property presently leased by
any TIS Entity (the "Leased Real Property"). Such TIS Entity has good, clean
record and marketable title to enforceable leasehold interests in the Leased
Real Property, free and clear of all Encumbrances except for Permitted
Encumbrances. The Corporation has furnished to GSCP true and complete copies of
all of the leases of the Leased Real Property. Each
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of said leases has been duly authorized and executed by the TIS Entity which is
a party to it, and is in full force and effect. None of the TIS Entities are in
default under any of said leases, nor has any event occurred which, with notice
or the passage of time, or both, could be reasonably expected to give rise to an
event of default. With respect to each lease of Leased Real Property to which
any TIS Entity is a party, so long as the applicable TIS Entity performs all of
its obligations under such lease for Leased Real Property within applicable
notice and grace periods, (i) the rights of such TIS Entity under such lease
shall not be terminated and (ii) such TIS Entity's possession of such Leased
Real Property and the use and enjoyment thereof shall not be disturbed by any
landlord, overlandlord, mortgagee or other superior party. Except as set forth
on the Schedule 2.14(b), no TIS Entity is obligated to purchase any Leased Real
Property and no Leased Real Property is required to be accounted for under GAAP
as a capitalized lease.
(c) The TIS Entities are conducting, and have conducted, their
business in compliance with all applicable Environmental Laws. No TIS Entity has
caused, arranged or allowed, or contracted with any party for, the
transportation, treatment, storage or disposal of any Hazardous Substance in
connection with the operation of its business or otherwise. No Hazardous
Substance has been released into the environment on or from the Leased Real
Property which is required under applicable Environmental Laws, to be abated or
remediated by the Corporation. There are no past or present conditions, events,
circumstances, facts, activities, practices, incidents, actions, omissions, or
plans that can reasonably be expected to form the basis of any claim, action,
suit, proceeding, hearing, investigation, or inquiry against or involving any
TIS Entity allegedly or actually based on or related to any violation of any
Environmental Law or that is reasonably likely to require such TIS Entity to
incur any Losses in connection therewith. For purposes of this Agreement, the
term "Environmental Laws" shall mean any federal, state or local law, ordinance,
rule or regulation, in effect and as amended as of the date of this Agreement,
relating to human health, employee safety or the protection of the environment,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., the
Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Section
11001, et seq., the Resource Conversation and Recovery Act, 42 U.S.C. Section
6901 et seq., and the Occupational Health and Safety Act 29 U.S.C. Section 641
et seq. For purposes of this Agreement, the term "Hazardous Substances" shall
include all substances, products or materials (including, without limitation,
asbestos-containing materials, petroleum or any by-products thereof) classified
as hazardous or toxic under any Environmental Laws.
2.15. Employee Benefit Plans. (a) Schedule 2.15 hereto contains a true
and complete list of (i) each plan, program, policy, payroll practice, contract,
agreement or other arrangement providing for compensation, severance,
termination pay,
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performance awards, stock or stock-related awards, fringe benefits or other
material employee benefits of any kind, whether formal or informal, funded or
unfunded, written or oral and whether or not legally binding, which is now or
previously has been sponsored, maintained, contributed to or required to be
contributed to by any TIS Entity or pursuant to which any TIS Entity has any
liability, contingent or otherwise, including, but not limited to, any "employee
benefit plan" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (each a "Benefit Plan"); (ii)
each management, bonus, option, equity (or equity related), severance,
non-compete, confidentiality or similar agreement or contract between the
Corporation and any current, former or retired employee, officer, consultant,
independent contractor, agent or director of any TIS Entity (an "Employee"); and
(iii) each employment or consulting agreement or contract between the
Corporation and an Employee; provided, however, that for scheduling purposes
only, the only Employee Agreements required to be listed pursuant to clause
(iii) shall be those Employee Agreements between the Corporation and an Employee
who earns annual compensation in excess of $50,000 (each agreement in clauses
(ii) and (iii), an "Employee Agreement"). None of the TIS Entities currently
sponsors, maintains, contributes to, nor is required to contribute to, nor has
any TIS Entity ever sponsored, maintained, contributed to or been required to
contribute to, or incurred any liability to, (i) any "defined benefit plan" (as
defined in ERISA Section 3(35)); (ii) any "multiemployer plan" (as defined in
ERISA Section 3(37)) or (iii) any Benefit Plan which provides, or has any
liability to provide, life insurance, medical, severance or other employee
welfare benefits to any Employee upon his or her retirement or termination of
employment, except as required by Section 4980B of the Code. Except as set forth
on Schedule 2.15(a), none of the TIS Entities has any plan or commitment,
whether legally binding or not, (i) to establish any new Benefit Plan, or to
modify or terminate any Benefit Plan or (ii) to enter into, modify or terminate
any Employee Agreement with any Employee who earns more than $50,000 annually.
(b) None of the TIS Entities is (i) a member of a "controlled
group of corporations," under "common control" or an "affiliated service group"
within the meaning of Sections 414(b), (c) or (m) of the Code, (ii) required to
be aggregated under Section 414(o) of the Code, or (iii) under "common control,"
within the meaning of Section 4001(a)(14) of ERISA, or any regulations
promulgated or proposed under any of the foregoing Sections, in each case with
any other entity other than the remaining TIS Entities.
(c) The Corporation has made available to GSCP current,
accurate and complete copies of all documents embodying or relating to each
Benefit Plan and each Employee Agreement, including all amendments thereto,
interpretations thereof, trust or funding agreements relating thereto (if any),
the two most recent annual
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reports (Series 5500 and related schedules) required under ERISA (if any), the
most recent determination letter received from the IRS (if any), the most recent
summary plan description (with all material modifications) (if any), and all
material communications to any Employee or Employees relating to any Benefit
Plan or Employee Agreement required to be listed on Schedule 2.15.
(d) Each Benefit Plan has been established and maintained in
accordance with its terms and in compliance in all material respects with all
applicable, laws, statutes, orders, rules and regulations, including but not
limited to ERISA and the Code, and each Benefit Plan intended to qualify under
Section 401 of the Code is, and since its inception has been, so qualified.
(e) No "prohibited transaction," within the meaning of Section
4975 of the Code or Section 406 of ERISA, has occurred with respect to any
Benefit Plan. There are no actions, proceedings, suits or claims pending, or to
the best knowledge of the Corporation or any Existing Stockholder, threatened or
anticipated (other than routine claims for benefits) with respect to any Benefit
Plan or Employee Agreement. No Employee has been hired by any of the TIS
Entities in violation of any restrictive covenant or any non-compete agreement
with any other person. Each Benefit Plan can be amended, terminated or otherwise
discontinued without liability to any TIS Entity. No liability under any Benefit
Plan has been funded nor has any such obligation been satisfied with the
purchase of a contract from an insurance company as to which the Corporation has
received notice that such insurance company is insolvent or is in rehabilitation
or any similar proceeding. No Benefit Plan is under audit or investigation by
the IRS, the Department of Labor or the Pension Benefit Guarantee Corporation,
and, to the knowledge of the Corporation, no such audit or investigation is
pending or has been threatened. With respect to each Benefit Plan which is an
employee welfare benefit plan (within the meaning of Section 3(1) of ERISA), all
claims incurred by the Corporation are (i) insured pursuant to a contract of
insurance whereby the insurance company bears any risk of loss with respect to
such claims; (ii) covered under a contract with a health maintenance
organization (an "HMO" ) pursuant to which the HMO bears the liability for
claims, or (iii) reflected as a liability or accrued for on the PW Audited
Financial Statements.
(f) The execution of, and performance of the transactions
contemplated in this Agreement will not (either alone or upon the occurrence of
any additional or subsequent events) (i) constitute an event under any Benefit
Plan or Employee Agreement that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligations to fund benefits with respect
to any Employee or (ii) result in the triggering or imposition of any
restrictions or limitations on the right of any TIS Entity to amend or terminate
any Benefit Plan and receive the full amount
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of any excess assets remaining or resulting from such amendment or termination.
No payment or benefit which will or may be made by any TIS Entity or any of
their respective affiliates with respect to any Employee may be characterized as
an "excess parachute payment," within the meaning of Section 280G(b)(1) of the
Code.
2.16. Labor Relations; Employees. Schedule 2.16 lists all employees of
the TIS Entities with annual compensation in excess of $50,000. Except as set
forth on Schedule 2.16, (a) the TIS Entities are not delinquent in payments to
any of their employees, for any wages, salaries, commissions, bonuses or other
direct compensation for any services performed by the date hereof or amounts
required to be reimbursed by them to the date hereof, (b) the TIS Entities are
in compliance in all material respects with all applicable federal, state and
local laws, rules and regulations respecting employment, employment practices,
labor, terms and conditions of employment and wages and hours, (c) the TIS
Entities are not bound by or subject to (and none of its assets or properties is
bound by or subject to) any written or oral, express or implied, commitment or
arrangement with any labor union, and no labor union has requested or, to the
best knowledge of the Corporation or any Existing Stockholder, has sought to
represent any of the employees, representatives or agents of the TIS Entities,
(d) there is no labor strike, dispute, slowdown or stoppage actually pending,
or, to the best knowledge of the Corporation or any Existing Stockholder,
threatened against or involving the TIS Entities, (e) to the best knowledge of
the Corporation or any Existing Stockholder, no salaried key employee has any
plans to terminate his or her employment with the TIS Entities. Each of the
Existing Stockholders has executed a confidentiality agreement substantially in
the form of Exhibit K (collectively, the "Employee Nondisclosure Agreements"),
and such agreements are in full force and effect. Each officer, key employee,
and each other employee and consultant of any of the TIS Entities who has access
to information has executed standard confidentiality agreements, which
agreements are now in full force and effect.
2.17. Litigation; Orders. Except as set forth on Schedule 2.17, there
is no civil, criminal or administrative action, suit, claim, notice, hearing,
examination, inquiry, proceeding or investigation at law or in equity or by or
before any court, arbitrator or similar panel, governmental instrumentality or
other agency ("Litigation") now in progress or pending or, to the best knowledge
of the Corporation or any Existing Stockholder, threatened against any TIS
Entity or the assets (including the Intellectual Property Rights) or the
business of any TIS Entity. No TIS Entity is subject to any order, writ,
injunction or decree of any court of any federal, state, municipal or other
domestic or foreign governmental department, commission, board, bureau, agency
or instrumentality.
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2.18. Compliance with Laws; Permits. Except as provided on Schedule
2.18, each TIS Entity (a) has complied in all material respects with all
federal, state, local and foreign laws, rules, ordinances, codes, consents,
authorizations, registrations, regulations, decrees, directives, judgments and
orders applicable to it and its business and (b) has all federal, state, local
and foreign governmental licenses, permits and qualifications material to and
necessary in the conduct of its business as currently conducted, such licenses,
permits and qualifications are in full force and effect, and no violations have
been recorded in respect of any such licenses, permits and qualifications, and
no proceeding is pending or, to the best knowledge of the Corporation or any
Existing Stockholder, threatened to revoke or limit any such license, permit or
qualification. Schedule 2.18 sets forth a list of all material licenses, permits
and qualifications, and the expiration dates thereof.
2.19. Commissions, Etc. Except as set forth on Schedule 2.19, no TIS
Entity is a party to any Contract obligating such TIS Entity to pay commissions
or fees to any party in connection with the issuance or sale of any shares of
capital stock or other securities of such TIS Entity.
2.20. Offering Exemption. Assuming the accuracy of the representations
and warranties made by the Investors in Section 3, the offer and sale of the
Series A Preferred Stock as contemplated hereby, the issuance and delivery of
the Conversion Shares to the Investors upon the conversion of the Series A
Preferred Stock in accordance with the terms of the Certificate of Designations,
and all prior issuances of securities of the Corporation are each exempt from
registration under the Securities Act of 1933, as amended (the "Securities Act")
and under applicable state securities and "blue sky" laws, as currently in
effect. All shares of capital stock and other securities issued by the
Corporation prior to the Closing have been issued in transactions exempt from
registration under the Securities Act, and all applicable state securities or
"blue sky" laws. The Corporation has not violated the Securities Act or any
applicable state securities or "blue sky" laws in connection with the issuance
of any shares of capital stock or other securities prior to the Closing. The
Corporation has not offered any of its capital stock, or any other securities,
for sale to, or solicited any offers to buy any of the foregoing from the
Corporation, or otherwise approached or negotiated with any other person in
respect thereof, in such a manner as to require registration under the
Securities Act.
2.21. Related Transactions. (a)Except as set forth on Schedule 2.21(a),
no current or former stockholder, director, officer or employee of any TIS
Entity, or any current or former "affiliate" or "associate" (as such terms are
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of any of the foregoing persons or any TIS Entity is presently,
or since the organization of such TIS Entity, has been, directly or indirectly
through such person's or entity's
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affiliation with any other person or entity, a party to any agreement or
transaction with any TIS Entity, other than, in the case of such person, in
connection with any such person's duties as a director, officer or employee of
such TIS Entity.
(b) Each ongoing affiliate transaction set forth on Schedule
2.21(a) is on terms that are (i) consistent with past practice of the TIS Entity
party thereto and (ii) at least as favorable to such TIS Entity as would be
available with independent third parties dealing at arms' length.
2.22. Taxes. (a) Except as set forth on Schedule 2.22(a): (i) each TIS
Entity has timely filed in accordance with all applicable laws (taking into
account valid extensions) all material Tax Returns required to be filed by it,
and all such Tax Returns are true, correct and complete in all material
respects; (ii) each TIS Entity has timely paid all Taxes owed by it on or prior
to the date hereof, including, without limitation, any Taxes levied upon any of
its properties, assets, income or franchises; (iii) all amounts required to be
collected or withheld by each TIS Entity have been collected or withheld and any
such amounts that are required to be remitted to any taxing authority have been
duly and timely remitted by each TIS Entity; (iv) no examination, investigation,
audit, claim, assessment, deficiency or administrative or judicial proceeding is
in progress, pending, proposed or, to the best knowledge of the Corporation or
any Existing Stockholder, threatened, in each case with regard to any Taxes or
Tax Returns of any TIS Entity; (v) no taxing authority in a jurisdiction where a
TIS Entity or any shareholder of such TIS Entity does not file Tax Returns has
made a claim, assertion or threat that such non-filing entity or shareholder is
or may be subject to taxation by such jurisdiction; (vi) none of the TIS
Entities is a party to or bound by any Tax sharing or Tax allocation or similar
agreement or arrangement; and (vii) all Tax Returns of any TIS Entity with
respect to taxable periods through the year ended December 31, 1994 have been
examined and closed or are Tax Returns with respect to which the applicable
statute of limitations has expired without extension or waiver. Schedule 2.22(a)
contains a list of the states, territories and jurisdictions (whether domestic
or foreign) in which any TIS Entity has filed income, franchise, sales and use
Tax Returns for taxable periods ending on or after December 31, 1994.
(b) (i) For federal income tax purposes, each of the
Corporation, SSN and TIS Equipment has made a timely and valid election to be
treated as an "S corporation" under Section 1361(a) of the Code effective on
July 1, 1994, January 1, 1997 and January 1, 1994, respectively, and such TIS
Entity was so classified for state and local income tax purposes pursuant to
analogous state or local provisions in the jurisdictions and effective on the
dates set forth on Schedule 2.22(b)(i). Each of the Corporation, SSN and TIS
Equipment has maintained its status as a "small business corporation" within the
meaning of Section 1361(b) of the Code, and any analogous
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provision of state or local law in any jurisdiction listed on Schedule
2.22(b)(i) until, in the case of the Corporation and TIS Equipment, the date
hereof, and until, in the case of SSN, the date on which SSN became a
wholly-owned subsidiary of the Corporation. None of the stockholders of the
Corporation or the stockholders of TIS Equipment or the Corporation or TIS
Equipment has taken or omitted to take any actions which would cause the
Corporation or TIS Equipment, respectively, to cease prior to the date hereof to
be treated as an "S corporation" within the meaning of Section 1361(a) of the
Code or any analogous provision of state or local law in any jurisdiction listed
in Schedule 2.22(b)(i).
(ii) For federal income tax purposes, the Corporation
has made a valid and timely election for SSN to be treated as a "qualified
subchapter S subsidiary" under Section 1361(a)(3) of the Code effective on the
date that SSN became a wholly-owned subsidiary of the Corporation, and SSN was
so classified for state and local income tax purposes pursuant to analogous
state or local provisions in the jurisdictions and effective on the dates set
forth in Schedule 2.22(b)(ii). SSN has properly qualified as a "qualified
subchapter S subsidiary" within the meaning of Section 1361(a)(3) of the Code
and any analogous provision of state or local law in any jurisdiction listed in
Schedule 2.22(b)(ii) since the effective date of such election through the date
hereof. None of the stockholders of SSN or SSN took or omitted to take any
actions which would have caused SSN to cease to be treated as an "S corporation"
within the meaning of Section 1361(a) of the Code or any analogous provision of
state or local law in any jurisdiction listed in Schedule 2.22(b)(ii) prior to
the date that SSN became a wholly-owned subsidiary of the Corporation. The
Corporation has not taken or omitted to take any action which would cause SSN to
cease prior to the date hereof to be treated as a "qualified subchapter S
subsidiary" within the meaning of Section 1361(a)(3) of the Code or any
analogous provision of state or local law in any jurisdiction listed in Schedule
2.22(b)(ii) since the date that SSN became a wholly-owned subsidiary of the
Corporation.
(c) The accruals and reserves for Taxes on the balance sheets
referenced in Section 2.6 are adequate to cover any liability of the TIS
Entities for Taxes for periods through the date of such balance sheets.
(d) Except as set forth on Schedule 2.22(d) or as contemplated
by Section 4.12 of this Agreement, there are no rulings, request for rulings,
closing agreements, adjustments pursuant to section 481(a) of the Code (or
analogous provisions of state or local law), or dispositions of property being
accounted for under the installment method pursuant to section 453 of the Code
(or analogous provisions of state or local law) related to any TIS Entity which
could affect any TIS Entity's liability for Taxes for any taxable period or
portion thereof beginning on or after the Closing Date.
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(e) TIS Equipment has used the accrual method of accounting
for federal, state and local Tax purposes at all times since it was organized.
(f) For purposes of this Agreement, "Tax" or "Taxes" means any
taxes, assessment, duties, fees, levies, imposts, deductions, or withholdings
including, without limitation, income, gross receipts, ad valorem, value added,
excise, real or personal property, asset, sales, use, license, payroll,
transaction, capital, net worth and franchise taxes, estimated taxes,
withholding, employment, social security, workers compensation, utility,
severance, production, unemployment compensation, occupation, premium, windfall
profits, transfer and gains taxes, or other governmental charges of any nature
whatsoever, imposed by any taxing authority of any government or country or
political subdivision of any country, and any liabilities with respect thereto,
including any penalties, additions to tax, fines or interest thereon, and "Tax
Return" means any report, return, statement, estimate, declaration, notice, form
or other information required to be supplied to a taxing authority in connection
with Taxes. For purposes of this Section 2.22, the term TIS Entities shall
include any corporation or similar entity of which any of the TIS Entities is a
successor by merger, liquidation or otherwise.
2.23. Consents. Except as set forth on Schedule 2.23, no permit,
authorization, consent or approval of or by, or any notification of or filing
(including any filing under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended) with any person (governmental or private) is required in
connection with the execution, delivery and performance by the Corporation of
the Documents or any documentation relating thereto, the consummation by the
Corporation of the transactions contemplated hereby or thereby, or the issuance,
sale or delivery of the Series A Preferred Stock and the Conversion Shares.
2.24. Insurance. All of the assets of each TIS Entity that are of
insurable character are covered by insurance with reputable insurers against
risks of liability, casualty and fire and other losses and liabilities
customarily obtained to cover comparable businesses and assets in amounts, scope
and coverage which are consistent with prudent industry practice. Schedule 2.24
sets forth a list of all insurance coverage carried by the Corporation, the
carrier and the terms and amount of coverage.
2.25. Brokers. No TIS Entity nor any of their respective officers,
directors, employees or stockholders has employed any broker or finder in
connection with the transactions with the Investors contemplated by this
Agreement.
2.26. Suppliers and Customers. The Corporation has no knowledge of any
termination, cancellation or threatened termination or cancellation or
limitation of, or any material modification or change in, or expressed material
dissatisfaction with the
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business relationship between any TIS Entity and any supplier, vendor, customer
or client of any TIS Entity of materials or services in an amount in excess of
$25,000 per year.
2.27. Investment Banking Services. Except as set forth on Schedule 2.27
hereto, no TIS Entity a party to any Contract which grants rights to any third
party with respect to the performance of investment banking services for any TIS
Entity, including, without limitation, with respect to the sale of the
corporation or a public offering, including an initial public offering, of
securities of any TIS Entity.
2.28. Suitability. None of the TIS Entities nor, to the best knowledge
of the Corporation, any of the Existing Stockholders or any of their respective
directors or officers (a) has ever been indicted for or convicted of any felony
or any crime involving fraud or misrepresentation; (b) is subject to any order,
judgment or decree of any court of competent jurisdiction or any governmental
authority barring, suspending, or otherwise limiting the right of such TIS
Entity or such person to engage in any activity conducted by such TIS Entity; or
(c) has been denied any license or permit affecting such TIS Entity's or such
person's ability to conduct any activity conducted by such TIS Entity nor is
there any basis upon which such liability to conduct any activity conducted by
such TIS Entity may be denied.
2.29. Use of Proceeds. Except as contemplated by this Agreement, no TIS
Entity is required pursuant to any Contract or otherwise to apply the proceeds
received from the Investors pursuant to the transactions contemplated hereby in
any specified manner including, without limitation, the repayment of any
obligations of any TIS Entity or any "affiliate" or "associate" (as such terms
are defined in Rule 12b-2 under the Exchange Act).
2.30. Disclosure. Neither this Agreement nor any certificate,
instrument or written statement furnished or made to any of the Investors by or
on behalf of any TIS Entity or an Existing Stockholder pursuant to this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein not misleading.
2.31. Contribution of TIS Equipment Stock. As of the date hereof, all
of the outstanding shares of capital stock of TIS Equipment are owned by the
Existing Stockholders. As of the Closing, the Existing Stockholders, all of whom
consented to the Contribution as a capital contribution to the Corporation,
shall have contributed all of the outstanding shares of capital stock of TIS
Equipment to the Corporation. As a result of the Contribution, the Corporation
will own all of the issued and outstanding shares of capital stock of TIS
Equipment.
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2.32. Closing Actions. Subject to the execution and delivery of the
Documents, the Closing Actions have been completed.
SECTION 3. Representations and Warranties of Each Investor. Each
Investor represents and warrants to the Corporation as of the date hereof as
follows:
(a) Such Investor is acquiring the Series A Preferred Stock to be
purchased by it under this Agreement for its own account, for investment and not
with a view to the distribution thereof within the meaning of the Securities
Act.
(b) Such Investor understands that (i) the Series A Preferred
Stock have not been, and the Conversion Shares will not be, registered under the
Securities Act or any state securities laws, by reason of their issuance by the
Corporation in a transaction exempt from the registration requirements thereof
and (ii) the Series A Preferred Stock and the Conversion Shares may not be sold
unless such disposition is registered under the Securities Act and applicable
state securities laws or is exempt from regulation thereunder.
(c) Such Investor further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to the
Investor) promulgated under the Securities Act depends on the satisfaction of
various conditions, and that, if applicable, Rule 144 may afford the basis for
sales only in limited amounts.
(d) Such Investor has not employed any broker or finder in
connection with the transactions contemplated by this Agreement.
(e) Such Investor is an "Accredited Investor" (as defined in Rule
501(a) under the Securities Act).
(f) Such Investor is duly organized and validly existing under the
laws of the state of its organization and has all power and authority to enter
into and perform the Documents. Each of the Documents has been duly authorized
by all necessary action on the part of such Investor. Each of the Documents
constitutes a valid and binding agreement of such Investor enforceable against
such Investor in accordance with its terms except to the extent that
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally.
(g) The execution, delivery and performance by such Investor of
each of the Documents and the consummation by such Investor of the transactions
contemplated thereby will not violate any provision of law, statute, rule or
regulation, or any ruling, writ, injunction, order, judgment or decree of any
court, administrative
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agency or other governmental body applicable to the Investor, or any of its
properties or assets.
(h) No permit, authorization, consent or approval of or by, or any
notification of or filing (including any filing under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended) with, any person (governmental
or private) is required in connection with the execution, delivery and
performance by such Investor of the Documents to which it is a party or any
documents relating thereto, the consummation by such Investor of the
transactions contemplated hereby or thereby, or the issuance, sale or delivery
of the Series A Preferred Stock and the Conversion Shares.
SECTION 4. Certain Covenants.
4.1. Access to Records. From and after the Closing, the Corporation
shall afford to each Investor and its employees, counsel, accountants and other
authorized representatives full access, during normal business hours, upon
reasonable advance notice, with due regard to the Corporation's ongoing
operations, to all of the books, records, accounts and properties of or relating
to (including, without limitation, all work papers of the Corporation's
accountants) the Corporation and to all officers and employees of the
Corporation, for any reasonable purpose whatsoever.
4.2. Financial Reports. From and after the Closing, the Corporation
agrees to furnish to each Investor the following:
(a) (i) Within 30 days after the end of each fiscal month
commencing from August 1998 through December 1998, and (ii) within 15 days after
the end of each fiscal month, commencing with the first fiscal month ending
after January 1, 1999, (A) internal monthly financial and operating statements
for such month ("Monthly Financials") prepared by the Corporation for the Chief
Executive Officer of the Corporation and a letter or memorandum discussing the
summary financial information for such period and setting forth a comparison by
reasonable categories of such financial information to the applicable budget and
the comparable figures for the prior year and a reasonable explanation of any
differences (a "Management Letter"), plus (B) a statement certified by the Chief
Financial Officer of the Corporation, certifying that the financial position and
results of operations of the Corporation for such period as reflected in the
Monthly Financials are presented fairly and have been prepared in accordance
with GAAP (subject to normal year-end adjustments and the absence of footnotes)
consistently applied.
(b) Within 45 days after the end of each quarterly fiscal period,
commencing with the first quarterly fiscal period ending after the Closing,
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(i) unaudited balance sheets and an income statement as of the end of such
period, together with statements of retained earnings and cash flow for such
period ("Quarterly Financials") and a Management Letter, plus (ii) a statement
certified by the Chief Financial Officer of the Corporation, certifying that the
financial position and results of operations of the Corporation for such period
as presented in the Quarterly Financials are presented fairly and have been
prepared in accordance with GAAP (subject to normal year-end adjustments and the
absence of footnotes) consistently applied.
(c) Within 90 days after the end of each fiscal year, commencing
with the first fiscal year ending after the Closing, (i) audited balance sheets
and an income statement as of the end of such fiscal year, together with
statements of retained earnings and cash flow for such fiscal year, all in
reasonable detail and certified by a recognized national firm of independent
accountants selected by the board of directors of the Corporation as presenting
fairly the financial position and results of operations of the Corporation and
as having been prepared in accordance with GAAP consistently applied, including
their opinion thereon, and (ii) the accounting firm's management letter.
(d) Promptly upon becoming available, (i) copies of all financial
statements, reports, press releases, notices, proxy statements and other
documents sent by the Corporation to its stockholders or released to the public
and copies of all regular and periodic reports, if any, filed by the Corporation
with the Securities and Exchange Commission ("SEC") or any securities exchange
and (ii) any other financial or other information available to management of the
Corporation as any of the Investors shall have reasonably requested on a timely
basis.
(e) If for any period the Corporation shall have any subsidiary or
subsidiaries whose accounts are consolidated with those of the Corporation,
then, in respect of such period, the financial statements and information
delivered pursuant to the foregoing paragraphs (a), (b) and (c) of this Section
4.2 shall be the consolidated and consolidating financial statements of the
Corporation and all such consolidated subsidiaries.
(f) In all cases, the Corporation shall provide to the Investors
all information which it provides or has an obligation to provide to any other
stockholder of the Corporation (in his capacity as such), pursuant to any
agreement with such stockholder or otherwise, and any other information that any
of the Investors may reasonably request.
(g) At least 30 days but not more than 90 days prior to the
beginning of each fiscal year, an annual budget prepared on a monthly basis for
the Corporation for such fiscal year (displaying anticipated statements of
income and cash flows and
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balance sheets), and promptly upon preparation thereof any other significant
budgets prepared by the Corporation and any revisions of such annual or other
budgets, and, provided that the Investors make request therefor, within 30 days
after any monthly period in which there is a material adverse deviation from the
annual budget, a statement certified by the Chief Executive Officer of the
Corporation explaining the deviation and what actions the Corporation has taken
and proposes to take with respect thereto.
(h) Promptly (but in any event within seven business days) after
the discovery or receipt of notice of (a) any default under any material
agreement to which the Corporation and/or any of its subsidiaries is a party,
which default could have a material adverse effect on the Corporation or any of
its subsidiaries, (b) any other material adverse event or circumstance affecting
the Corporation or any of its subsidiaries (including, without limitation, the
filing of any material litigation against the Corporation or any of its
subsidiaries or the existence of any dispute with any person which involves a
reasonable likelihood of such litigation being commenced), a statement certified
by the Chief Executive Officer of the Corporation specifying the nature and
period of existence thereof and what actions the Corporation has taken and
proposes to take with respect thereto.
(i) With reasonable promptness, such other information and
financial data concerning the Company as any of the Investors may reasonably
request.
4.3. System of Accounting. The books of account and other financial and
corporate records of the Corporation and its subsidiaries shall be maintained in
accordance with good business and accounting practices and the financial
condition of the Corporation shall be accurately reflected in the financial
statements referred to in Section 4.2.
4.4. Maintenance of Corporate Existence, Etc. At all times the
Corporation shall maintain in full force and effect its corporate existence,
rights, governmental approvals and franchises and all licenses and other rights
to use patents, processes, licenses, trademarks, trade names or copyrights owned
or possessed by it and deemed by the Corporation to be material to the conduct
of its business.
4.5. Compliance with Laws. At all times the Corporation and its
subsidiaries shall comply with all applicable laws, rules, regulations and
orders, noncompliance with which could materially adversely affect its business
or condition, financial or otherwise.
4.6. Maintenance of Properties and Leases. At all times the Corporation
and its subsidiaries shall keep its properties in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needful
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and proper, or legally required, repairs, renewals, replacement, additions and
improvements thereto; and the Corporation and its subsidiaries shall at all
times comply with each provision of all leases to which any of them is a party
or under which any of them occupies, or has possession of, property if the
breach of such provision might have a material adverse effect on the condition,
financial or otherwise, or operations of the Corporation.
4.7. Insurance. At all times the Corporation shall keep its assets and
those of its subsidiaries which are of an insurable character, if any, insured
by financially sound and reputable insurers against loss or damage by fire,
extended coverage and other hazards and risks and liability to persons and
property to the extent and in the manner customary for companies in similar
businesses similarly situated.
4.8. Licenses and Permits. At all times the Corporation shall use its
best efforts to obtain all federal, state, local and foreign governmental
licenses, permits and qualifications material to and necessary in the conduct of
business as proposed to be conducted.
4.9. Employee Nondisclosure Agreements. The Corporation shall use its
best efforts to obtain, and shall cause its subsidiaries to use their best
efforts to obtain, an Employee Nondisclosure Agreement in substantially the form
of Exhibit K hereto, as applicable, from all future officers, key employees and
other employees who will have access to confidential information of the
Corporation or any of its subsidiaries, if any, upon their employment by the
Corporation or any of such subsidiaries.
4.10. Disclosure of Investment. From and after the date hereof, the
Existing Stockholders and the Corporation agree that they will not, (i) except
as may be necessary or desirable in connection with a request by a governmental
agency, regulatory or supervisory authority or court or as required by law and
other than to affiliates of the Investors, and employees of the Investors or
their affiliates, and potential investors in the Corporation, without the prior
written consent of the other party, disclose the transactions contemplated by
the Documents, or (ii) use in advertising or publicity the name of the other
party hereto, or any partner or employee of such party hereto or any of its
respective affiliates, or any trade name, trademark, trade device, service mark,
symbol or any abbreviation, contraction or simulation thereof owned by the other
party hereto or any of its respective affiliates, in either case without the
prior written consent of such party. From and after the date hereof, neither the
Corporation nor any of its subsidiaries will represent, directly or indirectly,
that any product or any service provided by, the Corporation or any of its
subsidiaries has been approved or endorsed by any Investor without the prior
written consent of the Investors.
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4.11. Restrictive Covenant. In consideration of, and as an inducement
to, the Purchase by the Investors and the utilization of the proceeds of the
Purchase to fund the Pro Rata Redemption, each of the Existing Stockholders
covenants and agrees for the benefit of the Corporation and each of the
Investors that, while he is employed by the Corporation and for a period
commencing on the date of this Agreement and ending on the date that is two
years after the termination (whether voluntary or involuntary) or retirement of
an Existing Stockholder as an employee of the Corporation, such Existing
Stockholder will not, within a radius of 500 miles from a place of business of
the Corporation, directly or indirectly own, manage, operate, control, be
employed by, consult for, participate in, or otherwise be connected in any
manner with the ownership, management, operation, or control of any business
which is then competitive with the business conducted by the Corporation.
4.12. Change in Tax Accounting Method. The Corporation and, if
applicable, SSN shall, no later than 30 days after the Closing, prepare (or
cause to be prepared) and timely file an election to change its method of
accounting for federal income Tax purposes from the cash receipts and
disbursements method to the accrual method effective January 1, 1998 pursuant to
and in accordance with all the applicable provisions of Revenue Procedure 97-37,
1997-33 I.R.B. 18 (and shall file analogous elections for applicable state and
local Tax purposes in accordance with all applicable state and local laws). At
least 10 days prior to the proposed date for the filing of such election, the
Corporation and, if applicable, SSN shall provide to GSCP and its counsel and
accountants a copy of such elections for their review and comments.
4.13. TIS Equipment Options. The Corporation agrees that it will take,
and that it will cause TIS Equipment to take, all action necessary to eliminate
any TIS options that have not been canceled as of the date hereof. The
Corporation covenants that, as of September 30, 1998, there will be no TIS
Equipment options outstanding.
SECTION 5. Certain Taxes. The Corporation agrees that it will pay, and
will hold each Investor harmless from, any and all liability with respect to any
transfer, transfer gains, stamp or similar Taxes which may be determined to be
payable in connection with the execution and delivery and performance of this
Agreement or any modification, amendment or alteration of the terms or
provisions of this Agreement. The Corporation agrees that it will pay and hold
each Investor harmless from all Taxes arising as a result of the issuance (other
than any additional issuance pursuant to Section 1.9) of the Series A Preferred
Stock and the Conversion Shares to the Investors.
SECTION 6. Legends; Exchanges; Lost, Stolen or Mutilated Certificates.
(a) Each certificate representing shares of Series A Preferred Stock or Common
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Stock issued to the Existing Stockholders or issuable to the Investors hereunder
shall bear a legend containing the following words:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH SUCH ACT."
"IN ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE RESTRICTIONS ON TRANSFER AND CERTAIN VOTING REQUIREMENTS
SET FORTH IN THE STOCKHOLDER AGREEMENT DATED AS OF SEPTEMBER 4, 1998,
BY AND AMONG TRANSACTION INFORMATION SYSTEMS, INC. AND THE PARTIES
THERETO, A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE CORPORATION."
The requirement that the first paragraph of the foregoing
legend be placed upon certificates evidencing any such securities shall cease
and terminate upon the earliest of the following events: (i) when such shares
are transferred in a public offering under the Securities Act, (ii) when such
shares are transferred pursuant to Rule 144 under the Securities Act or (iii)
when such shares are transferred in any other transaction if the seller delivers
to the Corporation an opinion of its counsel, which counsel and opinion shall be
reasonably satisfactory to the Corporation, or a "no-action" letter from the
staff of the SEC, in either case to the effect that such legend is no longer
necessary in order to protect the Corporation against a violation by it of the
Securities Act upon any sale or other disposition of such shares without
registration thereunder. The requirement that the second paragraph of the
foregoing legend be placed upon certificates evidencing such securities shall
cease and terminate upon the earlier of (A) the transfer of such securities
pursuant to a registration statement filed under the Securities Act or (B) the
termination of the Stockholder Agreement. Upon the occurrence of any event
requiring the removal of a legend hereunder, the Corporation, upon the surrender
of certificates containing such legend, shall, at its own expense, deliver to
the holder of any such shares as to which the requirement for such legend shall
have terminated, one or more new certificates evidencing such shares not bearing
such legend.
(b) Upon surrender by any Investor to the Corporation of any
certificate representing Series A Preferred Stock or Common Stock purchased or
acquired hereunder, the Corporation at its expense will, within five business
days,
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issue in exchange therefor, and deliver to the Investor, a new certificate or
certificates representing such shares, in such denominations as may be requested
by such Investor. Upon receipt of evidence satisfactory to the Corporation of
the loss, theft, destruction or mutilation of any certificate representing any
share of Series A Preferred Stock or Common Stock purchased or acquired by any
Investor hereunder, and in case of any such loss, theft or destruction, upon
delivery of any indemnity agreement satisfactory to the Corporation, or in any
case of any such mutilation, upon surrender and cancellation of such
certificate, the Corporation at its expense will, within five business days,
issue and deliver to the Investor a new certificate for such Series A Preferred
Stock or Common Stock of like tenor, in lieu of such lost, stolen or mutilated
certificate.
SECTION 7. Survival of Representations, Warranties, Agreements and
Covenants, Etc. All representations and warranties hereunder shall survive the
Closing for a period of two years and shall in no way be affected by any
knowledge possessed by, or investigation of the subject matter thereof made by
or on behalf of, the Investors, provided, however, that (i) the representations
and warranties set forth in Sections 2.1, 2.2, 2.3 and 2.4 shall survive
indefinitely and (ii) the representations made in Section 2.7, as they relate to
Taxes, and in Section 2.22, shall survive until 60 days after the expiration of
the applicable statute of limitations (including extensions thereof). All
statements contained in any Schedule to this Agreement or in any certificate or
other instrument delivered by the Corporation pursuant to Section 1.5 shall
constitute representations and warranties by the Corporation under this
Agreement. All agreements contained herein shall survive indefinitely until, by
their respective terms, they are no longer operative; provided, however, that
the rights of an Investor and the obligations of the Corporation to such
Investor under Section 4 of this Agreement shall, unless otherwise specified
therein, terminate at such time as such Investor and its Investor Affiliates do
not beneficially own any shares of the capital stock of the Corporation.
SECTION 8. Expenses. The Corporation shall pay and shall reimburse the
Investors, promptly after receipt of the bill therefor, the fees and
out-of-pocket expenses of counsel and accountants retained by the Investors in
connection with the negotiation and preparation of the Documents and the
documentation relating thereto (including, without limitation, (a) any fees,
out-of-pocket expenses or other amounts incurred or payable in connection with
the preparation of the PW Audited Financial Statements and (b) the costs and
expenses incurred in enforcing, defending or declaring (or determining whether
or how to enforce, defend or declare) any rights or remedies under any of the
Documents) and the consummation of the transactions contemplated hereunder and
in connection with any amendments, waivers or consents under or in respect of
any of the Documents.
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SECTION 9. Indemnification.
9.1. General Indemnification. The Corporation and each Existing
Stockholder ("Indemnitors") shall jointly and severally indemnify, defend and
hold each Investor and each of their respective officers, directors, partners,
managing directors, affiliates, employees, agents, consultants, representatives,
successors and assigns (each an "Investor Indemnitee") harmless from and against
all Losses incurred or suffered by an Investor Indemnitee (whether incurred or
suffered directly or indirectly through ownership of Common Stock or Preferred
Stock) arising out of, relating to or resulting from (i) any breach of any of
the representations or warranties made by the Corporation or the Existing
Stockholders in this Agreement or in any certificate or other instrument
delivered pursuant hereto including, without limitation, the Documents, (ii) any
breach of any of the covenants or agreements made by the Corporation or the
Existing Stockholders in this Agreement or in any certificate or other
instrument delivered pursuant hereto including, without limitation, the
Documents, and (iii) that certain letter of arrangement, dated June 30, 1998,
between the Accounting Firm and GSCP. The Investors shall indemnify, defend and
hold the Corporation, its affiliates, and each of their respective officers,
directors, employees, agents, consultants, representatives, successors and
assigns and the Existing Stockholders harmless against all Losses arising from
the breach of any of the covenants or agreements of the Investors in this
Agreement or in any certificate or other instrument delivered pursuant hereto
including, without limitation, the Documents. Notwithstanding anything to the
contrary in this Agreement, (a) any and all payments by the Indemnitors pursuant
to this Section 9 with respect to breach of representations or warranties shall
be limited to, in the aggregate, an amount equal to the Purchase Price, and no
indemnification payment by the Indemnitors with respect to any such Losses
otherwise payable hereunder shall be payable until such time as all such Losses
(exclusive of attorneys' fees or other expenses of investigation or defense)
shall aggregate to more than $500,000, and then only to the extent that such
Losses, in the aggregate, exceed such amount; provided that neither of the
foregoing limitations on indemnity shall apply to or count Losses arising with
respect to the breaches of the representations and warranties in Section 2.22 or
in Section 2.7, as they relate to Taxes; (b) the Corporation and the Existing
Stockholders shall not be liable for any Losses incurred by the Investors as a
result of a breach of the representation and warranty set forth in the last
sentence of Section 2.3, to the extent that such Losses are eliminated as a
result of a purchase price adjustment pursuant to Section 1.10(a); and (c) the
Corporation and the Existing Stockholders shall not be liable for any Losses
incurred by the Investors as a result of a breach of the representations set
forth in Section 2.22 or in Section 2.7, as they relate to Taxes, to the extent
that such Losses are eliminated as a result of a payment to the Corporation by
the Existing Stockholders of an amount owing to the Corporation pursuant to
Section 10.
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9.2. Indemnification Principles. For purposes of this Agreement,
"Losses" shall mean each and all of the following items: claims, losses
(including, without limitation, losses of earnings), liabilities, obligations,
payments, damages (actual, punitive or consequential), charges, judgments,
fines, penalties, amounts paid in settlement, costs and expenses (including,
without limitation, interest which may be imposed in connection therewith, costs
and expenses of investigation, actions, suits, proceedings, demands, assessments
and fees, expenses and disbursements of counsel, consultants and other experts);
provided, however, that for purposes of calculating Losses pursuant to this
Section 9, Losses shall be calculated net of any reduction to the Tax liability
of the Corporation actually realized as a result of any such item giving rise to
a Tax deduction to the Corporation. Any indemnification payment by the
Corporation to any Investor Indemnitee pursuant to this Section 9 shall include
an additional amount so that the Investor Indemnitee does not, directly or
indirectly, bear any portion of such payment made by the Corporation with
respect to such payment on account of the Investor Indemnitee's direct or
indirect investment in the Corporation. Any payment by the Corporation or the
Existing Stockholder to any Investor Indemnitee pursuant to this Section 9,
Section 8 or Section 10 shall be treated for all income Tax purposes as an
adjustment to the price paid by such Investor for the Series A Preferred Stock
pursuant to this Agreement.
9.3. Claim Notice. Any claim for indemnification pursuant to this
Section 9 must be made before the expiration of the survival periods set forth
in Section 7 of this Agreement. No party shall be entitled to indemnification
against a Loss arising from the breach of any representations or warranties of
any other party unless the party seeking indemnification shall have given to the
party from whom indemnification is being sought a claim notice relating to such
Loss (a "Claim Notice") prior to expiration of the representation or warranty
upon which the claim is based. The Claim Notice shall be given reasonably
promptly (but, in the case of a third party claim against the indemnified party,
within 15 days after the indemnified party has received written notification of
such claim) after the party seeking indemnity becomes aware of the facts
indicating that a claim for indemnification may be warranted. Each Claim Notice
shall specify in reasonable detail (to the extent known) the nature of the
claim, the applicable provision(s) of this Agreement or other instrument under
which the claim for indemnity arises, and, if possible, the amount or the
estimated amount thereof. The failure of any indemnified party to give a Claim
Notice shall not relieve the indemnifying party of its obligations under this
Section 9, except to the extent that the indemnified party is actually
materially prejudiced by failure to give such Claim Notice. The indemnifying
party may, through counsel of its own choosing and reasonably satisfactory to
the indemnified party, assume the defense thereof or other indemnification
obligation with respect thereto; provided, however, that (a) any indemnified
party shall be entitled to participate in any such claim with counsel of its own
choice but at its own expense and (b) any indemnified
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party shall be entitled to participate in any such claim with counsel of its own
choice at the expense of the indemnifying party if representation of both
parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct. In any event, if the indemnifying party fails
to take reasonable steps necessary to defend diligently the action or proceeding
within twenty days after receiving notice from such indemnified party that the
indemnifying party believes it has failed to do so, the indemnified party may
assume such defense or other indemnification obligation and the fees and
expenses of its attorneys will be covered by the indemnity provided for in this
Section 9. Notwithstanding anything in this Section 9 to the contrary, the
indemnifying party shall not, without the written consent of the indemnified
party, settle or compromise any pending or threatened action or claim in respect
of which indemnification or contribution may be sought hereunder (whether or not
the indemnified party is an actual or potential party to such action or claim)
or consent to the entry of any judgment (i) which does not, to the extent that
an indemnified party may have any liability with respect to such action or
claim, include as an unconditional term thereof the delivery by the claimant or
plaintiff to the indemnified party of a written release from all liability in
respect of such action or claim, (ii) which includes any statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of any
indemnified party, or (iii) in any manner that involves any injunctive relief
against the indemnified party or may materially and adversely affect the
indemnified party. Notwithstanding anything in this Section 10 to the contrary,
the indemnified party may not compromise or settle any claim without the prior
written consent of the indemnifying party (which consent shall not be
unreasonably withheld or delayed), unless the sole relief granted is equitable
relief for which the indemnifying party would have no liability or to which the
indemnifying party would not be subject.
SECTION 10. Special Indemnification of the Corporation. In the event
that the sum of (i) Taxes imposed on or payable by the TIS Entities with respect
to any taxable period or portion thereof ending on or prior to August 31, 1998,
(ii) Taxes imposed on or payable by the TIS Entities with respect to any taxable
period or portion thereof beginning on or after September 1, 1998 and ending on
or prior to the date hereof other than such Taxes arising by reason of the
ordinary operations of the TIS Entities, and (iii) Taxes imposed on or payable
by any TIS Entity with respect to any taxable period or portion thereof
beginning on or after the date hereof resulting or arising from any adjustments
to such TIS Entity's taxable income under Section 481 of the Code (or any
analogous provisions of state or local laws) by reason of its change from the
cash basis method to the accrual method of accounting for federal, state or
local Tax purposes regardless of when such change is effective, exceeds the
accruals and reserves for Taxes which are reflected on the Final Post-Closing
Statement, then the Final Shareholders Equity Amount shall be re-computed to
take into account such
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excess. For purposes of the preceding sentence, Taxes imposed on or payable by
any TIS Entity with respect to any taxable period or portion thereof which are
based upon or related to income, receipts, sales or disbursements shall be
computed using the closing of the books method. In the event that all or any
portion of the Option Cashout Amount is determined not to be deductible by the
Corporation for income Tax purposes, then the Final Shareholders Equity Amount
shall be re-computed to take into account the resulting reduction to the amount
of the asset referred to in clause (D) of Section 1.8(a), which reduction shall
be deemed to be equal to 44% of the non-deductible portion of the Option Cashout
Amount. As promptly as possible after the Corporation becomes aware that a
re-computation of the Final Shareholders Equity Amount is required to be made
pursuant to this Section 10, the Corporation shall cause its independent public
accountants to prepare and deliver to the Investors such re-computation. The
Investors shall have an opportunity to examine and dispute such re-computation
of the Final Shareholders Equity Amount in accordance with the procedures set
forth in paragraphs (b) and (c) of Section 1.8. Once such recomputation of the
Final Shareholders Equity Amount which is conclusive and binding on the parties
has been determined, each Existing Shareholder shall immediately make a payment
to the Corporation in an amount equal to (i) the excess of the Final Shareholder
Equity Amount as reflected on the Final Post-Closing Statement over such
re-computed Final Shareholder Equity Amount, multiplied by (ii) such Existing
Shareholder's Pro Rata Percentage; provided, however, that all the Existing
Shareholders shall be jointly and severally liable to the Corporation for the
aggregate amount of such payments owing by all of the Existing Shareholders.
Notwithstanding anything in this Section 10 to the contrary, in the event the
Note Amount has been calculated prior to any recomputation contemplated by this
Section 10, and the Note Amount is a positive number, any amounts owed by any of
the Existing Stockholders under this Section 10 shall first be offset against
any then unpaid principal amount of such Existing Stockholder's Note and the
principal amount of such Existing Stockholder's Note shall thereupon be reduced
by the amount of any such offset without any further action by Corporation or
any Existing Stockholder.
SECTION 11. Appointment of Agent for the Existing Stockholders. Each of
the Existing Stockholders irrevocably appoints and authorizes each of Jeffrey
Najarian, Robert Gold and Edward Shaw, with powers of substitution, to each
individually act as agent (each, an "Agent for the Existing Stockholders") to do
all such acts and things on such Existing Stockholder's behalf and exercise all
such rights, powers and privileges in relation to the Documents (including,
without limitation, in connection with any waiver of any terms or conditions
hereof and any Claims pursuant to Section 9.3) as fully and completely as such
Existing Stockholder could, together with all powers reasonably incidental
thereto. Each Existing
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Stockholder agrees that the foregoing appointment and powers granted are coupled
with an interest and the Investors shall be entitled to rely on any action taken
or omitted by any of the Agents for the Existing Stockholders on such Existing
Stockholder's behalf.
SECTION 12. Remedies. In case any one or more of the covenants and/or
agreements set forth in this Agreement shall have been breached by the
Corporation or any Existing Stockholder, any Investor may proceed to protect and
enforce its rights either by suit in equity and/or by action at law, including,
but not limited to, an action for damages as a result of any such breach and/or
an action for specific performance of any such covenant or agreement contained
in this Agreement.
SECTION 13. Further Assurances. At any time or from time to time after
each Closing, the Corporation, on the one hand, and the Investors, on the other
hand, agree to cooperate with each other, and at the request of the other party,
to execute and deliver any further instruments or documents and to take all such
further action as the other party may reasonably request in order to evidence or
effectuate the consummation of the transactions contemplated hereby relating to
the Purchase and to otherwise carry out the intent of the parties hereunder.
SECTION 14. Successors and Assigns. This Agreement shall bind and inure
to the benefit of the Corporation and each of the Investors and the respective
successors, assigns, heirs and personal representatives of the Corporation and
each of the Investors. The Corporation acknowledges that, subject to compliance
with applicable securities laws, any of the Investors may transfer, all or part
of, the securities acquired by it hereunder and assign, all or part of, its
rights and obligations under this Agreement.
SECTION 15. Entire Agreement. This Agreement and the other writings
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
SECTION 16. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy (with
a confirmatory copy sent by a different means within three business days of such
notice), nationally recognized overnight courier or first class registered or
certified mail, return receipt
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requested, postage prepaid, addressed to such party at the address set forth
below or such other address as may hereafter be designated in writing by such
party to the other parties:
(i) if to the Corporation, to:
Transaction Information Systems, Inc.
115 Broadway, 20th Floor
New York, NY 10006
Telecopy: (212) 962-7175
Attention: Jeffrey Najarian
with a copy to:
Esanu Katsky Korins & Siger, LLP
605 Third Avenue, 16th Floor
New York, NY 10158
Telecopy: (212) 953-6899
Attention: Roy M. Korins, Esq.
and
(ii) if to the Existing Stockholders or the Agent for
the Existing Stockholders, to:
c/o Jeffrey Najarian
Transaction Information Systems, Inc.
115 Broadway, 20th Floor
New York, New York 10006
Telecopy: (212) 962-7175
with a copy to:
Esanu Katsky Korins & Siger, LLP
605 Third Avenue, 16th Floor
New York, NY 10158
Telecopy: (212) 953-6899
Attention: Roy M. Korins, Esq.
(iii) if to the Investors, to:
GS Capital Partners III, L.P.
85 Broad Street
New York, New York 10004
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Telecopy: (212) 902-3000
Attention: Randall Blumenthal
with copies to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopy: (212) 859-8586
Attention: Paul M. Reinstein, Esq.
and
GS Capital Partners III, L.P.
85 Broad Street
New York, New York 10004
Telecopy: (212) 357-5505
Attention: Ben Adler, Esq.
All such notices, requests, consents and other communications
shall be deemed to have been given when received.
SECTION 17. Amendments; Enforcement.
(a) Amendments. The terms and provisions of this Agreement may
be modified or amended, or any of the provisions hereof waived, temporarily or
permanently, pursuant to the written consent of the Corporation, any Agent for
Existing Stockholders and the Investors (including the provisions regarding the
Notes and the Dividend Notes (including, without limitation, any prepayment
under either the Notes or the Dividend Notes), and the provisions of Section 1.8
and Section 10, under which provisions the parties agree the Investors are third
party beneficiaries, and which may not be waived or amended without the prior
written approval of the Investors); provided, however, that any change with
respect to the Aggregate Redemption Price shall also require the written consent
of all Existing Stockholders.
(b) Enforcement. The parties agree that the Investors are
third party beneficiaries with respect to the provisions benefiting the
Corporation pursuant to the Notes and the Dividend Notes, and provisions of this
Agreement contained in Section 1.8 and Section 10 hereof, and as such shall have
the right, on behalf of and in the name of the Corporation, to enforce such
provisions and the transactions contemplated thereunder (including, without
limitation, any payments which may be required to be made by the Existing
Stockholders to the Corporation). The Corporation agrees that, at the request of
the Investors, it shall enforce such provisions
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or delegate the enforcement of such provisions to the Investors on the
Corporation's behalf.
SECTION 18. Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 19. Headings. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be a part of this Agreement.
SECTION 20. Nouns and Pronouns. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice versa.
SECTION 21. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the principles of conflicts of law. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of New York and of the United States of America, in
each case located in the County of New York, for any Litigation arising out of
or relating to this Agreement and the transactions contemplated hereby (and
agrees not to commence any Litigation relating thereto except in such courts),
and further agrees that service of any process, summons, notice or document by
U.S. registered mail to its respective address set forth in this Agreement, or
such other address as may be given by one or more parties to the other parties
in accordance with the notice provisions of Section 16, shall be effective
service of process for any Litigation brought against it in any such court. Each
of the parties hereto hereby irrevocably and unconditionally waives any
objection to the laying of venue of any Litigation arising out of this Agreement
or the transactions contemplated hereby in the courts of the State of New York
or the United States of America, in each case located in the County of New York,
and hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such Litigation brought in any such
court has been brought in an inconvenient forum.
SECTION 22. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid, but
if any
-46-
<PAGE> 56
provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-47-
<PAGE> 57
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement as of the date first above written.
CORPORATION:
TRANSACTION INFORMATION SYSTEMS, INC.
By: /s/ Jeffrey Najarian
-----------------------------------
Name: Jeffrey Najarian
Title: Chief Executive Officer
INVESTORS:
GS CAPITAL PARTNERS III, L.P.
By: GS Advisors III, L.P., its general partner
By: GS Advisors III, L.L.C., its general partner
By: /s/
-----------------------------------
Authorized Signatory
GS CAPITAL PARTNERS III OFFSHORE, L.P.
By: GS Advisors III (Cayman), L.P., its General Partner
By: GS Advisors III, L.L.C., its General Partner
By: /s/
-----------------------------------
Authorized Signatory
<PAGE> 58
GOLDMAN, SACHS & CO. VERWALTUNGS GmbH
By: /s/
--------------------------------
Managing Director
and
By:
--------------------------------
Managing Director
or
Registered Agent
STONE STREET FUND 1998, L.P.
By: Stone Street Advantage Corp.
General Partner
By: /s/
-------------------------
BRIDGE STREET FUND 1998, L.P.
By: Stone Street Advantage Corp.
Managing General Partner
By: /s/
-------------------------
<PAGE> 59
EXISTING STOCKHOLDERS:
/s/ Mark Arzoomanian
------------------------------------
MARK ARZOOMANIAN
/s/ Paul Bayse
------------------------------------
PAUL BAYSE
/s/ Peter Bonjuklian
------------------------------------
PETER BONJUKLIAN
/s/ Arthur Farkas
------------------------------------
ARTHUR FARKAS
/s/ Mitchell Fass
------------------------------------
MITCHELL FASS
/s/ Robert Gold
------------------------------------
ROBERT GOLD
/s/ Peter Melomo
------------------------------------
PETER MELOMO
/s/ Jeffrey Najarian
------------------------------------
JEFFREY NAJARIAN
/s/ George A. Setford
------------------------------------
GEORGE SETFORD
/s/ Edward Shaw
------------------------------------
EDWARD SHAW
/s/ Jonathan Toder
------------------------------------
JONATHAN TODER
/s/ Jeffrey Najarian
------------------------------------
By: Jeffrey Najarian
Attorney In Fact
<PAGE> 60
Exhibit A
SUBORDINATED PROMISSORY NOTE
September ____, 1998
FOR VALUE RECEIVED, TRANSACTION INFORMATION SYSTEMS, INC., a
corporation formed under the laws of the State of Delaware (the "Corporation"),
hereby unconditionally promises to pay to the order of_________________________
__________________________ ("Payee"), the principal sum of the Note Amount, as
defined in Section 2.1.
This Note is being issued on September , 1998 in payment of a dividend
declared by the Board of Directors of the Corporation on September , 1998 to the
holders of the outstanding shares of the Corporation's common stock $0.01 par
value per share (the "Common Stock") as of such date (the "Record Date").
ARTICLE I
DEFINITIONS
Section 1. I Definitions. The following terms shall have the meaning
set forth below:
"Closing" means the closing of the transactions contemplated by the
Preferred Stock Purchase Agreement (the "Agreement") to be entered into among
the Corporation, the stockholders of the Corporation, GS Capital Partners III,
L.P. and certain affiliates of The Goldman Sachs Group L.P.
"Note" means this Subordinated Promissory Note, as the same may be
amended from time to time.
"Obligations" means all of the Corporation's liabilities, obligations
and indebtedness to Payee under this Note (including, without limitation, the
Corporation's obligation to make payments of principal to Payee hereunder).
"Pro Rata Percentage" means a fraction the numerator of which is the
number of shares of Common Stock held by the Payee on the Record Date and the
denominator of which is equal to the total number of shares of Common Stock
outstanding on the Record Date.
"Senior Indebtedness" means the principal of, premium, if any, and
interest on and other amounts due on or in connection with (a) any indebtedness,
whether in existence on the date hereof or created in the future, of the
Corporation to any unrelated third party in respect of borrowed money (other
than this Note), or evidenced by bonds, notes, debentures or similar instruments
or letters of credit or representing the balance deferred and unpaid of the
purchase price of any property purchased, if and to the extent any of the
foregoing indebtedness would appear as a liability upon the balance sheet of the
Corporation, and whether outstanding on the date of this Note or hereafter
created, incurred, assumed or guaranteed in any manner by the Corporation or in
effect guaranteed
<PAGE> 61
in any manner by the Corporation or in effect guaranteed by the Corporation
through an agreement to purchase or otherwise, and (b) deferrals, renewals,
extensions or refunding of, or amendments, modifications or supplements to,
Senior Indebtedness of the kind described in the preceding clause (a).
ARTICLE 2
CALCULATION OF PRINCIPAL AMOUNT; PAYMENTS
Section 2.1 Principal Amount. (a) The aggregate principal amount of
this Note (the "Principal Amount") shall be equal to the excess of the (i) the
product of (x) the lesser of (A) $4,500,000 or (B) the aggregate amount of the
Corporation's accumulated adjustments account (as defined in Section 1368(e)(1)
of the Internal Revenue Code of 1986, as amended,) as of the close of business
on the day immediately prior to the Closing computed as if the previous
distributions of $503,000 made in 1998 to certain holders of Common Stock had
not been made (such aggregate amount, the "AAA Amount"), times (y) the Pro Rata
Percentage, less (ii) the amount, if any, set forth opposite the name of the
Payee on annexed Exhibit A (the "Prepaid Amount"). For purposes of this Note,
(i) in no event shall the AAA Amount be less than zero and (ii) the Principal
Amount may be a negative number.
(b) At the Closing, the Corporation shall pay to the Payee an amount
("Initial Amount") equal to the excess of (i) the product of (x) $3,253,000
times (y) the Pro Rata Percentage over (ii) the Prepaid Amount.
(c) Promptly after the AAA Amount is determined, if the Principal
Amount is a positive number which exceeds the Initial Amount, an amount equal to
the Principal Amount minus the Initial Amount shall be payable immediately by
the Corporation to the Payee and thereafter this Note shall be canceled.
(d) By accepting this Note, the Payee agrees that, to the extent the
Payee has not already made the payment required pursuant to Section 1.7 of the
Agreement, if the sum of the Initial Amount plus the Prepaid Amount exceeds the
sum of the Principal Amount plus the Prepaid Amount, the excess shall be payable
immediately by the Payee to the Corporation and thereafter this Note shall be
canceled.
(e) In the event that the Closing does not occur on or before December
31, 1998, then on January 4, 1999 the Corporation shall pay to the Payee the
Initial Amount and thereafter this Note shall be canceled.
Section 2.2 Payments Generally. All payments of principal to be made by
the Corporation under this Note shall be made by check to an address specified
by Payee, or wire transfer of immediately available funds in United States
dollars to an account specified in writing by Payee. All payments of the
principal of this Note shall be paid in lawful money of the United States and in
2
<PAGE> 62
immediately available funds. All payments of this Note shall be made without
interest and no payment of interest shall be due on this Note.
Section 2.3 Prepayment. After the AAA Amount is determined, the
Corporation may at any time and from time to time, at its option, prepay this
Note (in an amount up to but not exceeding the unpaid Principal Amount hereof)
in whole or in part.
ARTICLE 3
SUBORDINATION
Section 3.1 Agreement to Subordinate. (a) The Corporation and Payee,
for themselves and their successors and permitted assigns, and Payee, by its
acceptance of this Note, agree that this Note and payment of the Obligations is
and shall be subordinated, to the extent and in the manner provided in this
Article 3, to the prior payment in full of all Senior Indebtedness. This Article
3 shall constitute a continuing offer to all persons who, in reliance upon such
provisions, become holders of, or continue to hold, Senior Indebtedness, and
such provisions are made for the benefit of the holders of Senior Indebtedness,
and such holders are made obligees hereunder and they and/or each of them may
enforce such provisions.
(b) No payment shall be made by the Corporation, and no enforcement of
remedies shall be made by Payee, on account of the Obligations (i) upon the
maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise,
unless and until all principal thereof and interest thereon and other amounts
due in connection therewith shall first be paid in full, or such payment duly
provided for in cash or in a manner satisfactory to the holders of such Senior
Indebtedness, or (ii) in the event that the Corporation shall default in the
payment of any principal of, premium, if any, or interest on any Senior
Indebtedness when the same becomes due and payable, whether at maturity or at a
date fixed for prepayment or by declaration or otherwise, unless and until such
default shall have been cured or waived or shall have ceased to exist.
(c) In the event that any event of default shall have occurred and be
continuing with respect to any Senior Indebtedness, as such event of default is
defined therein or in the instrument under which it is outstanding, permitting
the holders to accelerate the maturity thereof (other than a default in payment
of the principal of or interest on or other amounts due in connection with such
Senior Indebtedness) upon written notice thereof given to the Corporation by any
holders of such Senior Indebtedness or their representative ("Default Notice"),
then, unless and until the date on which such event of default shall have been
cured or waived by the holders of such Senior Indebtedness or shall have ceased
to exist, no direct or indirect payment shall be made by the Corporation, and no
enforcement of remedies shall be made by Payee, with respect to the Obligations.
(d) In furtherance of the provisions of Section 3.1(a) hereof in the
event that any payment on account of the Obligations shall be made by or on
behalf of the Corporation and received by Payee, at a time when such payment was
prohibited by the provisions of Sections 3.1(b) and (c)
3
<PAGE> 63
hereof, then, unless and until such payment is no longer prohibited by this
Article 3, such payment shall be held in trust for the benefit of and shall be
immediately paid over to, the holders of Senior Indebtedness or their
representatives or the trustee or trustees under any indenture under which any
instruments evidencing any of the Senior Indebtedness may have been issued,
ratably according to the aggregate amount remaining unpaid on account of the
principal of and interest on the Senior Indebtedness held or represented by
each, for application to the payment of all Senior Indebtedness remaining
unpaid. The Corporation shall give prompt written notice to Payee of any default
under any Senior Indebtedness or under any agreement pursuant to which Senior
Indebtedness may have been issued. Failure to give such notice shall not affect
the subordination of this Note to the Senior Indebtedness provided in this
Article 3.
(e) By accepting this Note, Payee agrees to enter into any additional
subordination provisions to the extent reasonably requested by any holders of
Senior Indebtedness.
Section 3.2 Further Rights. No right of any present or future holders
of any Senior Indebtedness to enforce subordination as provided herein shall at
any time in any way be prejudiced or impaired by any act or failure to act on
the part of the Corporation or by any act or failure to act, in good faith, by
any such holder, or by any noncompliance by the Corporation with the terms of
this Note, regardless of any knowledge thereof which any such holder may have or
be otherwise charged with. The holders of Senior Indebtedness may extend, renew,
modify or amend the terms of the Senior Indebtedness or any security therefor
and release, sell, or exchange such security and otherwise deal freely with the
Corporation, all without affecting the liabilities and obligations of the
Corporation and Payee.
Section 3.3 Subrogation. After all Senior Indebtedness is paid in full
and until all amounts due in connection herewith are paid in full, Payee shall
be subrogated to the rights of the holders of Senior Indebtedness to receive
distributions applicable to the Senior Indebtedness to the extent that
distributions otherwise payable to Payee have been paid to the holders of the
Senior Indebtedness. For the purpose of such subrogation, a distribution made
under this Article 3 to holders of Senior Indebtedness that otherwise would have
been made to Payee is not, as between the Corporation and Payee, a payment by
the Corporation on the Senior Indebtedness.
Section 3.4 Obligations Not Impaired. The provisions of this Article 3
are, and are intended solely for, the purpose of defining the relative rights of
Payee, on the one hand, and the holders of Senior Indebtedness, on the other
hand. Nothing contained in this Article 3, or elsewhere in this Note, is
intended to or shall (i) impair, as among the Corporation, its creditors other
than the holders of Senior Indebtedness, and Payee, the obligation of the
Corporation, which, subject to the other terms of this Note, is absolute and
unconditional (and which, subject to the rights under this Article 3 of the
holders of Senior Indebtedness, is intended to rank equally with all other
general obligations of the Corporation), to pay to Payee the principal of this
Note as and when the same shall become due and payable in accordance with its
terms hereof, or (ii) affect the relative rights against the Corporation of
Payee and creditors of the Corporation other than the holders of Senior
Indebtedness.
4
<PAGE> 64
ARTICLE 4
MISCELLANEOUS
Section 4.1. Loss, Theft, Destruction, etc. Upon receipt by the
Corporation of evidence reasonably satisfactory to the Corporation of the loss,
theft, destruction or mutilation of this Note, and, in the case of loss, theft
or destruction, of indemnity or security reasonably satisfactory to the
Corporation, and upon reimbursement to the Corporation of all reasonable
expenses incidental thereto, or, in the case of mutilation of this Note, upon
surrender and cancellation of this Note, the Corporation will make and deliver a
new Note of like tenor, in lieu of this Note.
Section 4.2 Governing Law; Submission to Jurisdiction. This Note shall
be deemed made and delivered and shall be construed in accordance with and
governed by the laws of the State of New York, without giving effect to the
conflicts of law principles thereof. Any legal action or proceeding arising out
of, or relating to, this Note shall be instituted in the courts of the State of
New York or of the United States of America located in the state of New York,
and all endorsers and guarantors submit to the jurisdiction of each such court
in any action or proceeding.
Section 4.3 Notices. All notices, requests, claims, demands and other
communications hereunder to any party shall be deemed sufficient if contained in
a written instrument delivered in person or sent by telecopy (with a
confirmatory copy sent by a different means within three business days of such
notice), nationally recognized overnight courier or first class registered or
certified mail, return receipt requested, postage prepaid, addressed to such
party at the address set forth below or such other address for a party as shall
be specified in a: notice given in accordance with this Section 4.3:
If to the Corporation: Transaction Information Systems, Inc.
115 Broadway, 20th Floor
New York, New York 10006
Telecopy No.: (212) 962-7175
Attention: Jeffrey Najarian
With a copy to: Esanu Katsky Korins & Siger, LLP
605 Third Avenue, 16th Floor
New York, New York 10158
Telecopy No.: (212) 953-6899
Attention: Roy M. Korins, Esq.
If to Payee: to the address set forth below his name
on annexed Exhibit A
5
<PAGE> 65
Section 4.4 Severability. Whenever possible, each provision of this
Note shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Note shall be prohibited by, or
invalid under, applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remaining of such
provision or the remaining provisions of this Note.
Section 4.5 Surrender. Upon cancellation or full payment of this Note,
Payee agrees to surrender this Note to the Corporation for cancellation.
Section 4.6 Headings, etc. The headings of the Articles and Sections of
this Note have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the
terms or provisions hereof
Section 4.7 WAIVER OF JURY TRIAL. EACH OF MAKER AND PAYEE, BY ITS
ACCEPTANCE OF THIS NOTE, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS NOTE AND FOR ANY
COUNTERCLAIM THEREIN.
[Balance of page intentionally left blank.]
6
<PAGE> 66
IN WITNESS OF, the Corporation has caused this Note to be duly executed
and delivered by its proper and duly authorized officer as of the day and year
first above written.
TRANSACTION INFORMATION SYSTEMS, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
<PAGE> 67
Exhibit A
STOCKHOLDER NAMES, ADDRESSES AND AMOUNTS
<TABLE>
<CAPTION>
Name and Address of Payee Amount
- ------------------------- ------
<S> <C>
Mark Arzoomanian - 0 -
52 Alpine Drive
Closter, New Jersey 07624
Paul Bayse - 0 -
446 Stuyvesant
Rutherford, New Jersey 07070
Peter Bonjuklian $ 60,500
25 Column Court
Ramsey, New Jersey 07446
Arthur Farkas - 0 -
63 Sutton Drive
Manalapan, New Jersey 07726
Mitchell Fass $195,000
89 King Street
Edison, New Jersey 08820
Robert Gold $150,000
11 Candeub Court
Manalapan, New Jersey 07726
Peter Melomo $ 22,500
2205 Maple Avenue
Cortlandt Manor, New York 10566
Jeffrey Najarian - 0 -
7 Oakwood Court
Holmdel, New Jersey 07733
George Setford - 0 -
110 Catalpa Avenue
Hackensack, New Jersey 07601
Edward Shaw - 0 -
60 Furnace Woods Road
Cortlandt Manor, New York 10566
</TABLE>
A-H
<PAGE> 68
<TABLE>
<CAPTION>
Name and Address of Payee Amount
- ------------------------- ------
<S> <C>
Jonathan Toder $ 75,000
31 Whitlaw Close
Chappaqua, New York 10514
Total $503,000
========
</TABLE>
A-I
<PAGE> 69
Exhibit B
OPTION PURCHASE AGREEMENT
Option Purchase Agreement (this "Agreement"), dated as of the 1st day
of October, 1998, by and between Transaction Information Systems, Inc., a
Delaware corporation ("TIS"), and the individual named on the signature page of
this Agreement (the "Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee is the holder of certain outstanding options to
purchase shares of common stock, $0.01 par value, of TIS (the "TIS Options") set
forth on Exhibit A annexed hereto; and
WHEREAS, prior to or concurrently herewith certain stock options to
acquire shares of TIS Equipment Corp. have been combined into the TIS Options;
and
WHEREAS, the Optionee desires to sell, and TIS desires to purchase, the
number of TIS Options set forth on annexed Schedule A (the "Options") for the
aggregate purchase price set forth on such Schedule (the "Purchase Price");
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter contained, the parties to this Agreement hereby agree as follows:
1. (a) Subject to the terms and conditions of this
Agreement, the Optionee shall sell to TIS, and TIS shall purchase from the
Optionee, the TIS Options (which constitute all of the options in TIS which have
vested and become exercisable as of the date hereof) for the Purchase Price set
forth on annexed Schedule A.
(b) The sale and purchase described in Paragraph 1(a) of
this Agreement shall take place on October 1, 1998 at the offices of TIS, 115
Broadway, 20th Floor, New York, New York 10006 (the "Closing").
2. At the Closing, TIS shall deliver to the Optionee payment in
cash for the TIS Options in the amount of the Purchase Price set forth on
Schedule A annexed.
3. The Optionee hereby represents and warrants to TIS as follows:
(a) The Optionee owns the number of Options set forth on
Schedule A and the Optionee has the sole right, title and interest in and to
such Options, all of which will be transferred to TIS pursuant to the terms of
this Agreement free from any lien, pledge, security interest or other
incumbrance, including, without limitation, any encumbrance arising out of a
marital relationship.
(b) No consent, approval or agreement of any person,
party, court, governmental authority or entity is required to be obtained by
such Optionee in connection with the execution and performance by such Optionee
of this Agreement.
(c) The Optionee understands and acknowledges that the
Optionee is not relying upon any projections or any representations, warranties,
agreements or understandings not expressly set forth in this Agreement.
<PAGE> 70
4. The obligation of TIS to purchase the TIS Options is subject
to the satisfaction and fulfilment prior thereto of each of the following
conditions:
(a) The TIS Options shall have vested on September 30,
1998.
(b) As of the date hereof, the Optionee's employment with
TIS shall not have been terminated by reason of (A)
voluntary resignation of such Optionee or (B)
termination by TIS "for cause".
5. (a) This Agreement, including the Exhibit, which
constitutes an integral part of this Agreement, constitutes the entire agreement
of the parties, superseding and terminating any and all prior or contemporaneous
oral and prior written agreements, understandings or letters of intent between
or among the parties with respect to the subject matter of this Agreement. No
part of this Agreement may be modified or amended, nor may any right be waived,
except by a written instrument which expressly refers to this Agreement.
(b) All notices, demands, solicitation of consent or
approval, and other communications hereunder shall be in writing and shall be
deemed to have been given when given by hand or overnight courier service or
when deposited in the United States mail, postage prepaid, by registered or
certified mail, return receipt requested, addressed, as the case may be, to TIS
at 115 Broadway, 20th Floor, New York, New York NY 10006, Attention: Mr. Jeffrey
Najarian, and to the Optionee at the address set forth on the corporate records,
which shall initially be the address set forth on the signature page of this
Agreement. Any party may, by like notice, change the address or person to whom
notice shall be given.
(c) This Agreement shall be governed and construed in
accordance with the laws of the State of New York applicable to agreements
executed and to be performed wholly within such State. Each party hereby (i)
irrevocably consents and agrees that any legal or equitable action or proceeding
arising under or in connection with this Agreement shall be brought exclusively
in any Federal or state court situated in New York County, New York, and (ii)
irrevocably submits to and accepts, with respect to its properties and assets,
generally and unconditionally, the jurisdiction of the aforesaid courts. In any
such litigation, each party waives personal service of any summons, complaint or
other process, and agrees that the service thereof may be made in the manner for
giving of notices provided in this Agreement.
(d) This Agreement may be executed simultaneously in
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
[Space intentionally left blank.]
<PAGE> 71
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TRANSACTION INFORMATION SYSTEMS, INC.
By:
-----------------------------------------
Jeffrey Najarian, Chief Executive Officer
ACKNOWLEDGED AND CONFIRMED:
- --------------------------------
Print name of Optionee
- --------------------------------
Optionee's Signature
- --------------------------------
Optionee's Address
<PAGE> 72
Schedule A
Number of TIS Number of TIS Aggregate
Options Owned Options Being Purchased Consideration
- ------------- ----------------------- -------------
TIS: TIS:
Exercise Exercise
Price: Price:
<PAGE> 73
EXHIBIT C
SUBORDINATED
NON-TRANSFERABLE PROMISSORY NOTE
September 4, 1998
FOR VALUE RECEIVED, TRANSACTION INFORMATION SYSTEMS, INC., a
corporation formed under the laws of the State of Delaware (the "Corporation"),
hereby unconditionally promises to pay to the order of _________________________
("Payee"), the principal sum of the Note Amount, as defined in Section 1.2.
This Note is being issued in connection with the redemption of
shares of Common Stock of Payee pursuant to Section 1.3 of the Preferred Stock
Purchase Agreement, dated as of September 4, 1998 (the "Stock Purchase
Agreement"), among the Corporation, GS Capital Partners III, L.P. ("GSCP"),
certain affiliates of GSCP and the stockholders of the Corporation (the
"Existing Stockholders"). Capitalized terms used but not otherwise defined
herein have the meaning set forth in the Stock Purchase Agreement.
This Note may not be transferred by either the Corporation or
Payee other than, in the case of Payee, to the heirs or testamentary legatees of
Payee upon the death of Payee.
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions. The following terms shall have the
meaning set forth below:
"Note" means this Promissory Note, as the same may be amended
from time to time.
"Obligations" means all of the Corporation's liabilities,
obligations and indebtedness to Payee under this Note (including, without
limitation, the Corporation's obligation to make payments of principal to Payee
hereunder).
"Senior Indebtedness" means the principal of, premium, if any,
and interest on and other amounts due on or in connection with (a) any
indebtedness, whether in existence on the date hereof or created in the future,
of the Corporation to any unrelated third party in respect of borrowed money
(other than this Note), or evidenced by bonds, notes, debentures or similar
instruments or letters of credit or representing the balance deferred and unpaid
of the purchase price of any property purchased, if and to the extent any of the
foregoing indebtedness would appear as a liability upon the balance sheet of the
Corporation, and whether outstanding on the date of this Note or hereafter
created, incurred, assumed or guaranteed in any manner by the Corporation or in
effect guaranteed by the Corporation through an agreement to purchase or
otherwise, and (b) deferrals, renewals, extensions or refundings of, or
amendments, modifications or supplements to, Senior Indebtedness of the kind
described in the preceding clause (a).
<PAGE> 74
ARTICLE 2
CALCULATION OF PRINCIPAL AMOUNT; PAYMENTS
Section 2.1 Adjustment to Principal Amount. Subject to Section
2.4, the aggregate principal amount of this Note (the "Note Amount") shall be
equal to the product of (x) an amount equal to (a) $2,250,000 plus (b) the Final
Shareholders Equity Amount (which Final Shareholders Equity Amount may be a
negative number), minus (c) the aggregate amount paid on the Dividend Notes
after the Closing Date, plus (d) if the AAA Amount is less than $3,253,000, the
excess of $3,253,000 over the AAA Amount, times (y) the Payee's Pro Rata
Percentage, as set forth on Schedule 1.3 to the Stock Purchase Agreement. After
(i) the determination of the Final Shareholders Equity Amount and the AAA
Amount, and (ii) the full payment by all Existing Stockholders to the
Corporation of all amounts owing by the Existing Stockholders pursuant to
Section 1.7 of the Stock Purchase Agreement (the "Determination Date"), subject
to Section 2.4, this Note shall be payable as follows:
(a) If the Final Shareholders Equity Amount is zero or a
positive number, that portion of the Note Amount equal to (x) the Note
Amount, minus (y) the product of (I) the Payee's Pro Rata Percentage,
times (II) the Final Shareholders Equity Amount, shall be payable
immediately following the Determination Date. The balance of the Note
Amount shall be payable in a lump sum upon the earlier of (i) an IPO
(as defined in the Stock Purchase Agreement), (ii) a Sale Transaction
(as defined in the Stock Purchase Agreement) and (iii) September 4,
2000 (the "Final Date"); provided that (x) if no IPO or Sale
Transaction has occurred prior to the Final Date and (y) the financial
condition of the Corporation has materially deteriorated from the
financial condition of the Corporation as of the date hereof, the
balance of the Note shall not be paid on the Final Date and instead
shall be paid in accordance with a schedule negotiated in good faith
between GSCP and the Agent for the Existing Stockholders (as defined in
the Stock Purchase Agreement).
(b) If the Final Shareholders Equity Amount is a negative
number and the Note Amount is a positive number, the Note Amount shall
be payable immediately, and thereafter this Note shall be canceled.
(c) If as a result of the calculation of the Note Amount, the
Note Amount is a negative number, this Note shall be canceled
immediately.
Section 2.2 Payments Generally. All payments of principal to
be made by the Corporation under this Note shall be made by check to an address
specified by Payee, or wire transfer of immediately available funds in United
States dollars to an account specified in writing by Payee. All payments of the
principal of this Note shall be paid in lawful money of the United States and in
immediately available funds. All payments of this Note shall be made without
interest and no payment of interest shall be due on this Note.
Section 2.3 Prepayment. After the Determination Date, the
Corporation may, but only with the consent of GSCP, at any time and from time to
time, at its option, prepay this Note (in an amount up to but not exceeding the
unpaid Note Amount hereof) in whole or in part.
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Section 2.4 Set-Off. The outstanding principal balance of this
Note shall be reduced by an amount equal to all amounts for which
indemnification may properly be sought by the Corporation against Payee pursuant
to any of the terms, conditions and provisions of the Stock Purchase Agreement.
ARTICLE 3
SUBORDINATION
Section 3.1 Agreement to Subordinate. (a) The Corporation and
Payee, for themselves and their successors and permitted assigns, and Payee, by
its acceptance of this Note, agree that this Note and payment of the Obligations
is and shall be subordinated, to the extent and in the manner provided in this
Article 3, to the prior payment in full of all Senior Indebtedness. This Article
3 shall constitute a continuing offer to all persons who, in reliance upon such
provisions, become holders of, or continue to hold, Senior Indebtedness, and
such provisions are made for the benefit of the holders of Senior Indebtedness,
and such holders are made obligees hereunder and they and/or each of them may
enforce such provisions.
(b) No payment shall be made by the Corporation, and no
enforcement of remedies shall be made by Payee, on account of the Obligations
(i) upon the maturity of any Senior Indebtedness by lapse of time, acceleration
or otherwise, unless and until all principal thereof and interest thereon and
other amounts due in connection therewith shall first be paid in full, or such
payment duly provided for in cash or in a manner satisfactory to the holders of
such Senior Indebtedness, or (ii) in the event that the Corporation shall
default in the payment of any principal of, premium, if any, or interest on any
Senior Indebtedness when the same becomes due and payable, whether at maturity
or at a date fixed for prepayment or by declaration or otherwise, unless and
until such default shall have been cured or waived or shall have ceased to
exist.
(c) In the event that any event of default shall have occurred
and be continuing with respect to any Senior Indebtedness, as such event of
default is defined therein or in the instrument under which it is outstanding,
permitting the holders to accelerate the maturity thereof (other than a default
in payment of the principal of or interest on or other amounts due in connection
with such Senior Indebtedness) upon written notice thereof given to the
Corporation by any holders of such Senior Indebtedness or their representative
("Default Notice"), then, unless and until the date on which such event of
default shall have been cured or waived by the holders of such Senior
Indebtedness or shall have ceased to exist, no direct or indirect payment shall
be made by the Corporation, and no enforcement of remedies shall be made by
Payee, with respect to the Obligations.
(d) In furtherance of the provisions of Section 3.1(a) hereof
in the event that any payment on account of the Obligations shall be made by or
on behalf of the Corporation and received by Payee, at a time when such payment
was prohibited by the provisions of Sections 3.1(b) and (c) hereof, then, unless
and until such payment is no longer prohibited by this Article 3, such payment
shall be held in trust for the benefit of and shall be immediately paid over to,
the holders of Senior Indebtedness or their representatives or the trustee or
trustees under any indenture under which any instruments evidencing any of the
Senior Indebtedness may have been issued, ratably according to the aggregate
amount remaining unpaid on account of the
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principal of and interest on the Senior Indebtedness held or represented by
each, for application to the payment of all Senior Indebtedness remaining
unpaid. The Corporation shall give prompt written notice to Payee of any default
under any Senior Indebtedness or under any agreement pursuant to which Senior
Indebtedness may have been issued. Failure to give such notice shall not affect
the subordination of this Note to the Senior Indebtedness provided in this
Article 3.
(e) By the acceptance of this Note, the Payee agrees to enter
into any additional subordination provisions to the extent reasonably requested
by any holders of Senior Indebtedness.
Section 3.2 Further Rights. No right of any present or future
holders of any Senior Indebtedness to enforce subordination as provided herein
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Corporation or by any act or failure to act, in good
faith, by any such holder, or by any noncompliance by the Corporation with the
terms of this Note, regardless of any knowledge thereof which any such holder
may have or be otherwise charged with. The holders of Senior Indebtedness may
extend, renew, modify or amend the terms of the Senior Indebtedness or any
security therefor and release, sell or exchange such security and otherwise deal
freely with the Corporation, all without affecting the liabilities and
obligations of the Corporation and Payee.
Section 3.3 Subrogation. After all Senior Indebtedness is paid
in full and until all amounts due in connection herewith are paid in full, Payee
shall be subrogated to the rights of the holders of Senior Indebtedness to
receive distributions applicable to the Senior Indebtedness to the extent that
distributions otherwise payable to Payee have been paid to the holders of the
Senior Indebtedness. For the purpose of such subrogation, a distribution made
under this Article 3 to holders of Senior Indebtedness that otherwise would have
been made to Payee is not, as between the Corporation and Payee, a payment by
the Corporation on the Senior Indebtedness.
Section 3.4 Obligations Not Impaired. The provisions of this
Article 3 are, and are intended solely for, the purpose of defining the relative
rights of Payee, on the one hand, and the holders of Senior Indebtedness, on the
other hand. Nothing contained in this Article 3, or elsewhere in this Note, is
intended to or shall (i) impair, as among the Corporation, its creditors other
than the holders of Senior Indebtedness, and Payee, the obligation of the
Corporation, which, subject to the other terms of this Note, is absolute and
unconditional (and which, subject to the rights under this Article 3 of the
holders of Senior Indebtedness, is intended to rank equally with all other
general obligations of the Corporation), to pay to Payee the principal of this
Note as and when the same shall become due and payable in accordance with its
terms hereof, or (ii) affect the relative rights against the Corporation of
Payee and creditors of the Corporation other than the holders of Senior
Indebtedness.
ARTICLE 4
MISCELLANEOUS
Section 4.1. Loss, Theft, Destruction, Etc. Upon receipt by
the Corporation of evidence reasonably satisfactory to the Corporation of the
loss, theft, destruction or mutilation of this Note, and, in the case of loss,
theft or destruction, of indemnity or security reasonably
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satisfactory to the Corporation, and upon reimbursement to the Corporation of
all reasonable expenses incidental thereto, or, in the case of mutilation of
this Note, upon surrender and cancellation of this Note, the Corporation will
make and deliver a new Note of like tenor, in lieu of this Note.
Section 4.2 Governing Law; Submission to Jurisdiction. This
Note shall be deemed made and delivered and shall be construed in accordance
with and governed by the laws of the State of New York, without giving effect to
the conflicts of law principles thereof. Any legal action or proceeding arising
out of, or relating to, this Note shall be instituted in the courts of the State
of New York or of the United States of America located in the state of New York,
and all endorsers and guarantors submit to the jurisdiction of each such court
in any action or proceeding.
Section 4.3 Notices. All notices, requests, claims, demands
and other communications hereunder to any party shall be deemed sufficient if
contained in a written instrument delivered in person or sent by telecopy (with
a confirmatory copy sent by a different means within three business days of such
notice), nationally recognized overnight courier or first class registered or
certified mail, return receipt requested, postage prepaid, addressed to such
party at the address set forth below or such other address for a party as shall
be specified in a notice given in accordance with this Section 4.3:
If to the Corporation: Transaction Information Systems, Inc.
115 Broadway, 20th Floor
New York, New York 10006
Telecopy No.: (212) 962-7175
Attention: Jeffrey Najarian
With a copy to: Esanu Katsky Korins & Siger, LLP
605 Third Avenue, 16th Floor
New York, New York 10158
Telecopy No.: (212) 953-6899
Attention: Roy M. Korins, Esq.
If to Payee, to the address set forth on Schedule 1 hereto
With a copy to: Esanu Katsky Korins & Siger, LLP
605 Third Avenue, 16th Floor
New York, New York 10158
Attention:
Telecopy No.:
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Section 4.4 Severability. Whenever possible, each provision of
this Note shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Note shall be prohibited by, or
invalid under, applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remaining of such
provision or the remaining provisions of this Note.
Section 4.5 Assignment. Neither the Corporation nor Payee may
transfer or assign any of its rights or obligations hereunder other than, in the
case of Payee, to the heirs or testamentary legatees of Payee upon the death of
Payee.
Section 4.6 Surrender. Upon cancellation or full payment of
this Note, Payee agrees to surrender this Note to the Corporation for
cancellation.
Section 4.7 Headings, etc. The headings of the Articles and
Sections of this Note have been inserted for convenience of reference only, are
not to be considered a part hereof, and shall in no way modify or restrict any
of the terms or provisions hereof.
Section 4.8 WAIVER OF JURY TRIAL. EACH OF MAKER AND PAYEE, BY
ITS ACCEPTANCE OF THIS NOTE, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL
BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS NOTE AND FOR ANY
COUNTERCLAIM THEREIN.
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IN WITNESS WHEREOF, the Corporation has caused this Note to be
duly executed and delivered by its proper and duly authorized officer as of the
day and year first above written.
TRANSACTION INFORMATION SYSTEMS, INC.
By:
-------------------------------------
Name:
--------------------------------
Title:-------------------------------
AGREED AND ACCEPTED
AS OF THE DATE HEREOF
BY PAYEE
- --------------------------------
Name:
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EXHIBIT D
STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of
September 4, 1998, among TRANSACTION INFORMATION SYSTEMS, INC., corporation
formed under the laws of the State of Delaware (the "Corporation"), GS CAPITAL
PARTNERS III, L.P., a Delaware limited partnership ("GSCP") GS Capital Partners
III Offshore, L.P. ("GSCP Offshore"), Goldman, Sachs & Co. Verwaltungs GmbH
("GSCP Germany"), Stone Street Fund 1998, L.P. ("Stone 1998"), Bridge Street
Fund 1998, L.P. ("Bridge 1998," collectively with GSCP, GSCP Offshore, GSCP
Germany, Stone 1998 and Bridge 1998, the "Investors") and the stockholders of
the Corporation listed on Schedule I attached hereto (the "Existing
Stockholders").
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to that certain
Preferred Stock Purchase Agreement, dated as of , 1998 (the "Purchase
Agreement"), pursuant to which the Investors are purchasing shares of Series A
Preferred Stock (as defined below) from the Corporation;
WHEREAS, the Corporation and the Existing Stockholders are
parties to that certain Stockholders Agreement, dated as of September 16, 1997
(the "1997 Agreement"), and desire to terminate the 1997 Agreement and replace
it in its entirety with this Agreement; and
WHEREAS, the Purchase Agreement contemplates that the parties
hereto will enter into this Stockholder Agreement and the parties hereto deem it
to be in their best interests to establish and set forth their agreement with
respect to certain rights and obligations associated with ownership of shares of
Stock (as defined below).
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and obligations hereinafter set forth, the parties hereto
hereby agree as follows:
SECTION 1. General.
1.1. Certain Definitions. As used herein, the following terms
shall have the following meanings (terms used herein and not defined herein
shall have the meaning assigned to each such term in the Purchase Agreement):
"Common Stock" shall mean any shares of Common Stock
of the Corporation and any stock into which such Common Stock may hereafter be
changed or for which such Common Stock may be exchanged after giving effect to
the terms of such change or exchange (by way of reorganization,
recapitalization, merger, consolidation or otherwise).
<PAGE> 81
"Common Stock Equivalents" shall mean securities
convertible into, or exchangeable for, shares of Common Stock.
"Documents" shall mean the Purchase Agreement; the
Registration Rights Agreement, dated as of the date hereof, by and among the
Corporation, the Investors and the Existing Stockholders; and the Certificate of
Designations for the Series A Preferred Stock, together with this Stockholder
Agreement.
"GSCP Parties" shall mean the Investors together with
any GSCP Affiliate (as defined in Section 21).
"IPO" shall mean the closing of the sale of shares of
Common Stock in a bona fide, firm commitment, underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Securities Act").
"Person" shall mean any individual, corporation,
limited liability company, limited or general partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivisions thereof.
"Sell," as to any Stock, shall mean to sell, or in
any other way directly or indirectly transfer, assign, distribute, encumber or
otherwise dispose of or pledge, either voluntarily or involuntarily; and the
terms Sale and Sold shall have meanings correlative to the foregoing.
"Series A Preferred Stock" shall mean any shares in
that series of Preferred Stock of the Corporation purchased by the Investors
pursuant to the Purchase Agreement.
"Stock" shall mean (i) any shares of Common Stock and
(ii) any Common Stock Equivalents, in either case, whether owned on the date
hereof or acquired hereafter (including, without limitation, the Series A
Preferred Stock purchased pursuant to the Purchase Agreement).
"Stockholders" shall mean the parties to this
Agreement (other than the Corporation) and any other Person who executes, and
agrees to be bound by the terms of, this Agreement.
"Transfer" shall mean any sale, assignment, mortgage,
hypothecation, transfer or pledge of, creation of a security interest in, or
lien on, or any encumbrance, gift, trust (voting or other), bequest or any
testamentary or other disposition of, whether voluntary or by operation of law,
the Stock or any interest therein.
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1.2. Methodology for Calculations. For purposes of this
Agreement, the proposed Sale or Sale of a Common Stock Equivalent shall be
treated as the proposed Sale or Sale of the shares of Common Stock into which
such Common Stock Equivalent can be converted, exchanged or exercised. Unless
otherwise specifically provided, for purposes of all calculations under this
Agreement (including, without limitation, determining the amount of outstanding
Common Stock as of any date, the amount of Common Stock owned by any Person, and
the percentage of outstanding Common Stock owned by any Person), all Common
Stock into which any in the money Common Stock Equivalents are convertible,
exchangeable or exercisable shall be deemed to be outstanding, and the shares of
Common Stock into which the Series A Preferred Stock shall be converted from
time to time shall also be deemed to be outstanding.
SECTION 2. Termination of 1997 Agreement. The Existing
Stockholders agree that the 1997 Agreement is hereby terminated and is of no
further force and effect.
SECTION 3. Limitations on Sales of Stock by
Stockholders. (a) Each Stockholder shall not Sell any Stock, whether owned on
the date hereof or acquired hereafter, other than:
(i) by Sale in accordance with Sections 4, 5
and 6 hereof;
(ii) by Transfer to an affiliate (including,
without limitation, in the case of a GSCP Party, a Transfer to another GSCP
Party);
(iii) by Sale in accordance with Section 8
hereof; or
(iv) pursuant to a registration statement
filed under the Securities Act.
(v) in the case of an Existing Stockholder,
by Transfer of up to 50% of such Existing Stockholder's Stock as of the date
hereof to any of the following persons: such Existing Stockholder's spouse or
children, or any trust established solely for the benefit of any of the
foregoing as to which such Existing Stockholder and/or such Existing
Stockholder's spouse serves as a trustee (an "Eligible Trust"); provided,
however, that any subsequent Transfer by the Eligible Trust to such Existing
Stockholder's spouse or children shall be subject to this Agreement to the same
extent as if such Transfer were made by such Existing Stockholder.
(b) Anything contained herein to the
contrary notwithstanding, any transferee of Stock pursuant to a Sale under
clause (i), (ii), (iii) or (v) of Section 3(a) who is not a Stockholder shall
upon consummation of, and as a condition to, such Sale (A) execute, and agree to
be bound by the terms of, this Agreement and shall thereafter be deemed a
Stockholder, with the same rights and obligations of the Stockholder which is
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the transferor of the Stock, for all purposes of this Agreement and (B) with
respect to any transferee of Stock of a Stockholder, execute and deliver a
certificate in a form reasonably satisfactory to the Stockholders in which such
person certifies that (I) it is purchasing the Stock for its own account, for
investment and not with a view to the distribution thereof and (II) that such
Sale is otherwise being made in compliance with all applicable federal and state
law (including, without limitation, federal and state securities laws and "blue
sky" laws).
(c) Anything contained herein to the contrary
notwithstanding, each Existing Stockholder agrees that he will not Sell any
Stock (other than pursuant to clause (v) of Section 3(a)) for a period of two
and one-half years from the date hereof without first obtaining the written
consent of the GSCP.
SECTION 4. Rights of First Offer. In addition to and not in
limitation of any other restrictions on Sales of Stock contained in this
Agreement, other than pursuant to clause (ii), (iii), (iv) or (v) of Section
3(a), each Stockholder shall not Sell any Stock except in accordance with the
following procedures:
(a) The Stockholder proposing to Sell Stock (for
purposes of this section the "Section 4 Offeror") shall first deliver to the
Corporation a written notice (a "Section 4 Offer Notice"), which shall (i) state
the Section 4 Offeror's intention to sell Stock to one or more Persons, the
amount and type of Stock to be sold, the purchase price therefor and a summary
of the other material terms of the proposed Sale and (ii) offer, in accordance
with this Section 4, to the Corporation and then to the other Stockholders the
option to acquire all or a portion of such Stock upon the terms and subject to
the conditions of the proposed Sale as set forth in the Section 4 Offer Notice
(the "Section 4 Offer"), provided that such Section 4 Offer may provide that it
must be accepted by the Corporation and the other Stockholders (in the
aggregate) on an all or nothing basis (an "All or Nothing Sale"). The Section 4
Offer shall remain open and irrevocable for the periods set forth below (and, to
the extent the Section 4 Offer is accepted during such periods, until the
consummation of the sale contemplated by the Section 4 Offer). The Corporation
shall have the right and option, for a period of twenty days after delivery of
the Section 4 Offer Notice (the "Section 4(a) Acceptance Period"), to accept all
or any part of the offered Stock at the purchase price and on the terms stated
in the Section 4 Offer Notice. Such acceptance shall be made by delivering a
written notice of such acceptance to the Section 4 Offeror and each of the other
Stockholders within the Section 4(a) Acceptance Period.
(b) If the Corporation shall fail to accept all of
the Stock offered for sale pursuant to, or shall reject in writing, the Section
4 Offer (the Corporation being required to notify in writing the Section 4
Offeror and each of the other Stockholders of its rejection or failure to accept
in the event of the same) then, upon the earlier of the expiration of the
Section 4(a) Acceptance Period or the receipt of such written notice of
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rejection or failure to accept such offer by the Corporation, each other
Stockholder shall have the right and option, for a period of twenty days
thereafter (the "Section 4(b) Acceptance Period"), to accept all or any part of
the Stock so offered and not accepted by the Corporation (the "Refused Stock")
at the purchase price and on the terms stated in the Section 4 Offer Notice ;
provided, however, that, if the Section 4 Offer contemplated an All or Nothing
Sale, the Corporation and the other Stockholders, in the aggregate, may accept,
during the Section 4(a) Acceptance Period, all, but not less than all, of the
Refused Stock, at the purchase price and on the terms stated in the Section 4
Offer Notice. Such acceptance shall be made by delivering a written notice to
the Corporation and the Section 4 Offeror within the Section 4(b) Acceptance
Period specifying the maximum number of shares such other Stockholder will
purchase (the "First Offer Shares"). If, upon the expiration of the Section 4(b)
Acceptance Period, the aggregate amount of First Offer Shares exceeds the amount
of Refused Stock, the Refused Stock shall be allocated among the other
Stockholders as follows: (i) First, each Stockholder shall be entitled to
purchase no more than its Proportionate Percentage (as defined below) of Refused
Stock; (ii) Second, if any shares of Refused Stock have not been allocated for
purchase pursuant to (i) above (the "Remaining Shares"), each Stockholder (an
"Oversubscribed Stockholder") which had offered to purchase a number of shares
of Refused Stock in excess of the amount of Stock allocated for purchase to it
in accordance with previous allocations, shall be entitled to purchase an amount
of Remaining Shares equal to no more than its Proportionate Percentage (treating
only Oversubscribed Stockholders as Stockholders for these purposes) of the
Remaining Shares; and (iii) Third, the process set forth in (ii) above shall be
repeated with respect to any shares of Refused Stock not allocated for purchase
until all shares of Refused Stock are allocated for purchase.
(c) If effective acceptance shall not be received
pursuant to Sections 4(a) and 4(b) above with respect to all of the Stock
offered for sale pursuant to the Section 4 Offer Notice, then the Section 4
Offeror may Sell all or any portion (or, in the case of an All or Nothing Sale,
all but not less than all) of the Stock so offered for sale and not so accepted,
at a price not less than 95% of the price, and on terms not materially more
favorable to the purchaser thereof than the terms, stated in the Section 4 Offer
Notice at any time within 60 days after the expiration of the Section 4(b)
Acceptance Period (the "Sale Period"). To the extent the Section 4 Offeror Sells
all of the Stock so offered for Sale during the Sale Period, the Section 4
Offeror shall promptly notify the Corporation, and the Corporation shall
promptly notify the other Stockholders, as to (i) the number of shares of Stock,
if any, that the Section 4 Offeror then owns, (ii) the number of shares of Stock
that the Section 4 Offeror has sold, (iii) the terms of such Sale and (iv) the
name of the owner(s) of any shares of Stock sold. In the event that all of the
Stock is not sold by the Section 4 Offeror during the Sale Period, the right of
the Section 4 Offeror to Sell such Stock shall expire and the obligations of
this Section 4 shall be reinstated; provided, however, that, in the event that
the Section 4 Offeror determines, at any time during the Sale Period, that the
sale of all of the Stock on the
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terms set forth in the Section 4 Offer Notice is impractical, the Section 4
Offeror may terminate the offer and reinstate the procedure provided in this
Section 4 without waiting for the expiration of the Sale Period.
(d) All Sales of Stock to the Corporation and/or the
other Stockholders that are subject to a Section 4 Offer Notice shall be
consummated contemporaneously at the offices of the Corporation on a mutually
satisfactory business day within 30 days after the expiration of the Section
4(b) Acceptance Period or, if later, the fifth business day following the
expiration or termination of all waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") applicable to
such Sales. The delivery of certificates or other instruments evidencing such
Stock duly endorsed for transfer shall be made on such date against payment of
the purchase price for such Stock.
(e) Anything contained herein to the contrary
notwithstanding, the Section 4 Offeror shall, in addition to complying with the
provisions of this Section 4 in the event of a proposed sale of Stock, comply
with the provisions of Section 5 hereof.
(f) For purposes of this Section, "Proportionate
Percentage" shall mean, as to each Stockholder, the quotient obtained by
dividing, in accordance with Section 1.2 hereof, (i) the number of shares of
Common Stock owned, as of the first day of the Section 4(b) Acceptance Period
(as defined in Section 4(b) above) by such Stockholder by (ii) the aggregate
number of shares of Common Stock owned by all Stockholders who exercise their
option to purchase Refused Stock (as defined in Section 4(b) above).
SECTION 5. Tag-Along Rights. Subject to the provisions of
Section 3(c), following compliance with the provisions of Section 4 and except
pursuant to clause (ii), (iii), (iv) or (v) of Section 3(a) hereof, any Sale of
Stock by a Stockholder shall be consummated only in accordance with the
following procedures:
(a) (i) Any Stockholder or Stockholders proposing to
Sell Stock (for purposes of this Section, the "Section 5 Offeror") shall first
deliver to each other Stockholder a written notice (the "Section 5 Notice"),
which shall specifically identify the identity of the proposed transferee (the
"Section 5 Offeree"), the amount and type of Stock proposed to be sold, the
purchase price therefor, and a summary of the other material terms and
conditions of the proposed sale, and shall contain an offer (the "Section 5
Offer") by the Section 5 Offeree to each other Stockholder, which shall be
irrevocable for a period of seven days after the later of delivery thereof and
the expiration of the Section 4(b) Acceptance Period, to the extent applicable
(the "Section 5 Acceptance Period") (and, to the extent the Section 5 Offer is
accepted during such seven day period, until the closing of the Sale
contemplated by the Section 5 Offer), to purchase the Section 5 Stock at the
Section 5 Purchase Price (as such terms are defined below), and
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upon the other terms offered by the Section 5 Offeree to the Section 5 Offeror
as set forth in the Section 5 Notice. A copy of the Section 5 Notice shall
promptly be sent to the Corporation. Notice of another Stockholder's intention
to accept a Section 5 Offer, in whole or in part, shall be evidenced by a
writing signed by such other Stockholder and delivered to the Section 5 Offeree
and the Corporation prior to the end of the Section 5 Acceptance Period, setting
forth the number of shares and class of Stock that such other Stockholder elects
to sell. If effective acceptance by any other Stockholder has been received
pursuant to this paragraph (a), then the selling Stockholder shall not
consummate such Sale of Stock without participation of such other Stockholders.
(ii) For purposes of this Section, the
following terms shall have the meanings set forth below:
"Section 5 Stock" shall mean, with respect to each Stockholder
other than the Section 5 Offeror, an amount of Stock which, calculated in
accordance with Section 1.2, represents the number of shares of Common Stock
equal to the result of (i) the Section 5 Percentage multiplied by (ii) the
amount of shares of Common Stock owned, by such other Stockholder.
"Section 5 Purchase Price" shall mean (i) with respect to a
share of Common Stock, the Per Share Price and (ii) with respect to a Common
Stock Equivalent, an amount equal to (A) the Per Share Price minus the exercise
price, multiplied by (B) the number of shares of Common Stock issuable upon the
conversion, exchange or exercise of such Common Stock Equivalent.
"Section 5 Percentage" shall mean the quotient obtained by
dividing, in accordance with Section 1.2 hereof, (i) the number of shares of
Common Stock proposed to be sold by the Section 5 Offeror as set forth in the
Section 5 Notice by (ii) the number of shares of Common Stock owned by the
Section 5 Offeror as of the date of the Section 5 Offer.
"Per Share Price" means an amount equal to the quotient
obtained by dividing, in accordance with Section 1.2 hereof, (i) the aggregate
purchase price to be paid by the Section 5 Offeree in respect of such Stock by
(ii) the number of shares of Common Stock proposed to be sold by the Section 5
Offeror as set forth in the Section 5 Notice.
(b) All Sales of Stock to the Section 5 Offeree shall
be consummated contemporaneously at the offices of the Corporation on a mutually
satisfactory business day as soon as practicable, but in no event more than 30
days after the expiration of the Section 5 Acceptance Period, or, if later, the
fifth business day following the expiration or termination of all waiting
periods under the HSR Act applicable to such Sales. The delivery of certificates
or other instruments evidencing
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such Stock duly endorsed for transfer shall be made on such date against payment
of the purchase price for such Stock.
SECTION 6. Bring-Along Rights. (a) Subject to the rights of
the Stockholders pursuant to Section 4 hereto, from and after the date hereof,
if the Investors, together with any other Stockholders, if necessary, propose to
Sell to any Person who is not affiliated with any of such Stockholder(s) (a
"Bring-Along Transferee"), in a bona fide arm's-length transaction or series of
transactions (including by way of a purchase agreement, tender offer, merger or
other business combination or otherwise) (any such transaction being referred to
herein as an "Exit Sale"), an amount of stock owned by such Stockholders equal
to at least 50% in the aggregate of the then outstanding Common Stock, then the
Investors may elect to require each (but not fewer then each) other Stockholder
to Sell such Stockholders(s) Stock as a part of the Exit Sale to such
Bring-Along Transferee at the purchase price and upon the other terms and
subject to the conditions of the Exit Sale.
(b) At any time after the fourth anniversary of the date
hereof, subject to the rights of the Stockholders pursuant to Section 4 hereto,
if the Investors, propose to Sell to any Person in an Exit Sale all of the
Series A Preferred Stock and Common Stock owned by them, then the Investors may
elect to require each (but not fewer than each) other Stockholder to Sell such
Stockholder(s) Stock as a part of the Exit Sale to such Bring-Along Transferee
at the purchase price and upon the other terms and subject to the conditions of
the Exit Sale.
(c) The rights set forth in Section 6(a) and 6(b) shall be
exercised by giving written notice (the "Bring-Along Notice") to each other
Stockholder setting forth in detail the terms of the proposed Exit Sale and the
proposed closing date of the Exit Sale.
(d) All Sales of Stock to the Bring-Along Transferee pursuant
to this Section 6 shall be consummated contemporaneously at the offices of the
Corporation on a mutually satisfactory business day within 60 days after the
Bring-Along Notice is delivered to the Stockholders, or the fifth business day
following the expiration or termination of all waiting periods under the HSR Act
applicable to such Sales, or at such other time and/or place as the parties to
such Sales may agree. The delivery of certificates or other instruments
evidencing such Stock duly endorsed for transfer shall be made on such date
against payment of the purchase price for such Stock.
(e) In the event of an Exit Sale by way of a merger,
consolidation or otherwise, (i) each other Stockholder agrees that he shall take
all necessary or desirable action to cause such merger, consolidation or other
transaction to occur, including, without limitation, voting his shares of Voting
Stock (as defined below) in favor of such merger, consolidation or other
transaction; and (ii) the Corporation shall take all
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necessary or desirable action to cause such merger, consolidation or other
transaction to occur.
SECTION 7. Preemptive Rights. (a) Except for Excluded
Securities (as hereinafter defined), the Corporation shall not issue, sell or
exchange, or agree to issue, sell or exchange (collectively, "Issue," and any
issuance, sale or exchange resulting therefrom, an "Issuance") (i) any shares of
capital stock of the Corporation or any of its subsidiaries, (ii) any other
equity security of the Corporation, including, without limitation, any options,
warrants or other rights to subscribe for, purchase or otherwise acquire any
capital stock or other equity security of the Corporation or (iii) any other
security of the Corporation that is convertible into or exchangeable for any
equity security of the Corporation unless, in each case, the Corporation shall
have first given written notice (the "Section 7 Notice") to each Stockholder
(for purposes of this Section, each a "Section 7 Offeree") that shall (a) state
the Corporation's intention to sell any of the securities described in (i), (ii)
and (iii) above, the amount to be issued, sold or exchanged, the terms of such
securities, the purchase price therefor and a summary of the other material
terms of the proposed issuance, sale or exchange and (b) offer (a "Section 7
Offer") to Issue to each Section 7 Offeree and their affiliates such Section 7
Offeree's Proportionate Percentage (as defined below) of such securities (with
respect to each Section 7 Offeree, the "Offered Securities") upon the terms and
subject to the conditions set forth in the Section 7 Notice, which Section 7
Offer by its terms shall remain open and irrevocable for a period of 15-days
from the date it is delivered by the Corporation to the Stockholder, as the case
may be (and, to the extent the Section 7 Offer is accepted during such 15-day
period, until the closing of the Issuance contemplated by the Section 7 Offer).
"Proportionate Percentage" for the purposes of this Section shall mean the
quotient obtained by dividing: (i) the number of shares of Common Stock owned by
the Section 7 Offeree, by (ii) the total number of shares of Common Stock issued
and outstanding on the date of the Section 7 Offer.
(b) Notice of a Section 7 Offeree's intention to
accept a Section 7 Offer, in whole or in part, shall be evidenced by a writing
signed by such party and delivered to the Corporation prior to the end of the
15-day period of such Section 7 Offer (each, a "Notice of Acceptance"), setting
forth the portion of the Offered Securities that the Section 7 Offeree elects to
purchase.
(c) (i) In the event that a Notice of Acceptance is
not given by a Section 7 Offeree in respect of all the Offered Securities, the
Corporation shall have 60 days following the earlier of (A) delivery of the
Notice of Acceptance or (B) the 15-day period referred to in clause (b) above,
if no Notice of Acceptance is delivered, to Issue all or any part of such
remaining Offered Securities not covered by the Notice of Acceptance to any
other Person(s), but only at a price not less than the price, and on terms no
more favorable to the person than the terms, stated in the Section 7 Offer
Notice.
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(ii) If the Corporation does not consummate
the Issuance of all or part of the remaining Offered Securities to such other
Person(s) within such period, the right provided hereunder shall be deemed to be
revived and such securities shall not be offered unless first re-offered to each
Section 7 Offeree in accordance with this Section 7.
(iii) Upon the closing, of the Issuance to
such other Person(s) (the "Other Buyers") of all or part of the remaining
Offered Securities, each Section 7 Offeree shall purchase from the Corporation,
and the Corporation shall Issue to each such Section 7 Offeree, the Offered
Securities covered by the Notice of Acceptance delivered to the Corporation by
the Section 7 Offeree, on the terms specified in the Section 7 Offer. The
purchase by a Section 7 Offeree of any Offered Securities is subject in all
cases to the execution and delivery by the Corporation and the Section 7 Offeree
of a purchase agreement relating to such Offered Securities in form and
substance similar in all material respects to the extent applicable to that
executed and delivered between the Corporation and the Other Buyers.
(d) For purposes of this Section, "Excluded
Securities" shall mean: (i) shares of Common Stock issued or issuable upon
conversion of the Series A Preferred Stock; (ii) shares of Common Stock issuable
or issued upon conversion or exercise of any securities outstanding on the date
hereof; (iii) any capital stock issued as a stock dividend or upon any stock
split or other subdivision or combination of shares of the Corporation's capital
stock; (iv) shares of Common Stock issued in any public offering of the
Corporation's securities; (v) any capital stock issued or issuable in connection
with a merger or consolidation or acquisition of any other entity, except for
such merger or consolidation after consummation of which the Stockholders prior
to such merger or consolidation will beneficially own less than 50% of the
capital stock of the surviving or resulting entity; or (vi) shares of Common
Stock issuable or issued to employees of the Corporation pursuant to an employee
benefit plan duly approved by the Corporation's Board of Directors (the "Board")
in accordance with Section 9.12 hereof.
SECTION 8. Mandatory Offer of Stock
8.1. Offer Event. The Stock of an Existing Stockholder shall
be deemed irrevocably offered for sale first to the Corporation and then, in
accordance with the procedures set forth in this Section 8, to the other
Stockholders (the "Remaining Stockholders"), upon the happening of any one or
more of the following events (each a "Section 8 Offer Event"):
(a) The filing by or against such Existing
Stockholder of a petition or an application for any relief under any provisions
of the Federal Bankruptcy Act (which, in the case of an involuntary petition
application, is not stayed or discharged within 60 days of the date of such
filing);
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(b) Such Existing Stockholder makes an assignment for
the benefit of creditors;
(c) A receiver, legal custodian, administrator,
guardian or fiduciary (who is not the spouse of such Existing Stockholder or
been appointed for the benefit of such Existing Stockholder) has been appointed
to manage such Existing Stockholder's property;
(d) A writ or attachment or levy or lien has been
filed against the Stock of an Existing Stockholder and such attachment, levy or
lien has not been discharged, bonded or vacated within 30 days from the date it
became effective;
(e) Such Existing Stockholder attempts to Transfer
any Stock in violation of the provisions of this Agreement;
(f) Such Existing Stockholder's employment with the
Corporation is terminated for cause in accordance with Section 9.10; or
(g) Such Existing Stockholder's employment with the
Corporation is terminated by the Corporation without cause in accordance with
Section 9.10 or voluntarily by the Stockholder.
For the purposes of this Section 8, a Section 8 Offer Event
shall be deemed to be continuing until the procedures set forth in this Section
8 with respect to the Stock affected thereby have been exhausted.
8.2. Exercise of Option. (a) The Corporation shall have an
option (the "First Option") exercisable for a period of 180 days after it
receives notice of the occurrence of any Section 8 Offer Event within which to
give written notice to the applicable Existing Stockholder or the applicable
Existing Stockholder's representative, assigns or prohibited transferee, as the
case may be (collectively, for the purpose of this Section 8, the "Section 8
Seller"), of its election to exercise its option to purchase all or part of the
Section 8 Seller's Stock at a price (the "Offer Price") equal to the amount
determined by multiplying the aggregate number of the Section 8 Seller's Stock
being purchased by the following percentage of the Value per Share determined in
accordance with Section 8.5 of this Agreement: (i) 50% if the applicable Offer
Event is set forth in clauses (a) through (f) of Section 8.1 above; and (ii) 80%
if the applicable Offer Event is set forth in clause (g) of Section 8.1 above.
(b) To the extent the Corporation purchases less than
all of the Section 8 Seller's Stock pursuant to paragraph (a) above, each of the
Remaining Stockholders shall have an option (the "Second Option"), exercisable
for a period of fifteen days commencing upon the expiration of the First Option,
to purchase at the Offer Price, in the same proportion as the number of shares
of Stock owned by each Remaining Stockholder bears to the number of shares of
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Stock owned by all Remaining Stockholders, all or any part of the Section 8
Seller's Stock that were subject to the First Option and which the Corporation
did not elect to purchase prior to the expiration of the First Option.
(c) To the extent that less than all of the Section 8
Seller's Stock is purchased pursuant to paragraphs (a) and (b) above, the
Remaining Stockholders who exercise their Second Options in accordance with
paragraph (b) above (the "Electing Stockholders") shall each have an option (the
"Third Option") exercisable for a period of ten days commencing upon the
expiration of the Second Options to purchase at the Offer Price, by agreement
among them, all or any part of the shares of Stock, if any, that were subject to
Second Options and were not purchased by any Remaining Stockholder.
(d) To the extent that less than all of the Section 8
Seller's Stock is purchased pursuant to paragraphs (a), (b) and (c) above, the
Board shall have the option (the "Fourth Option"), for a period of five days
commencing upon the expiration of the Third Options, to designate a person or
entity to whom the Section 8 Seller must sell at the Offer Price any of such
Section 8 Seller's Stock that were not purchased pursuant to paragraphs (a), (b)
and (c) above.
(e) The parties agree that at the request of GSCP,
the Corporation shall, upon the happening of any Section 8 Offer Event, exercise
the First Option or the Fourth Option with respect to the Stock affected
thereby.
8.3. Put Event. (a) An Existing Stockholder (or as the case
may be, the estate of Existing Stockholder) shall have the right to offer for
sale to the Corporation up to 50% of such Existing Stockholder's Stock (such
offered Stock, the "Put Stock"), and subject to the provisions of paragraph (b),
the Corporation shall purchase the Put Stock
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within 90 days after the occurrence of any one or more of the following (each a
"Put Event"):
(i) The death of such Existing Stockholder;
or
(ii) Such Existing Stockholder's employment
with the Corporation is terminated as a result of such Existing Stockholder's
disability in accordance with Section 9.11.
(b) In the event that the Corporation shall become
obligated to purchase the Put Stock of an Existing Stockholder pursuant to the
provisions of paragraph (a) above, the Corporation may, at its sole option and
within 60 days after the occurrence of the Put Event, designate all or a portion
of the Put Stock as available for purchase from the selling Existing Stockholder
(or as the case may be, the estate of the selling Existing Stockholder) by the
Remaining Stockholders at the price and upon the terms available to the
Corporation and in the manner set forth in paragraphs (b), (c) and (d) of
Section 8.2. For these purposes, the Corporation's obligation to purchase the
Put Stock shall be treated as the First Option and the date that the Corporation
designates the Put Stock as available for purchase shall be treated as the
expiration date of the First Option. Nothing in this paragraph (b) shall be
deemed to relieve the Corporation of its obligation to purchase any Put Stock
not purchased by the Remaining Stockholders or to impose upon the Remaining
Stockholders any obligation to purchase the Put Stock designated as available
for purchase by the Corporation. Notwithstanding the foregoing, the Corporation
shall be obligated to purchase the Put Stock only to the extent permitted under
applicable law, and so long as such purchase will not result in a breach of any
loan, credit or other similar agreement to which the Corporation is a party.
(c) The purchase price payable by the Corporation for
Stock pursuant to paragraph (a) above shall be at 100% of the Value per Share as
determined pursuant to Section 8.4 hereof.
8.4. Value per Share. For purposes of this Agreement, the term
"Value per Share" as of any date shall mean the product of fifteen multiplied by
Average Net Profits (as defined below), multiplied by a fraction whose numerator
is one and whose denominator is the number of shares of Common Stock then issued
and outstanding.
For the purposes of this Section 8, the term "Average Net
Profits" shall mean fifty percent (50%) of the total Net Profits of the
Corporation for the two-year period ending on the last day of the most recently
ended calendar quarter for which financial statements were available prior to
the occurrence of the applicable Section 8 Offer Event, Sale Event or Put Event,
as the case may be, as determined by the Board in its reasonable discretion in
conjunction with the Corporation's independent accountants, within 45 days of
the occurrence of such Event; the term "Net Profits" shall mean the net
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profits before income taxes of the Corporation for each of such calendar
quarters as determined by the Board on the accrual basis in accordance with
generally accepted accounting principles.
8.5. Procedures to Apply to Purchase by Corporation or
Remaining Stockholders. The provisions of this Section 8.5 shall apply whenever
the Stock of a Stockholder is being sold pursuant to the provisions of this
Section 8.
(a) Closing Procedures. The closing of the sale and purchase
of any Stock of a Section 8 Seller (the "Closing") shall take place at the
principal office of the Corporation at 10:00 A.M. on the fifteenth day after the
date that options with respect to all of the Seller's Stock have been exercised
or have expired, or at such other place, time and/or date as shall be agreed
upon by the purchaser or purchasers of such Stock and the Section 8 Seller;
provided, however, that the Closing of any sale and purchase of Stock of a
Section 8 Seller pursuant to clause (g) of Section 8.1 or Section 8.3 shall take
place on any day within the 90 day period set forth in clause (g) of Section 8.1
or Section 8.3, as the case may be, as the Corporation may designate on at least
five days notice to the Section 8 Seller and any purchasers other than the
Corporation.
(b) Closing Deliveries. At the Closing, the Section 8 Seller
shall deliver (i) to the Corporation resignations of the Section 8 Seller (and
if the Section 8 Seller is not a natural person, the Seller's nominees) as an
employee, officer and director of the Corporation to the extent he is serving
and (ii) to the applicable purchaser(s) stock certificates representing the
Stock being sold, in proper form for transfer together with duly executed stock
powers, with all requisite stock transfer stamps, and with any supporting
instruments that may be reasonably required to effect transfer of registration.
Unless the Corporation is the purchaser, new certificates for Stock being
purchased shall be issued by the Corporation in the name or names of the
purchaser or purchasers. In the event that the Stock are to be acquired by the
Corporation or the Remaining Stockholders, if any, such certificates, transfer
stamps and stock powers (collectively, the "Escrowed Certificates") shall be
delivered at the Closing to Esanu Katsky Korins & Siger, LLP, or such other firm
or person selected by agreement of the Section 8 Seller and the Corporation or
the applicable purchaser(s), as the case may be, to serve as escrow agent (the
"Escrow Agent"), and shall be held by the Escrow Agent as provided hereunder.
(c) Purchase Price Payments. The purchase price for Stock as
determined pursuant to this Section 8 hereof shall be paid as follows: (i)
twenty percent (20%) of the purchase price (the "First Installment") shall be
paid at the Closing and (ii) the remainder in four equal annual installments,
the first of which shall be due on the first anniversary of the Closing. The
installments of the purchase price shall be evidenced by the promissory note
substantially in the form of Exhibit A annexed hereto
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(the "Note"), specifying, among other things, various events of default (the
"Events of Default"). Notwithstanding anything to the contrary contained herein,
if the Stock are being purchased because of the death of an Existing
Stockholder, the proceeds actually received by the Corporation of any insurance
on the life of the deceased Existing Stockholder shall be paid to the estate of
the deceased Existing Stockholder against delivery of the certificates
representing the applicable Stock, and the principal amount of the Note shall be
reduced accordingly. In the event such proceeds are less than the First
Installment, the Corporation or other purchaser shall pay the difference
(between the First Installment and Insurance Proceeds) to the estate of the
deceased Existing Stockholder at the Closing. If such proceeds exceed the amount
of the First Installment, such proceeds shall nevertheless be paid at the
Closing and the balance of the purchase price shall be paid in four equal
installments. If such proceeds exceed the aggregate amount payable for the
Stock, the excess amount shall be retained by the Corporation.
(d) Escrow Release. Immediately upon receipt by the Section 8
Seller or the Section 8 Seller's estate or representatives, as the case may be,
of any payment of all or part of the purchase price for the Stock by the
applicable purchaser(s), the applicable purchaser(s) shall notify the Escrow
Agent, in writing, with a copy to the Section 8 Seller that such payment has
been made for all or part of such Stock, and unless the Section 8 Seller shall
within the fifteen day period set forth in this paragraph (d) give notice in
writing to the Escrow Agent and the applicable purchaser(s), that the Section 8
Seller denies such payment, the Escrow Agent shall deliver to the applicable
purchaser(s) the Escrowed Certificates representing the proportionate number of
Stock paid for within fifteen days of receipt of such notice.
(e) Escrow Release after Default. In the event of an Event of
Default which is not duly cured, the Escrow Agent, upon the written request of
the Section 8 Seller, and upon five days written notice to the Corporation,
shall be authorized to deliver the Escrowed Certificates to the Section 8 Seller
who shall have all of the rights and obligations of a secured creditor specified
in the New York Uniform Commercial Code, as amended from time to time. The
remedies available to the Section 8 Seller under this subsection shall be in
addition to any remedies available to the Section 8 Seller at law or in equity.
(f) Escrow Agent's Duties. The Escrow Agent shall be entitled
to rely upon the representations made by the parties. The Escrow Agent shall be
protected in acting upon any document, certificate, request, consent, statement,
agreement or any other instrument whatsoever, not only as to its due execution
and the validity and effectiveness of its provisions, but also as to the truth
and acceptability of any information which it contains and which the Escrow
Agent, in good faith, believes to be valid and to have been signed and presented
by a proper person or persons. The Escrow Agent shall have no duties except
those expressly set forth in this Agreement. In the event that the Escrow Agent
is uncertain as to its duties or rights, or shall receive
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instructions, claims or demands from any of the parties or from third persons
with respect to the Escrowed Certificates which, in the Escrow Agent's opinion,
are in conflict with the provisions of this Agreement, the Escrow Agent shall be
entitled to refrain from taking any action until the Escrow Agent is directed
otherwise in a writing executed by all of the interested parties or by the final
judgment or order of a court of competent jurisdiction if the time for appeal
from such judgment or order shall have expired. The Escrow Agent shall not be
bound by any waiver, modification, amendment, termination or rescission of this
Agreement unless in writing and signed by all of the parties, and, if its rights
and duties are to be affected, unless the Escrow Agent shall have given its
prior written consent thereto. The Escrow Agent shall not be liable for any
action taken or omitted in the performance of its duties hereunder except in the
case of its willful misconduct or gross negligence. At any time during the term
of the escrow, the parties may appoint another person or entity as escrow agent
by giving written notification to the Escrow Agent, such notification to contain
an appropriate instruction designating such third party and directing the Escrow
Agent to turn over and deliver the Escrowed Certificates to such third party and
after delivery of the Escrowed Certificates, the Escrow Agent shall have no
liability, duty or obligation under this Agreement or arising out of the escrow.
The Escrow Agent may, at any time, resign by giving written notice to the
parties at least twenty days prior to the date specified for such resignation to
take effect, and upon the effective date of such resignation, the Escrowed
Certificates held by the Escrow Agent shall be delivered by it to such person or
entity as may be designated in writing by the parties. If no such person or
entity shall have been designated by the date of the Escrow Agent's resignation,
or if such designee is unable to or refuses to perform the duties of escrow
agent, the Escrow Agent may deposit the Escrowed Certificates in a court of
competent jurisdiction and upon such resignation and deposit all of the Escrow
Agent's obligations hereunder shall cease and terminate.
SECTION 9. Corporate Governance.
9.1. Board of Directors. (a) Pre-IPO. (i) Except as otherwise
set forth in this Section 9.1(a), from and after the date hereof the Board shall
consist of seven directors and the Corporation shall cause two persons
designated by GSCP (each such person an "Investor Director") to be designated
for election at any meeting of stockholders for the election of directors. So
long as any shares of Series A Preferred Stock are outstanding, the person(s)
designated by GSCP under this Section 9.1(a) shall be the Series A Director(s)
(as defined in the Certificate of Designations of the Corporation (the
"Certificate of Designations")).
(ii) Each Stockholder agrees to vote all of
his Stock for the election of the following individuals to the Board of
Directors: (i) Mark Arzoomanian, Robert Gold, Jeffrey Najarian (Chairman of the
Board), George Setford and Edward Shaw, so long as each such person shall remain
a Stockholder, and (ii) Joseph Gleberman and Randall Blumenthal, to the extent
GSCP is entitled to designate two directors, or such
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other designees of GSCP, so long as any Investors shall hold any shares of
Series A Preferred Stock or Common Stock.
(iii) Notwithstanding the foregoing, in the
event that the Investors together with their "affiliates" (as such term is
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) cease to hold in the aggregate at least 50% of the number of
shares of Series A Preferred Stock (or shares of Common Stock issuable upon
conversion of the Series A Preferred Stock, as the case may be) owned by the
Investors on the date of issuance (subject to appropriate adjustment from time
to time for any subdivision (by any stock split, stock dividend,
recapitalization or otherwise) or combination (by reverse stock split or
otherwise) of the Series A Preferred Stock by the Corporation), the Board shall
consist of six directors and the Corporation shall cause one Investor Director
to be designated for election at any meeting of stockholders for the election of
directors.
(b) Post-IPO. From and after an IPO and for so long
as the Investors hold in the aggregate at least 5% or more of the outstanding
Common Stock, in connection with any election for members of the Board, the
Corporation shall, at the request of GSCP, include two representatives
designated by GSCP in the slate of directors recommended by the Board to
stockholders for election as directors (such representatives designated by GSCP
being referred to herein as the "Investor Designees"); provided, however, that
in the event that the Investors cease to hold in the aggregate at least 50% of
the number of shares of Common Stock issuable upon conversion of the Series A
Preferred Stock owned by the Investors as of the date hereof (subject to
appropriate adjustment from time to time for any subdivision (by any stock
split, stock dividend or otherwise) a combination (by reverse stock split or
otherwise) of the Common Stock by the Corporation), the Corporation shall, at
the request of GSCP, include one Investor Designee in the slate of directors
recommended by the Board to stockholders for election as directors. The
Corporation shall use its best efforts to cause each Investor Designee to be
elected to, and to be maintained as a member of, the Board (including
recommending to the stockholders of the Corporation the election of any Investor
Designee to the Board and opposing any proposal to remove any Investor Designee
at each meeting of the stockholders of the Corporation at which the election or
removal of members of the Board is on the agenda), and shall take no action
which would diminish the prospects of any Investor Designee being elected to the
Board or increase the prospects of any Investor Designee being removed from the
Board.
9.2. Committees; Subsidiaries. The Corporation shall, at the
request of GSCP, take all actions necessary to cause at least one Investor
Director (and, from and after an IPO, at least one Investor Designee) to be
appointed to each committee of the Board and to each of the boards of directors
or other similar managing bodies (and any committee thereof) of each of the
Subsidiaries of the Corporation.
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9.3. Vacancies; Removal. (a) Subject to paragraph (b) of this
Section 9.3, each Investor Director and each Investor Designee shall hold his
office until his death or until his successor shall have been duly elected and
qualified. If any Investor Director or any Investor Designee shall cease to
serve as a director of the Corporation (and any committee thereof) or of any
board of directors or other similar managing body (and any committee thereof) of
any Subsidiary of the Corporation for any reason other than pursuant to Section
9.1, the vacancy resulting thereby shall be filled by another Person designated
by GSCP.
(b) Neither a Investor Director nor any Investor
Designee shall be removed from office without the consent of GSCP; provided,
however, that any Investor Designee may be removed by a vote of the stockholders
of the Corporation. Any Investor Director and any Investor Designee shall be
removed from office at any time, with or without cause, at the request of GSCP.
9.4. Expenses. The Corporation shall pay the reasonable
out-of-pocket expenses incurred by each director on the Board (any such
director, a "Director") in connection with performing his duties as a member of
the Board, including without limitation the reasonable out-of-pocket expenses
incurred by such person for attending meetings of the Board or any committee
thereof or meetings of any board of directors or other similar managing body
(and any committee thereof) of any Subsidiary of the Corporation.
9.5. Telephonic Board Meetings. The Corporation shall take all
necessary actions, including, without limitation, causing its by-laws to be duly
amended, to allow any Director to telephonically attend (a) any meeting of the
Board (and any committee thereof) and (b) any meeting of any board of directors
or any similar managing body (and any committee thereof) of any subsidiary of
the Corporation of which he is a member.
9.6. Directors' Indemnification. (a) The Corporation shall
obtain and cause to be maintained in effect, with financially sound insurers, a
policy of directors' and officers' liability insurance covering each of the
Directors in an amount upon such terms and in such amount as are reasonably
acceptable to the Investors.
(b) The Certificate of Incorporation, by-laws and
other organizational documents of the Corporation and each of its subsidiaries
shall at all times, to the fullest extent permitted by law, provide for
indemnification of, advancement of expenses to, and limitation of the personal
liability of, the members of the Board and the members of the boards of
directors or other similar managing bodies of each of the Corporation's
subsidiaries and such other persons, if any, who, pursuant to a provision of
such Certificate of Incorporation, By-laws or other organizational documents,
exercise or perform any of the powers or duties otherwise conferred or imposed
upon members of the
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Board or the boards of directors or other similar managing bodies of each of the
Corporation's subsidiaries. Such provisions may not be amended, repealed or
otherwise modified in any manner adverse to any member of the Board or any
member of the boards of directors or other similar managing bodies of any of the
Corporation's subsidiaries, until at least six years following the date that the
Investors are no longer entitled to designate or nominate any Investor Director
or Investor Designee.
(c) Each Investor Director or Investor Designee is
intended to be a third-party beneficiary of the obligations of the Corporation
pursuant to this Section 9.6, and the obligations of the Corporation pursuant to
this Section 9.6 shall be enforceable by each Director.
9.7. Cooperation. Each Stockholder shall vote all of his
shares entitled to vote for members of the Board ("Voting Stock") and shall take
all other necessary or desirable actions within his or its control (including,
without limitation, attending all meetings in person or by proxy for purposes of
obtaining a quorum and executing all written consents in lieu of meetings, as
applicable), and the Corporation shall take all necessary and desirable actions
within its control (including, without limitation, calling special Board and
stockholder meetings), to effectuate the provisions of this Section 9.
9.8. Irrevocable Proxy. In order to secure each Stockholder's
obligation to vote his Voting Stock in accordance with the provisions of this
Section 9, each Stockholder hereby appoints GSCP as his true and lawful proxy
and attorney-in-fact, with full power of substitution, to vote all of his Voting
Stock of the Corporation for the election and/or removal of a member of the
Board under Sections 9.1(a) and 9.3(b) and to take all such other actions as are
necessary to enforce the rights of the Investors hereunder. GSCP may exercise
the irrevocable proxy granted to it hereunder at any time any Stockholder fails
to comply with any provision of Section 9 granting the Investors rights
thereunder. The proxies and powers granted by each Stockholder pursuant to this
Section 9.8 are coupled with an interest and are given to secure the performance
of the Stockholder's obligations to the Investors under Section 9. Such proxies
and powers will be effective until an IPO, at which time such proxies and powers
shall terminate, and such proxies and powers shall survive the death,
incompetency and disability of each Stockholder.
9.9. Non-Voting Observer. From and after the date hereof and
in addition to the rights of the Investors under this Agreement, GSCP shall be
entitled to have one observer (the "Investor Observer") selected by GSCP present
at all meetings of the Board and at all meetings of the compensation committee,
if any, of the Board, and each other committee of the Board, as well as the
boards of directors or other similar managing bodies (and any committee thereof)
of each of the subsidiaries of the Corporation, and such observer shall be
notified of any such meetings, including such
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meetings' time and place, in the same manner as the directors or members
thereof. The Investor Observer shall have the same access to information
concerning the business and operations of the Corporation and at the same time
as the directors of the Corporation or and its subsidiaries and the members of
the various committees thereof, including compensation committee, if any, of the
Board, as applicable, and shall be entitled to participate in discussions and
consult with, and make proposals and furnish advice to, the Board, the board of
directors of the subsidiaries of the Corporation, and the various committees
thereof, including the compensation committee, if any, of the Board, but shall
not have the right to vote.
9.10. Employment. The consent of at least 75% of the members
of the Corporation's Board shall be required to terminate the employment of any
Existing Stockholder with the Corporation with or without cause. For purposes of
this Agreement, "cause" shall mean an Existing Stockholder's gross negligence or
willful misconduct in connection with the performance of his duties, or the
commission of any felony involving moral turpitude or the property or affairs of
the Corporation. Except for the initial Existing Stockholders executing this
Agreement who shall continue to be employed by the Corporation until their
resignation or termination, nothing contained in this Agreement shall be
construed as an agreement to employ or continue the employment of any Existing
Stockholder, any transferee thereof, or any other person.
9.11. Disability. An Existing Stockholder will be deemed
disabled hereunder when (a) such Existing Stockholder is physically or mentally
unable to perform his duties as a full-time employee of the Corporation, in
substantially the same manner as previously performed, for a period of six
months, or (b) a doctor selected by the Corporation, at the Corporation's
expense, certifies that, in his reasonable medical opinion, due to such
disability the Existing Stockholder will not be able to perform such duties as
an employee of the Corporation for a period of six months.
9.12. Major Transactions. In addition to any other action
required to be taken by the Board, the Corporation shall not, and shall cause
its subsidiaries (if any) not to, directly or indirectly, take any of the
following actions without the prior approval of GSCP (except as otherwise
expressly permitted in this Agreement):
(a) except for any transaction or series of
transactions involving only wholly-owned subsidiaries of the Corporation as of
the date hereof, (i) consolidate or merge into or with any other Person, (ii)
enter into any other similar business combination transaction or (iii) effect
any transaction or series of transactions in which more than fifty percent (50%)
of the Voting Stock are transferred to another Person;
(b) voluntarily liquidate, dissolve or wind up;
(c) purchase, acquire or obtain any capital stock or
other proprietary interest, directly or indirectly, in any other entity, except
for (i) any
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transaction or series of transactions involving only wholly-owned subsidiaries
of the Corporation as of the date hereof, or (ii) the purchase of all or
substantially all of the capital stock or other proprietary interest of other
entities for an aggregate purchase price, including without limitation, any
liabilities of the acquired entities, of less than $2,000,000;
(d) purchase, acquire or obtain assets of any third
party in an aggregate amount (as to the Corporation and all of its subsidiaries)
, including without limitation, any liabilities of the acquired entities, in any
fiscal year in excess of $2,000,000;
(e) make or commit to make capital expenditures in
excess of the amount set forth in the annual budget;
(f) enter into or commit to enter into any joint
ventures or any partnerships, establish any non-wholly-owned subsidiaries or
form any joint venture;
(g) sell, lease, transfer or otherwise dispose of any
assets in an aggregate amount (as to the Corporation and all of its
subsidiaries) in any fiscal year in excess of $2,000,000;
(h) create, incur, assume or suffer to exist any
indebtedness for borrowed money (including any capital leases) in an aggregate
amount (as to the Corporation and all of its subsidiaries) in excess of
$2,000,000;
(i) appoint or remove any executive management, make
any change to the compensation or salary structure of any of the executive
management or purchase or let lapse any key man insurance policy;
(j) pay, or set aside any sums for the payment of,
any dividends, or make any distribution on, any shares of its capital stock or
redeem, repurchase or otherwise acquire any outstanding shares of its capital
stock or any other of its outstanding securities (other than indebtedness at
maturity in accordance with its terms);
(k) issue or sell any capital stock or other
securities except for (i) dividends or other distributions payable on the Common
Stock solely in the form of additional shares of Common Stock; (ii) in
connection with the issuance of Common Stock upon conversion of shares of Series
A Preferred Stock; and (iii) for the issuance of shares of Common Stock or the
issuance of options to purchase Common Stock approved by the Board to employees,
advisors, consultants or outside directors of the Corporation directly or
pursuant to an employee benefit plan of the Corporation; provided, however, the
total number of shares of Common Stock issued or issuable pursuant to employee
benefit plans (other than upon the exercise of employee stock options
outstanding as of the date hereof) shall not exceed 165,000 shares of Common
Stock.
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(l) change the Corporation's independent public
accountants;
(m) make any material change in any accounting policy
or tax method policies, procedures or elections;
(n) register any securities under the Securities Act,
including, without limitation, pursuant to an IPO;
(o) grant any registration rights;
(p) amend, modify or waive the Certificate of
Incorporation or the by-laws in any manner which adversely affects the rights of
any of the Investors thereunder, including, without limitation, any change in
the number of directors comprising the Board, or become a party to any agreement
which is inconsistent with the rights of any of the Investors under the
Documents or otherwise conflicts with the Documents;
(q) enter into any transaction (other than a
transaction with a GSCP Affiliate and except as expressly permitted by this
Agreement) with any "affiliate" or "associate" (as such terms are defined under
Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of any
Stockholder;
(r) adopt the capital spending or operating plan and
annual budget or any significant changes therein;
(s) any action to be taken by the Corporation in
connection with Section 8 hereof; or
(t) open or close new offices of the Corporation.
9.13. Contractual Management Rights. The Corporation and each
of the Stockholders acknowledge that the provisions of this Agreement, including
this Section 9, are intended, among other things, to provide GSCP with
"contractual management rights" within the meaning of the Employee Retirement
Income Security Act of 1974, as amended, and the regulations promulgated
thereunder.
SECTION 10. Certain Covenants.
10.1. Reservation of Common Stock. The Corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, a sufficient number of shares of Common Stock to permit
conversion of all outstanding shares of Series A Preferred Stock. All shares of
Common Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Corporation shall take all such actions as may be necessary to assure that
all such shares of Common Stock may be so issued
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without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which such shares may be
listed (except for official notice of issuance which shall be immediately
transmitted by the Corporation upon issuance).
10.2. Restrictive Covenant. In consideration of, and as an
inducement to, the Investors entering into this Agreement and the Purchase
Agreement and the benefits to be provided to the Existing Stockholders hereunder
and thereunder, each of the Existing Stockholders covenants and agrees for the
benefit of the Corporation and each of the Investors that, while he is employed
by the Corporation and for a period commencing on the date of this Agreement and
ending on the date that is two years after the termination (whether voluntary or
involuntary) or retirement of such Existing Stockholder as an employee of the
Corporation, such Existing Stockholder will not, within a radius of 500 miles
from a place of business of the Corporation, directly or indirectly own, manage,
operate, control, be employed by, consult for, participate in, or otherwise be
connected in any manner with the ownership, management, operation, or control of
any business which is then competitive with the business conducted by the
Corporation.
10.3 Required Sale of the Corporation. Following the fourth
anniversary of the date hereof, the Corporation shall, upon the request of the
Investors, if no IPO has occurred prior thereto, take such steps as are
reasonably requested by the Investors (including, without limitation, hiring an
investment banking firm, preparing offering material and making the
Corporation's officers available) to sell (a "Required Sale"), as expeditiously
as possible (whether by means of a sale of all of the outstanding stock of the
Corporation, merger or sale of substantially all of the assets of the
Corporation) the Corporation, including its subsidiaries, to a third party not
affiliated with the Investors, upon terms acceptable to the Investors. The
Existing Stockholders agree to vote all Voting Stock held by them, and to take
all other necessary action, to implement any Required Sale. Upon written notice
by the Investors of such election, the Existing Stockholders will include and
sell in the Required Sale the shares of Stock requested to be sold by the
Investors.
SECTION 11. Representations and Warranties Each party hereto
represents and warrants to the other parties hereto as follows:
(a) It has full power and authority to execute,
deliver and perform its obligations under this Agreement.
(b) This Agreement has been duly and validly
authorized, executed and delivered by it, and constitutes a valid and binding
obligation enforceable against it in accordance with its terms except to the
extent that enforceability may be
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limited by bankruptcy, insolvency or other similar laws affecting creditors'
rights generally.
(c) The execution, delivery and performance of this
Agreement by it does not (i) violate, conflict with, or constitute a breach of
or default under its organizational documents, if any, or any material agreement
or arrangement applicable to it or to which it is a party or by which it is
bound or (ii) violate any law, regulation, order, writ, judgment, injunction or
decree applicable to it.
(d) No consent or approval of, or filing with, any
governmental or regulatory body is required to be obtained or made by it in
connection with the transactions contemplated hereby.
(e) Schedule 11(e) hereto sets forth a list of all
securities of the Corporation (including, without limitation, shares of capital
stock, convertible securities, debentures, options, etc.) held of record or
otherwise owned by it as of the date hereof.
SECTION 12. Indemnification. Each Stockholder acknowledges
that it understands the meaning and legal consequences of the representations
and warranties contained herein, and it hereby agrees to indemnify and hold
harmless the Corporation and the other Stockholders from and against any and all
loss, damage or liability, including, without limitation, all costs and expenses
(including reasonable attorneys fees), due to or arising out of a breach of any
such representations or warranties. All representations, warranties and
covenants contained in this Agreement including, without limitation, the
indemnification contained in this Section 12 shall survive the termination of
this Agreement.
SECTION 13. Specific Performance; Injunction; Payment of
Costs. (a) The parties agree that it is impossible to determine the monetary
damages which would accrue to the Corporation or any Stockholder or his personal
representative by reason of the failure of any other Stockholder or the
Corporation to perform any of his or its obligations under this Agreement
requiring the performance of an act other than the payment of money only.
Therefore, if any party to this Agreement or his legal representative shall
institute an action or proceeding to enforce the provisions of this Agreement
against any Stockholder or the Corporation not performing such obligations, any
tribunal hearing such cause shall have the power to render an award directing
one or more parties hereto to specifically perform his or her obligations
hereunder in accordance with the terms and conditions of this Agreement.
(b) In the event of a breach or threatened breach by
a Stockholder of any of the provisions of this Agreement, the Corporation, and
the remaining Stockholders shall be entitled to an injunction restraining such
Stockholder from any such breach. The availability of these remedies shall not
prohibit the Corporation from
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pursuing any other remedies for such breach or threatened breach, including the
recovery of damages from the Stockholder.
SECTION 14. Failure to Deliver Stock. If any Stockholder or
his heirs, executors or personal representatives, as the case may be, who has
become obligated to sell Stock hereunder shall fail to deliver the certificates
representing such Stock in accordance with the terms of the Agreement, the
purchasers of such Stock may, at his or its option, in addition to all other
remedies he or it may have, cause the Corporation, upon notice to the Selling
Stockholder, (a) to cancel on its books the certificate or certificates
representing the Stock to be sold, (b) to issue, in lieu thereof, a new stock
certificate registered in the name of the purchaser(s) representing such Stock
and (c) to deliver such new certificate to the purchasers. Thereafter, the
Selling Stockholder shall not be entitled to receive any installment of the
purchase price, and the purchaser(s) shall not be required to make any such
payments, until the Selling Stockholder shall have delivered to the purchaser(s)
the original certificates representing all of the Stock being sold, together
with a stock power duly endorsed in blank relating to such Stock. If the Selling
Stockholder shall be unable to furnish any original certificate because it has
been lost, misplaced, destroyed or otherwise cannot be delivered, then the
Selling Stockholder shall promptly comply with the appropriate procedures
(including indemnification by the Selling Stockholder) reasonably specified by
the Corporation with respect to lost certificates in order to satisfy the
certificate delivery requirement hereunder.
SECTION 15. Non-Disclosure. Each Existing Stockholder
acknowledges that the Corporation's clients and customers are a valuable,
special and unique asset of the Corporation's business. No Stockholder will,
during or after the term of his employment with the Corporation, if applicable,
disclose the list of the Corporation's clients and customers or any part thereof
to any person, firm, corporation, association, or other entity for any reason or
purpose whatsoever except (a) as required in performance of such Stockholder's
duties on behalf of the Corporation, (b) as required by applicable law, or (c)
other than to affiliates of the Investors or potential investors in the
Corporation.
SECTION 16. No Inconsistent Agreements. No party hereunder
shall take any action or enter into any agreement which is inconsistent with the
rights of any party hereunder or otherwise conflicts with the provisions hereof.
SECTION 17. Further Assurances. (a) At any time or from time
to time after the date hereof, the parties agree to cooperate with each other,
and at the request of any other party, to execute and deliver any further
instruments or documents and to take all such further action as the other party
may reasonably request in order to evidence or effectuate the consummation of
the transactions contemplated hereby and to otherwise carry out the intent of
the parties hereunder.
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(b) At any time or from time to time after the date
hereof, the parties agree to take all action including, without limitation,
voting to approve any amendment to the Certificate of Incorporation, required to
increase the authorized number of shares of Common Stock if necessary to permit
the conversion of all outstanding shares of Series A Preferred Stock.
SECTION 18. Duration of Agreement. The provisions of Section
3(a), 3(b), 4, 5, 6, 7, 9.1(a), 9.7, 9.8, 9.10, 9.11, 9.12, and 10.3 shall
terminate upon an IPO. In addition, this Agreement shall be effective as of the
date hereof and shall terminate upon the occurrence of any of the following
events (provided, however, that (a) the agreements contained in Sections 10.2
and 3(c) shall survive until by their terms they are no longer operative and (b)
the provisions of Section 8 shall terminate upon an IPO that raises gross
proceeds of not less than $10,000,000):
(i) as to any Stockholder, upon such time as
such Stockholder ceases to own any stock;
(ii) the merger or consolidation of the
Corporation into or with any other corporation or other entity except for such a
merger or consolidation after consummation of which the Stockholders prior to
such merger or consolidation will beneficially own more than 50% of capital
stock of the surviving or resulting entity; or
(iii) the written agreement of the
Corporation and the Stockholders to that effect.
SECTION 19. Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid,
but if any provision of this Agreement is held to be invalid or unenforceable in
any respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
SECTION 20. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
giving effect to the principles of conflicts of law. Each of the parties hereto
hereby irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of New York and of the United States of
America, in each case located in the County of New York, for any action,
proceeding or investigation in any court or before any governmental authority
("Litigation") arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any Litigation relating thereto
except in such courts), and further agrees that service of any process, summons,
notice or document by U.S. registered mail to its respective address set forth
in this Agreement, or such other address as may be given by one or more parties
to the other parties in accordance with the notice provisions of Section 22,
shall be effective service of process for any Litigation brought against it in
any such court. Each of the parties
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hereto hereby irrevocably and unconditionally waives any objection to the laying
of venue of any Litigation arising out of this Agreement or the transactions
contemplated hereby in the courts of the State of New York or the United States
of America, in each case located in the County of New York, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such Litigation brought in any such court has been brought
in an inconvenient forum.
SECTION 21. Successors and Assigns; Proxy. (a) This Agreement
shall inure to the benefit of and shall be binding upon the parties hereto and
their respective successors, assigns, heirs and personal representatives. Except
pursuant to a Sale of Stock permitted by Section 3 or required by Section 8, no
Stockholder shall have the right to assign its rights and obligations under this
Agreement without the consent of the other Stockholders. The parties acknowledge
that, subject to compliance with applicable securities laws, each of the
Investors may transfer and assign all or a part of its rights and obligations
under this Agreement to one or more other partnerships, corporations, trusts or
other organizations which are controlled by, control or are under common control
with such Investor or one or more of the then current, former or future partners
of such Investor (the "GSCP Affiliates"), without the consent of the Corporation
or any other Stockholder. Upon any such assignment, the assignee shall have and
be able to exercise all rights of the assigning Stockholder.
(b) The GSCP Parties hereby irrevocably appoint GSCP
to act as proxy to vote all shares of Series A Preferred Stock held by the GSCP
Parties with respect to any matter referenced in Section 10 of the Certificate
of Designations with respect to Section 9.12 of this Agreement.
SECTION 22. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or by telecopy (with a
confirmatory copy sent by a different means within three business days of such
notice), nationally-recognized overnight courier or first class registered or
certified mail, return receipt requested, postage prepaid, addressed to such
party at the address set forth below or such other address as may hereafter be
designated in writing by such party to the other parties:
(i) if to the Corporation, to:
Transaction Information Systems, Inc.
115 Broadway, 20th Floor
New York, NY 10006
Telecopy: (212) 962-7175
Attention: Jeffrey Najarian
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<PAGE> 107
with a copy to:
Esanu Katsky Korins & Siger, LLP
605 Third Avenue, 16th Floor
New York, NY 10158
Telecopy: (212) 953-6899
Attention: Roy M. Korins, Esq.
(ii) if to the Existing Stockholders, to the
addresses listed in Schedule 1 hereto,
with a copy to:
Esanu Katsky Korins & Siger, LLP
605 Third Avenue, 16th Floor
New York, NY 10158
Telecopy: (212) 953-6899
Attention: Roy M. Korins, Esq.
(iii) if to the Investors, to:
GS Capital Partners III, L.P.
85 Broad Street
New York, New York 10004
Telecopy: (212) 902-3000
Attention: Randall Blumenthal
with copies to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopy: (212) 859-8586
Attention: Paul M. Reinstein, Esq.
and
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<PAGE> 108
GS Capital Partners III, L.P.
85 Broad Street
New York, New York 10004
Telecopy: (212) 357-5505
Attention: Ben Adler, Esq.
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
SECTION 23. Amendments. The terms and provisions of this
Agreement may be modified or amended, or any of the provisions hereof waived,
temporarily or permanently, pursuant to the written consent of the Corporation,
GSCP and the Agent of the Existing Stockholders (as defined in the Purchase
Agreement).
SECTION 24. Headings. The headings of the Sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
SECTION 25. Nouns and Pronouns. Whenever the context requires,
any pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
SECTION 26. Entire Agreement. This Agreement and the other
writings referred to herein or delivered pursuant hereto which form a part
hereof contain the entire agreement among the parties hereto with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements and
understandings with respect thereto.
SECTION 27. Counterparts. This Agreement may be executed in
any number of counterparts, and each such counterpart shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
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<PAGE> 109
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement as of the date first above written.
CORPORATION:
TRANSACTION INFORMATION SYSTEMS, INC.
By:
------------------------------------------
Name:
Title:
INVESTORS:
GS CAPITAL PARTNERS III, L.P.
By: GS Advisors III, L.P., its general
partner
By: GS Advisors III, L.L.C., its
general partner
By:
----------------------------------
Authorized Signatory
GS CAPITAL PARTNERS III OFFSHORE, L.P.
By: GS Advisors III (Cayman), L.P., its
General Partner
By: GS Advisors III, L.L.C., its
General Partner
By:
------------------------------------
Authorized Signatory
<PAGE> 110
GOLDMAN, SACHS & CO. VERWALTUNGS GmbH
By:
------------------------------------------
Managing Director
and
By:
------------------------------------------
Managing Director
or
Registered Agent
STONE STREET FUND 1998, L.P.
By: Stone Street Advantage Corp.
General Partner
By:
--------------------------------------
BRIDGE STREET FUND 1998, L.P.
By: Stone Street Advantage Corp.
Managing General Partner
By:
--------------------------------------
<PAGE> 111
EXISTING STOCKHOLDERS:
-----------------------------------
MARK ARZOOMANIAN
-----------------------------------
PAUL BAYSE
-----------------------------------
PETER BONJUKLIAN
-----------------------------------
ARTHUR FARKAS
-----------------------------------
MITCHELL FASS
-----------------------------------
ROBERT GOLD
-----------------------------------
PETER MELOMO
-----------------------------------
JEFFREY NAJARIAN
-----------------------------------
GEORGE SETFORD
-----------------------------------
EDWARD SHAW
-----------------------------------
JONATHAN TODER
<PAGE> 112
SCHEDULE I
EXISTING STOCKHOLDERS
Name and Address of Stockholders
<TABLE>
<CAPTION>
<S> <C>
Mark Arzoomanian Peter Melomo
52 Alpine Drive 2205 Maple Avenue
Closter, New Jersey 07624 Cortlandt Manor, New York 10566
Facsimile: Facsimile:
Paul Bayse Jeffrey Najarian
446 Stuyvesant 7 Oakwood Court
Rutherford, New Jersey 07070 Holmdel, New Jersey 07733
Facsimile: Facsimile:
Peter Bonjuklian George Setford
25 Column Court 110 Catalpa Avenue
Ramsey, New Jersey 07446 Hackensack, New Jersey 07601
Facsimile: Facsimile:
Arthur Farkas Edward Shaw
63 Sutton Drive 60 Furnace Woods Road
Manalapan, New Jersey 07726 Cortlandt Manor, New York 10566
Facsimile: Facsimile:
Mitchell Fass Jonathan Toder
89 King Street 31 Whitlaw Close
Edison, New Jersey 08820 Chappaqua, New York 10514
Facsimile: Facsimile:
Robert Gold
11 Candeub Court
Manalapan, New Jersey 07726
Facsimile:
</TABLE>
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<PAGE> 113
Exhibit E
REGISTRATION RIGHTS AGREEMENT
by and among
TRANSACTION INFORMATION SYSTEMS, INC.,
GS CAPITAL PARTNERS III, L.P.,
and
THE STOCKHOLDERS OF
TRANSACTION INFORMATION SYSTEMS, INC.
Dated as of September 4, 1998
<PAGE> 114
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made as of
September 4, 1998, by and among TRANSACTION INFORMATION SYSTEMS, INC., a
corporation formed under the Laws of the State of Delaware (the "Company"), GS
CAPITAL PARTNERS III, L.P., a Delaware limited partnership ("GSCP"), GS CAPITAL
PARTNERS III OFFSHORE, L.P. ("GSCP Offshore"), GOLDMAN, SACHS & CO. VERWALTUNGS
GMBH ("GS Germany"), STONE STREET FUND 1998, L.P. ("Stone 1998"), BRIDGE STREET
FUND 1998, L.P. ("Bridge 1998," collectively with GSCP, GSCP Offshore, GSCP
Germany, Stone 1998 and Bridge 1998, the "GSCP Parties") and each of the
stockholders of the Company executing one of the signature pages attached hereto
(the "Existing Stockholders").
WHEREAS, as of the date hereof, the Company, the GSCP Parties and the
Existing Stockholders are entering into a Preferred Stock Purchase Agreement
(the "Purchase Agreement"), pursuant to which, among other things, the GSCP
Parties are purchasing shares of Series A Convertible Preferred Stock, par value
$.01 per share ("Series A Preferred Stock"), of the Company, which Series A
Preferred Stock is convertible into shares of Common Stock (as defined below);
WHEREAS, as of the date hereof, the Company, the GSCP Parties, and each
of the Existing Stockholders are entering into a Stockholders' Agreement (the
"Stockholders' Agreement"), pursuant to which, among other things, upon the
occurrence of certain events, the GSCP Parties and the Existing Stockholders
will have the right to purchase shares of Common Stock and Common Stock
Equivalents (as defined below); and
WHEREAS, in connection with (i) the Company, the GSCP Parties and the
Existing Stockholders entering into the Purchase Agreement, and (ii) the
Company, the GSCP Parties and the Existing Stockholders entering into the
Stockholders' Agreement, the Company has agreed to provide the registration
rights set forth in this Agreement.
ACCORDINGLY, the parties hereto agree as follows:
1. Certain Definitions.
As used in this Agreement, the following terms shall have the meanings
ascribed to them below:
"Affiliate" means (i) with respect to any Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person or (ii) with respect to any
individual, shall also mean the spouse or
<PAGE> 115
child of such individual; provided, that neither the Company nor any Person
controlled by the Company shall be deemed to be an Affiliate of any Holder.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company, as amended.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company and any equity securities issued or issuable with respect to the Common
Stock in connection with a reclassification, recapitalization, merger,
consolidation or other reorganization.
"Common Stock Equivalents" means any securities convertible into, or
exercisable or exchangeable for, shares of Common Stock.
"Holder" or "Holders" means any party who is a signatory to this
Agreement and any party who shall hereafter acquire and hold Registrable
Securities.
"IPO" means the initial underwritten offering pursuant to which the
Common Stock becomes registered under Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
"Major Holder" means with respect to any registration the Holder that,
together with its Affiliates, includes the largest number of Registrable
Securities in such registration.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivisions thereof.
"Registrable Securities" means any (a) shares of Common Stock held by
the Existing Stockholders after the expiration of two and one-half years from
the date hereof; it being agreed that the Existing Stockholders shall have no
Registrable Securities and no rights under this Agreement until the expiration
of such two and one-half year period; (b) shares of Common Stock held by the
GSCP Parties; and (c) any shares of Common Stock issued or issuable, directly or
indirectly, with respect to the Common Stock referenced in clause (a) or (b)
above by way of stock dividend, stock split or combination of shares. As to any
particular Registrable Securities, such securities shall cease to be Registrable
Securities when (A) a registration statement with respect to the sale of such
securities shall have been declared effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, or (B) such securities shall have been sold (other than in a
privately negotiated sale) pursuant to Rule 144 (or any successor provision)
under the Securities Act and in compliance with the requirements of paragraphs
(f) and (g) of Rule 144 (notwithstanding the provisions of paragraph (k) of such
Rule).
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"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
2. Registration Rights.
2.1. Demand Registrations.
(a) (i) Subject to Sections 2.1(b) and 2.3 below, (x) at any
time and from time to time after the earlier of (A) the closing of an IPO and
(B) the expiration of four years from the date hereof, any GSCP Party shall
have, and (y) at any time and from time to time after the closing of an IPO, any
Existing Stockholder which is then the owner of Registrable Securities shall
have, the right to require the Company to file a registration statement under
the Securities Act covering all or any part of their respective Registrable
Securities, by delivering a written request therefor to the Company specifying
the number of Registrable Securities to be included in such registration by such
Holder(s) and the intended method of distribution thereof. All such requests by
any Holder pursuant to this Section 2.1(a)(i) are referred to herein as "Demand
Registration Requests," and the registrations so requested are referred to
herein as "Demand Registrations" (with respect to any Demand Registration, the
Holder(s) making such demand for registration being referred to as the
"Initiating Holder"). As promptly as practicable, but no later than ten days
after receipt of a Demand Registration Request, the Company shall give written
notice (the "Demand Exercise Notice") of such Demand Registration Request to all
Holders of record of Registrable Securities.
(ii) The Company, subject to Sections 2.3 and 2.6, shall
include in a Demand Registration (x) the Registrable Securities of the
Initiating Holder and (y) the Registrable Securities of any other Holder which
shall have made a written request to the Company for inclusion in such
registration (which request shall specify the maximum number of Registrable
Securities intended to be disposed of by such Holder) within 30 days after the
receipt of the Demand Exercise Notice (or, 15 days if, at the request of the
Initiating Holder or the Major Holder participating in such registration, the
Company states in such written notice or gives telephonic notice to all
Holders, with written confirmation to follow promptly thereafter, that such
registration will be on a Form S-3).
(iii) The Company shall, as expeditiously as possible,
use its best efforts to (x) effect such registration under the Securities Act
(including, without limitation, by means of a shelf registration pursuant to
Rule 415 under the Securities Act if so requested and if the Company is then
eligible to use such a registration) of the Registrable Securities which the
Company has been so requested to register, for distribution in accordance with
such intended method of distribution, and (y) if requested by the Initiating
Holder or the Major Holder participating in such registration, obtain
acceleration of the effective date of the registration statement relating to
such registration.
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(b) The Demand Registration rights granted in Section 2.1(a)
to the Holders are subject to the following limitations: (i) with respect to any
registration in respect of a Demand Registration Request initiated by an
Existing Stockholder, such registration statement must include shares of Common
Stock held by the Existing Stockholders representing, in the aggregate (based on
the Common Stock included in such registration by all Existing Stockholders
participating in such registration), in excess of 40% of the sum of (x) the
amount of shares of Common Stock held, in the aggregate, by the Existing
Stockholders on the date hereof plus (y) the amount of shares of Common Stock
obtainable upon the conversion of Common Stock Equivalents held, in the
aggregate, by the Existing Stockholders on the date hereof; (ii) with respect to
any registration in respect of a Demand Registration Request initiated by a
transferee of any GSCP Party (other than another GSCP Party), such registration
statement must include shares of Common Stock representing, in the aggregate
(based on the Common Stock included in such registration by all GSCP Parties
participating in such registration), in excess of 20% of the sum of (x) the
amount of shares of Registrable Securities held, in the aggregate, by the GSCP
Parties and their transferees immediately prior to such registration plus (y)
the amount of shares of Common Stock obtainable upon the conversion of Common
Stock Equivalents held, in the aggregate, by the GSCP Parties and their
transferees immediately prior to such registration; (iii) the Company shall not
be required to cause a registration pursuant to Section 2.1(a)(i) to be declared
effective within a period of 180 days after the effective date of any
registration statement of the Company effected in connection with a Demand
Registration Request; and (iv) if the Board of Directors of the Company, in its
good faith judgment, determines that any registration of Registrable Securities
should not be made or continued because it would materially interfere with any
material financing, acquisition, corporate reorganization or merger or other
transaction involving the Company or any of its subsidiaries (a "Valid Business
Reason"), (x) the Company may postpone filing a registration statement relating
to a Demand Registration Request until such Valid Business Reason no longer
exists, but in no event for more than three months, and (y) in case a
registration statement has been filed relating to a Demand Registration Request,
if the Valid Business Reason has not resulted from actions taken by the Company,
the Company may cause such registration statement to be withdrawn and its
effectiveness terminated or may postpone amending or supplementing such
registration statement until such Valid Business Reason no longer exists, but in
no event for more than four months (such period of postponement or withdrawal
under subclauses (x) or (y) of this clause (iv), the "Postponement Period"); and
the Company shall give written notice of its determination to postpone or
withdraw a registration statement and of the fact that the Valid Business Reason
for such postponement or withdrawal no longer exists, in each case, promptly
after the occurrence thereof; provided, however, the Company shall not be
permitted to postpone or withdraw a registration statement after the expiration
of any Postponement Period until twelve months after the expiration of such
Postponement Period without the prior written approval of GSCP.
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If the Company shall give any notice of postponement or
withdrawal of any registration statement, the Company shall not, during the
period of postponement or withdrawal, register any Common Stock, other than
pursuant to a registration statement on Form S-4 or S-8 (or an equivalent
registration form then in effect). Each Holder of Registrable Securities agrees
that, upon receipt of any notice from the Company that the Company has
determined to withdraw any registration statement pursuant to clause (iv) above,
such Holder will discontinue its disposition of Registrable Securities pursuant
to such registration statement and, if so directed by the Company, will deliver
to the Company (at the Company's expense) all copies, other than permanent file
copies, then in such Holder's possession of the prospectus covering such
Registrable Securities that was in effect at the time of receipt of such notice.
If the Company shall have withdrawn or prematurely terminated a registration
statement filed under Section 2.1(a)(i) (whether pursuant to clause (iv) above
or as a result of any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court), the Company shall not be
considered to have effected an effective registration for the purposes of this
Agreement until the Company shall have filed a new registration statement
covering the Registrable Securities covered by the withdrawn registration
statement and such registration statement shall have been declared effective and
shall not have been withdrawn. If the Company shall give any notice of
withdrawal or postponement of a registration statement, the Company shall, at
such time as the Valid Business Reason that caused such withdrawal or
postponement no longer exists (but in no event later than three months after the
date of the postponement or withdrawal), use its best efforts to effect the
registration under the Securities Act of the Registrable Securities covered by
the withdrawn or postponed registration statement in accordance with this
Section 2.1 (unless the Initiating Holder shall have withdrawn such request, in
which case the Company shall not be considered to have effected an effective
registration for the purposes of this Agreement).
(c) The Company, subject to Sections 2.3 and 2.6, may elect to
include in any registration statement and offering made pursuant to Section
2.1(a)(i), (i) authorized but unissued shares of Common Stock or shares of
Common Stock held by the Company as treasury shares and (ii) any other shares of
Common Stock which are requested to be included in such registration pursuant to
the exercise of piggyback rights granted by the Company after the date hereof in
accordance with the terms of the Stockholders' Agreement which are not
inconsistent with the rights granted in, or otherwise conflict with the terms
of, this Agreement ("Additional Piggyback Rights") provided, however, that such
inclusion shall be permitted only to the extent that it is pursuant to and
subject to the terms of the underwriting agreement or arrangements, if any,
entered into by the Initiating Holder.
(d) In connection with any Demand Registration, the Major
Holder participating in such registration shall have the right to designate, (i)
if Goldman, Sachs & Co. or one of its Affiliates (such Person, "GS & Co.") is
not retained by the Company to
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serve as the lead managing underwriter in connection with such registration, the
lead managing underwriter for such registration and (ii) each other managing
underwriter for such registration, provided that each such other managing
underwriter is reasonably satisfactory to the Company.
2.2. Piggyback Registrations.
(a) If, at any time, the Company proposes or is required to
register any of its equity securities under the Securities Act (other than
pursuant to (i) registrations on such form or similar form(s) solely for
registration of securities in connection with an employee benefit plan or
dividend reinvestment plan or a merger or consolidation or (ii) a Demand
Registration under Section 2.1) on a registration statement on Form S-1, Form
S-2 or Form S-3 (or an equivalent general registration form then in effect),
whether or not for its own account, the Company shall give prompt written notice
of its intention to do so to each of the Holders of record of Registrable
Securities. Upon the written request of any such Holder, made within 20 days
following the receipt of any such written notice (which request shall specify
the maximum number of Registrable Securities intended to be disposed of by such
Holder and the intended method of distribution thereof), the Company shall,
subject to Sections 2.2(b), 2.3 and 2.6 hereof, use its best efforts to cause
all such Registrable Securities, the Holders of which have so requested the
registration thereof, to be registered under the Securities Act (with the
securities which the Company at the time proposes to register) to permit the
sale or other disposition by the Holders (in accordance with the intended method
of distribution thereof) of the Registrable Securities to be so registered.
There is no limitation on the number of such piggyback registrations pursuant to
the preceding sentence which the Company is obligated to effect. No registration
effected under this Section 2.2(a) shall relieve the Company of its obligations
to effect Demand Registrations.
(b) If, at any time after giving written notice of its
intention to register any equity securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay registration
of such equity securities, the Company may, at its election, give written notice
of such determination to all Holders of record of Registrable Securities and (i)
in the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such
abandoned registration, without prejudice, however, to the rights of Holders
under Section 2.1, and (ii) in the case of a determination to delay such
registration of its equity securities, shall be permitted to delay the
registration of such Registrable Securities for the same period as the delay in
registering such other equity securities.
(c) Any Holder shall have the right to withdraw its request
for inclusion of its Registrable Securities in any registration statement
pursuant to this Section 2.2 by giving written notice to the Company of its
request to withdraw; provided, however, that
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(i) such request must be made in writing prior to the earlier of the execution
of the underwriting agreement or the execution of the custody agreement with
respect to such registration and (ii) such withdrawal shall be irrevocable and,
after making such withdrawal, a Holder shall no longer have any right to include
Registrable Securities in the registration as to which such withdrawal was made.
2.3. Allocation of Securities Included in Registration Statement.
(a) If any requested registration pursuant to Section 2.1
involves an underwritten offering and the lead managing underwriter of such
offering (the "Manager") shall advise the Company that, in its view, the number
of securities requested to be included in such registration by the Holders or
any other persons (including those shares of Common Stock requested by the
Company to be included in such registration) exceeds the largest number (the
"Section 2.1 Sale Number") that can be sold in an orderly manner in such
offering within a price range acceptable to the Initiating Holder, the Company
shall include in such registration:
(i) all Registrable Securities requested to be included
in such registration by Holders of Registrable Securities; provided, however,
that, if the number of such Registrable Securities exceeds the Section 2.1 Sale
Number, the number of such Registrable Securities (not to exceed the Section
2.1 Sale Number) to be included in such registration shall be allocated as
follows: (x) in the event an IPO has not occurred prior to the fourth
anniversary of the date hereof, in the case of a requested registration
pursuant to Section 2.1 occurring after such fourth anniversary, (A) first to
the GSCP Parties up to that number (not to exceed the number of shares
requested to be included by the GSCP Parties in such requested registration) of
Registrable Securities (the "Priority Number") which, based upon the midpoint
of the filing range for the registration and the estimated underwriting
discount for the registration, is expected to yield an amount of net proceeds
to the GSCP Parties that, when added to the proceeds of any prior sale or
transfer by the GSCP Parties of any of the Series A Preferred Stock, or of any
Common Stock obtainable upon the conversion of the Series A Preferred Stock, to
any third party who is not an Affiliate of any of the GSCP Parties, if any,
will aggregate an amount equal to $50,000,000, and (B) thereafter on a pro rata
basis among all Holders (including the GSCP Parties) requesting that
Registrable Securities be included in such registration, based on the number of
Registrable Securities then owned by each Holder requesting inclusion in
relation to the number of Registrable Securities owned by all Holders
requesting inclusion; provided, however, that such ratio will be calculated
after giving effect to the sale of Registrable Securities by the GSCP Parties
pursuant to clause (A) of this Section 2.3(a)(i)(x); and (y) in all other
cases, on a pro rata basis among all Holders requesting that Registrable
Securities be included in such registration, based on the number of Registrable
Securities then owned by each Holder requesting inclusion in relation to the
number of Registrable Securities owned by all Holders requesting inclusion;
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(ii) to the extent that the number of Registrable
Securities to be included by all Holders pursuant to clause (i) of this Section
2.3(a) is less than the Section 2.1 Sale Number, securities that the Company
proposes to register; and
(iii) to the extent that the number of Registrable
Securities to be included by all Holders and the number of securities to be
included by the Company is less than the Section 2.1 Sale Number, any other
securities that the holders thereof propose to register pursuant to the exercise
of Additional Piggyback Rights.
If, as a result of the proration provisions of this Section
2.3(a), any Holder shall not be entitled to include all Registrable Securities
in a registration that such Holder has requested be included, such Holder may
elect to withdraw his request to include Registrable Securities in such
registration or may reduce the number requested to be included; provided,
however, that (x) such request must be made in writing prior to the earlier of
the execution of the underwriting agreement or the execution of the custody
agreement with respect to such registration and (y) such withdrawal shall be
irrevocable and, after making such withdrawal, a Holder shall no longer have any
right to include Registrable Securities in the registration as to which such
withdrawal was made.
(b) If any registration pursuant to Section 2.2 involves an
underwritten offering and the Manager shall advise the Company that, in its
view, the number of securities requested to be included in such registration
exceeds the number (the "Section 2.2 Sale Number") that can be sold in an
orderly manner in such registration within a price range acceptable to the
Company, the Company shall include in such registration:
(i) all Common Stock or securities convertible into,
or exchangeable or exercisable for, Common Stock that the Company proposes to
register for its own account (the "Company Securities");
(ii) to the extent that the number of Company
Securities is less than the Section 2.2 Sale Number, the remaining shares to be
included in such registration shall be allocated as follows: (x) in the event an
IPO has not occurred prior to the fourth anniversary of the date hereof, in the
case of a requested registration pursuant to Section 2.2 occurring after such
fourth anniversary, (A) the Registrable Securities that the GSCP Parties propose
to register up to the lesser of (I) the Priority Number, or (II) the difference
between the Section 2.2 Sale Number and the number of Company Securities; and
(B) to the extent the Section 2.2 Sale Number exceeds the number of Company
Securities plus the Priority Number, all Registrable Securities requested to be
included by all Holders (including the GSCP Parties) on a pro rata basis among
all Holders requesting that Registrable Securities be included in such
registration, based on the number of Registrable Securities owned by each Holder
requesting inclusion in relation to the number of Registrable Securities then
owned by
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all Holders requesting inclusion; provided, however, that such ratio will be
calculated after giving effect to the sale of Registrable Securities by the GSCP
Parties pursuant to clause (A) of this Section 2.3(b)(ii)(x); and (y) in all
other cases, on a pro rata basis among all Holders of Registrable Securities
requesting that Registrable Securities be included in such registration, based
on the number of Registrable Securities then owned by each Holder requesting
inclusion in relation to the number of Registrable Securities owned by all
Holders requesting inclusion; and
(iii) to the extent the number of Company Securities
plus the number of Registrable Securities requested to be included by all
Holders is less than the Section 2.2 Sale Number, any other securities that the
holders thereof propose to register pursuant to the exercise of Additional
Piggyback Rights.
2.4. Registration Procedures. If and whenever the Company is required
by the provisions of this Agreement to use its best efforts to effect or cause
the registration of any Registrable Securities under the Securities Act as
provided in this Agreement, the Company shall, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement on
an appropriate registration form of the SEC for the disposition of such
Registrable Securities in accordance with the intended method of disposition
thereof, which form (i) shall be selected by the Company and (ii) shall, in the
case of a shelf registration, be available for the sale of the Registrable
Securities by the selling Holders thereof and such registration statement shall
comply as to form in all material respects with the requirements of the
applicable form and include all financial statements required by the SEC to be
filed therewith, and the Company shall use its best efforts to cause such
registration statement to become and remain effective (provided, however, that
before filing a registration statement or prospectus or any amendments or
supplements thereto, or comparable statements under securities or blue sky laws
of any jurisdiction, the Company will furnish to one counsel for the Holders
participating in the planned offering (selected by the Initiating Holder, in the
case of a registration pursuant to Section 2.1, and selected by the Major
Holder, in the case of a registration pursuant to Section 2.2) and the
underwriters, if any, copies of all such documents proposed to be filed
(including all exhibits thereto), which documents will be subject to the
reasonable review and reasonable comment of such counsel, and the Company shall
not file any registration statement or amendment thereto or any prospectus or
supplement thereto to which the Holders of a majority of the Registrable
Securities covered by such registration statement or the underwriters, if any,
shall reasonably object in writing);
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
such period (which shall not be required to exceed 180 days in the case of a
registration pursuant to Section 2.1 or 120
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days in the case of a registration pursuant to Section 2.2) as any seller of
Registrable Securities pursuant to such registration statement shall request and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all Registrable Securities covered by such registration
statement in accordance with the intended methods of disposition by the seller
or sellers thereof set forth in such registration statement;
(c) furnish, without charge, to each seller of such
Registrable Securities and each underwriter, if any, of the securities covered
by such registration statement such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits), and the prospectus included in such registration statement (including
each preliminary prospectus) in conformity with the requirements of the
Securities Act, and other documents, as such seller and underwriter may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Securities owned by such seller (the Company hereby
consenting to the use in accordance with all applicable law of each such
registration statement (or amendment or post-effective amendment thereto) and
each such prospectus (or preliminary prospectus or supplement thereto) by each
such seller of Registrable Securities and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such registration statement or prospectus);
(d) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under such other
securities or "blue sky" laws of such jurisdictions as any sellers of
Registrable Securities or any managing underwriter, if any, shall reasonably
request, and do any and all other acts and things which may be reasonably
necessary or advisable to enable such sellers or underwriter, if any, to
consummate the disposition of the Registrable Securities in such jurisdictions,
except that in no event shall the Company be required to qualify to do business
as a foreign corporation in any jurisdiction where it would not, but for the
requirements of this paragraph (d), be required to be so qualified, to subject
itself to taxation in any such jurisdiction or to consent to general service of
process in any such jurisdiction;
(e) promptly notify each Holder selling Registrable Securities
covered by such registration statement and each managing underwriter, if any:
(i) when the registration statement, any pre-effective amendment, the prospectus
or any prospectus supplement related thereto or post-effective amendment to the
registration statement has been filed and, with respect to the registration
statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC or state securities authority for amendments or
supplements to the registration statement or the prospectus related thereto or
for additional information; (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement or the initiation of
any proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable
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Securities for sale under the securities or blue sky laws of any jurisdiction or
the initiation of any proceeding for such purpose; (v) of the existence of any
fact of which the Company becomes aware which results in the registration
statement, the prospectus related thereto or any document incorporated therein
by reference containing an untrue statement of a material fact or omitting to
state a material fact required to be stated therein or necessary to make any
statement therein not misleading; and (vi) if at any time the representations
and warranties contemplated by any underwriting agreement, securities sale
agreement, or other similar agreement, relating to the offering shall cease to
be true and correct in all material respects; and, if the notification relates
to an event described in clause (v), the Company shall promptly prepare and
furnish to each such seller and each underwriter, if any, a reasonable number of
copies of a prospectus supplemented or amended so that, as thereafter delivered
to the purchasers of such Registrable Securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein in the
light of the circumstances under which they were made not misleading;
(f) comply with all applicable rules and regulations of the
SEC, and make generally available to its security holders, as soon as reasonably
practicable after the effective date of the registration statement (and in any
event within 17 months thereafter), an earnings statement (which need not be
audited) covering the period of at least twelve consecutive months beginning
with the first day of the Company's first calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(g) (i) cause all such Registrable Securities covered by such
registration statement to be listed on the principal securities exchange on
which similar securities issued by the Company are then listed (if any), if the
listing of such Registrable Securities is then permitted under the rules of such
exchange, or (ii) if no similar securities are then so listed, to either cause
all such Registrable Securities to be listed on a national securities exchange
or to secure designation of all such Registrable Securities as a Nasdaq National
Market "national market system security" within the meaning of Rule 11Aa2-1 of
the Exchange Act or, failing that, secure Nasdaq National Market authorization
for such shares and, without limiting the generality of the foregoing, take all
actions that may be required by the Company as the issuer of such Registrable
Securities in order to facilitate the managing underwriter's arranging for the
registration of at least two market makers as such with respect to such shares
with the National Association of Securities Dealers, Inc. (the "NASD");
(h) provide and cause to be maintained a transfer agent and
registrar for all such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement;
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(i) enter into such customary agreements (including, if
applicable, an underwriting agreement) and take such other actions as the
Holders of a majority of the Registrable Securities or the Major Holder
participating in such offering shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities. The Holders of the
Registrable Securities which are to be distributed by such underwriters shall be
parties to such underwriting agreement and may, at their option, require that
the Company make to and for the benefit of such Holders the representations,
warranties and covenants of the Company which are being made to and for the
benefit of such underwriters and which are of the type customarily provided to
institutional investors in secondary offerings;
(j) use its best efforts to obtain an opinion from the
Company's counsel and a "cold comfort" letter from the Company's independent
public accountants in customary form and covering such matters as are
customarily covered by such opinions and "cold comfort" letters delivered to
underwriters in underwritten public offerings, which opinion and letter shall be
reasonably satisfactory to the underwriter, if any, and to the Major Holder
participating in such offering, and furnish to each Holder participating in the
offering and to each underwriter, if any, a copy of such opinion and letter
addressed to such Holder or underwriter;
(k) deliver promptly to each Holder participating in the
offering and each underwriter, if any, copies of all correspondence between the
SEC and the Company, its counsel or auditors and all memoranda relating to
discussions with the SEC or its staff with respect to the registration
statement, other than those portions of any such memoranda which contain
information subject to attorney-client privilege with respect to the Company,
and, upon receipt of such confidentiality agreements as the Company may
reasonably request, make reasonably available for inspection by any seller of
such Registrable Securities covered by such registration statement, by any
underwriter, if any, participating in any disposition to be effected pursuant to
such registration statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent financial and
other records, pertinent corporate documents and properties of the Company, and
cause all of the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(l) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement;
(m) provide a CUSIP number for all Registrable Securities, not
later than the effective date of the registration statement;
(n) make reasonably available its employees and personnel and
otherwise provide reasonable assistance to the underwriters (taking into account
the needs
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of the Company's businesses and the requirements of the marketing process) in
the marketing of Registrable Securities in any underwritten offering;
(o) promptly prior to the filing of any document which is to
be incorporated by reference into the registration statement or the prospectus
(after the initial filing of such registration statement) provide copies of such
document to counsel for the selling holders of Registrable Securities and to
each managing underwriter, if any, and make the Company's representatives
reasonably available for discussion of such document and make such changes in
such document concerning the selling holders prior to the filing thereof as
counsel for such selling holders or underwriters may reasonably request;
(p) furnish to the Major Holder participating in the offering
and the managing underwriter, without charge, at least one signed copy, and to
each other Holder participating in the offering, without charge, at least one
photocopy of a signed copy, of the registration statement and any post-effective
amendments thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those incorporated
by reference);
(q) cooperate with the selling Holders of Registrable
Securities and the managing underwriter, if any, to facilitate the timely
preparation and delivery of certificates not bearing any restrictive legends
representing the Registrable Securities to be sold, and cause such Registrable
Securities to be issued in such denominations and registered in such names in
accordance with the underwriting agreement prior to any sale of Registrable
Securities to the underwriters or, if not an underwritten offering, in
accordance with the instructions of the selling Holders of Registrable
Securities at least three business days prior to any sale of Registrable
Securities and instruct any transfer agent and registrar of Registrable
Securities to release any stop transfer orders in respect thereof; and
(r) take all such other commercially reasonable actions as are
necessary or advisable in order to expedite or facilitate the disposition of
such Registrable Securities.
(s) take no direct or indirect action prohibited by Regulation
M under the Exchange Act; provided, however, that to the extent that any
prohibition is applicable to the Company, the Company will take such action as
is necessary to make any such prohibition inapplicable.
The Company may require as a condition precedent to the
Company's obligations under this Section 2.4 that each seller of Registrable
Securities as to which any registration is being effected furnish the Company
such information regarding such seller and the distribution of such securities
as the Company may from time to time
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reasonably request provided that such information is necessary for the Company
to consummate such registration and shall be used only in connection with such
registration.
Each Holder of Registrable Securities agrees that upon receipt
of any notice from the Company of the happening of any event of the kind
described in clause (v) of paragraph (e) of this Section 2.4, such Holder will
discontinue such Holder's disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such Holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
paragraph (e) of this Section 2.4 and, if so directed by the Company, will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such Holder's possession of the prospectus
covering such Registrable Securities that was in effect at the time of receipt
of such notice. In the event the Company shall give any such notice, the
applicable period mentioned in paragraph (b) of this Section 2.4 shall be
extended by the number of days during such period from and including the date of
the giving of such notice to and including the date when each seller of any
Registrable Securities covered by such registration statement shall have
received the copies of the supplemented or amended prospectus contemplated by
paragraph (e) of this Section 2.4.
If any such registration statement or comparable statement
under "blue sky" laws refers to any Holder by name or otherwise as the Holder of
any securities of the Company, then such Holder shall have the right to require
(i) the insertion therein of language, in form and substance reasonably
satisfactory to such Holder and the Company, to the effect that the holding by
such Holder of such securities is not to be construed as a recommendation by
such Holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such Holder will assist in
meeting any future financial requirements of the Company, or (ii) in the event
that such reference to such Holder by name or otherwise is not in the judgment
of the Company, as advised by counsel, required by the Securities Act or any
similar federal statute or any state "blue sky" or securities law then in force,
the deletion of the reference to such Holder.
2.5. Registration Expenses.
(a) "Expenses" shall mean any and all fees and expenses
incident to the Company's performance of or compliance with this Article 2,
including, without limitation: (i) SEC, stock exchange or NASD registration and
filing fees and all listing fees and fees with respect to the inclusion of
securities in Nasdaq National Market, (ii) fees and expenses of compliance with
state securities or "blue sky" laws and in connection with the preparation of a
"blue sky" survey, including without limitation, reasonable fees and expenses of
blue sky counsel, (iii) printing and copying expenses, (iv) messenger and
delivery expenses, (v) expenses incurred in connection with any road show, (vi)
fees and disbursements of counsel for the Company, (vii) with respect to each
registration, the fees
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and disbursements of one counsel for the selling Holder(s) (selected by the
Initiating Holder, in the case of a registration pursuant to Section 2.1, and
selected by the Major Holder, in the case of a registration pursuant to Section
2.2), (viii) fees and disbursements of all independent public accountants
(including the expenses of any audit and/or "cold comfort" letter) and fees and
expenses of other persons, including special experts, retained by the Company,
(ix) fees and expenses payable to a Qualified Independent Underwriter (as such
term is defined in Schedule E to the By-Laws of the NASD) and (x) any other fees
and disbursements of underwriters, if any, customarily paid by issuers or
sellers of securities (collectively, "Expenses").
(b) The Company shall pay all Expenses with respect to any
Demand Registration.
(c) Notwithstanding the foregoing, (x) the provisions of this
Section 2.5 shall be deemed amended to the extent necessary to cause these
expense provisions to comply with "blue sky" laws of each state in which the
offering is made and (y) in connection with any registration hereunder, each
Holder of Registrable Securities being registered shall pay all underwriting
discounts and commissions and any transfer taxes, if any, attributable to the
sale of such Registrable Securities, pro rata with respect to payments of
discounts and commissions in accordance with the number of shares sold in the
offering by such Holder, and (z) the Company shall, in the case of all
registrations under this Article 2, be responsible for all its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties).
2.6. Certain Limitations on Registration Rights. In the case of any
registration under Section 2.1 pursuant to an underwritten offering, or in the
case of a registration under Section 2.2 if the Company has determined to enter
into an underwriting agreement in connection therewith, all securities to be
included in such registration shall be subject to an underwriting agreement and
no person may participate in such registration unless such person agrees to sell
such person's securities on the basis provided therein and completes and
executes all reasonable questionnaires, and other documents (including custody
agreements and powers of attorney) which must be executed in connection
therewith, and provides such other information to the Company or the underwriter
as may be necessary to register such Person's securities.
2.7. Limitations on Sale or Distribution of Other Securities. (a) Each
Holder of Registrable Securities agrees that, (i) to the extent requested in
writing by a managing underwriter, if any, of an IPO or any registration
effected pursuant to Section 2.1, not to sell, transfer or otherwise dispose of,
including any sale pursuant to Rule 144 under the Securities Act, any Common
Stock, or any other equity security of the Company or any security convertible
into or exchangeable or exercisable for any equity security of the Company
(other than as part of such underwritten public offering) during the time period
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reasonably requested by the managing underwriter, not to exceed 180 days (and
the Company hereby also so agrees (except that the Company may effect any sale
or distribution of any such securities pursuant to a registration on Form S-4
(if reasonably acceptable to such managing underwriter) or Form S-8, or any
successor or similar form which is then in effect or upon the conversion,
exchange or exercise of any then outstanding Common Stock Equivalent) to use its
reasonable best efforts to cause each holder of any equity security or any
security convertible into or exchangeable or exercisable for any equity security
of the Company purchased from the Company at any time other than in a public
offering so to agree), and (ii) to the extent requested in writing by a managing
of any underwritten public offering effected by the Company for its own account
(other than the IPO) it will not sell any Common Stock (other than as part of
such underwritten public offering) during the time period reasonably requested
by the managing underwriter, which period shall not exceed 90 days.
(b) The Company hereby agrees that, if it shall previously
have received a request for registration pursuant to Section 2.1 or 2.2, and if
such previous registration shall not have been withdrawn or abandoned, the
Company shall not sell, transfer, or otherwise dispose of, any Common Stock, or
any other equity security of the Company or any security convertible into or
exchangeable or exercisable for any equity security of the Company (other than
as part of such underwritten public offering, a registration on Form S-4 or Form
S-8 or any successor or similar form which is then in effect or upon the
conversion, exchange or exercise of any then outstanding Common Stock
Equivalent), until a period of 180 days shall have elapsed from the effective
date of such previous registration; and the Company shall so provide in any
registration rights agreements hereafter entered into with respect to any of its
securities.
2.8. No Required Sale. Nothing in this Agreement shall be deemed to
create an independent obligation on the part of any Holder to sell any
Registrable Securities pursuant to any effective registration statement.
2.9. Indemnification. (a) In the event of any registration of any
securities of the Company under the Securities Act pursuant to this Article 2,
the Company will, and hereby does, indemnify and hold harmless, to the fullest
extent permitted by law, each Holder of Registrable Securities, its directors,
officers, fiduciaries, employees and stockholders or general and limited
partners (and the directors, officers, employees and stockholders thereof), each
other Person who participates as an underwriter or a Qualified Independent
Underwriter, if any, in the offering or sale of such securities, each officer,
director, employee, stockholder, fiduciary, managing director, agent,
affiliates, consultants, representatives, successors, assigns or partner of such
underwriter or Qualified Independent Underwriter, and each other Person, if any,
who controls such seller or any such underwriter within the meaning of the
Securities Act, against any and all losses, claims, damages or liabilities,
joint or several, actions or proceedings (whether commenced or threatened) and
expenses (including reasonable fees of counsel and any
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amounts paid in any settlement effected with the Company's consent, which
consent shall not be unreasonably withheld or delayed) to which each such
indemnified party may become subject under the Securities Act or otherwise in
respect thereof (collectively, "Claims"), insofar as such Claims arise out of or
are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement under which such
securities were registered under the Securities Act or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary, final or summary prospectus or any amendment or supplement thereto,
together with the documents incorporated by reference therein, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or (iii) any
violation by the Company of any federal, state or common law rule or regulation
applicable to the Company and relating to action required of or inaction by the
Company in connection with any such registration, and the Company will reimburse
any such indemnified party for any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
Claim as such expenses are incurred; provided, however, that the Company shall
not be liable to any such indemnified party in any such case to the extent such
Claim arises out of or is based upon any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission of a material fact
made in such registration statement or amendment thereof or supplement thereto
or in any such prospectus or any preliminary, final or summary prospectus in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such indemnified party specifically for use therein.
Such indemnity and reimbursement of expenses shall remain in full force and
effect regardless of any investigation made by as on behalf of such indemnified
party and shall survive the transfer of such securities by such seller.
(b) Each Holder of Registrable Securities that are included in
the securities as to which any registration under Section 2.1 or 2.2 is being
effected (and, if the Company requires as a condition to including any
Registrable Securities in any registration statement filed in accordance with
Section 2.1 or 2.2, any underwriter and Qualified Independent Underwriter, if
any) shall, severally and not jointly, indemnify and hold harmless (in the same
manner and to the same extent as set forth in paragraph (a) of this Section 2.9)
to the extent permitted by law the Company, its officers and directors, each
Person controlling the Company within the meaning of the Securities Act and all
other prospective sellers and their respective directors, officers, fiduciaries,
managing directors, employees, agents, affiliates, consultants, representatives,
successors, assigns, general and limited partners, stockholders and respective
controlling Persons with respect to any untrue statement or alleged untrue
statement of any material fact in, or omission or alleged omission of any
material fact from, such registration statement, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement thereto,
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if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company or its representatives by or on behalf of such Holder or underwriter or
Qualified Independent Underwriter, if any, specifically for use therein and
reimburse such indemnified party for any legal or other expenses reasonably
incurred in connection with investigating or defending any such Claim as such
expenses are incurred; provided, however, that the aggregate amount which any
such Holder shall be required to pay pursuant to this Section 2.9(b) and
Sections 2.9(c) and (e) shall in no case be greater than the amount of the net
proceeds received by such person upon the sale of the Registrable Securities
pursuant to the registration statement giving rise to such claim. Such indemnity
and reimbursement of expenses shall remain in full force and effect regardless
of any investigation made by or on behalf of such indemnified party and shall
survive the transfer of such securities by such Holder.
(c) Indemnification similar to that specified in the preceding
paragraphs (a) and (b) of this Section 2.9 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any state securities and "blue sky" laws.
(d) Any person entitled to indemnification under this
Agreement shall notify promptly the indemnifying party in writing of the
commencement of any action or proceeding with respect to which a claim for
indemnification may be made pursuant to this Section 2.9, but the failure of any
indemnified party to provide such notice shall not relieve the indemnifying
party of its obligations under the preceding paragraphs of this Section 2.9,
except to the extent the indemnifying party is materially prejudiced thereby and
shall not relieve the indemnifying party from any liability which it may have to
any indemnified party otherwise than under this Article 2. In case any action or
proceeding is brought against an indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, unless in the reasonable opinion of outside
counsel to the indemnified party a conflict of interest between such indemnified
and indemnifying parties may exist in respect of such claim, to assume the
defense thereof jointly with any other indemnifying party similarly notified, to
the extent that it chooses, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party that it so chooses, the indemnifying party shall not be liable
to such indemnified party for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that (i) if the
indemnifying party fails to take reasonable steps necessary to defend diligently
the action or proceeding within 20 days after receiving notice from such
indemnified party that the indemnified party believes it has failed to do so; or
(ii) if such indemnified party who is a defendant in any action or proceeding
which is also brought against the indemnifying party reasonably shall have
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concluded that there may be one or more legal defenses available to such
indemnified party which are not available to the indemnifying party; or (iii) if
representation of both parties by the same counsel is otherwise inappropriate
under applicable standards of professional conduct, then, in any such case, the
indemnified party shall have the right to assume or continue its own defense as
set forth above (but with no more than one firm of counsel for all indemnified
parties in each jurisdiction, except to the extent any indemnified party or
parties reasonably shall have concluded that there may be legal defenses
available to such party or parties which are not available to the other
indemnified parties or to the extent representation of all indemnified parties
by the same counsel is otherwise inappropriate under applicable standards of
professional conduct) and the indemnifying party shall be liable for any
expenses therefor. No indemnifying party shall, without the written consent of
the indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (A) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (B) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
(e) If for any reason the foregoing indemnity is unavailable
or is insufficient to hold harmless an indemnified party under Sections 2.9(a),
(b) or (c), then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of any Claim in such proportion as
is appropriate to reflect the relative fault of the indemnifying party, on the
one hand, and the indemnified party, on the other hand, with respect to such
offering of securities. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. If, however, the
allocation provided in the second preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative faults but also the relative benefits of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. The parties hereto agree that it would not be just and
equitable if contributions pursuant to this Section 2.9(e) were to be determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the preceding sentences
of this Section 2.9(e). The amount paid or payable in respect of any Claim shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such Claim.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be
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entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. Notwithstanding anything in this section 2.9(e) to the
contrary, no indemnifying party (other than the Company) shall be required
pursuant to this section 2.9(e) to contribute any amount in excess of the net
proceeds received by such indemnifying party from the sale of Registrable
Securities in the offering to which the losses, claims, damages or liabilities
of the indemnified parties relate, less the amount of any indemnification
payment made by such indemnifying party pursuant to Sections 2.9(b) and (c).
(f) The indemnity agreements contained herein shall be in
addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract and shall remain
operative and in full force and effect regardless of any investigation made or
omitted by or on behalf of any indemnified party and shall survive the transfer
of the Registrable Securities by any such party.
(g) The indemnification and contribution required by this
Section 2.9 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
3. Underwritten Offerings.
3.1. Requested Underwritten Offerings. If requested by the underwriters
for any underwritten offering by the Holders pursuant to a registration
requested under Section 2.1, the Company shall enter into a customary
underwriting agreement with the underwriters. Such underwriting agreement shall
be satisfactory in form and substance to the Initiating Holder and shall contain
such representations and warranties by, and such other agreements on the part
of, the Company and such other terms as are generally prevailing in agreements
of that type, including, without limitation, indemnities and contribution
agreements on substantially the same terms as those contained herein. Any Holder
participating in the offering shall be a party to such underwriting agreement
and may, at its option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such Holder and that any or all of the conditions precedent to the obligations
of such underwriters under such underwriting agreement be conditions precedent
to the obligations of such Holder; provided, however, that the Company shall not
be required to make any representations or warranties with respect to written
information specifically provided by a selling Holder for inclusion in the
registration statement. Such underwriting agreement shall also contain such
representations and warranties by the participating Holders with respect to
title and ownership of shares as are customary in agreements of that type.
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3.2. Piggyback Underwritten Offerings. In the case of a registration
pursuant to Section 2.2 hereof, if the Company shall have determined to enter
into an underwriting agreement in connection therewith, all of the Holders'
Registrable Securities to be included in such registration shall be subject to
such underwriting agreement. Any Holder participating in such registration may,
at its option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such Holder and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of such Holder. Such underwriting agreement shall also contain such
representations and warranties by the participating Holders as are customary in
agreements of that type, on substantially the same terms as those contained
herein.
3.3. Underwriting Services. Notwithstanding anything contained herein
to the contrary, GS & Co. shall have the right to act as the lead managing
underwriter in any registration including Registrable Securities. If GS & Co.
acts as a managing underwriter in any such registered offering, to the extent
required by applicable law, a Qualified Independent Underwriter shall be
retained by the Company and shall be acceptable to GS & Co. (which consent shall
not be unreasonably withheld), and the Company shall pay all fees and expenses
(other than underwriting discounts and commissions) of such Qualified
Independent Underwriter.
4. General.
4.1. Adjustments Affecting Registrable Securities. The Company agrees
that it shall not effect or permit to occur any combination or subdivision of
shares which would adversely affect the ability of the Holder of any Registrable
Securities to include such Registrable Securities in any registration
contemplated by this Agreement or the marketability of such Registrable
Securities in any such registration. The Company agrees that it will take all
reasonable steps necessary to effect a subdivision of shares if in the
reasonable judgment of (a) the Initiating Holder of a Demand Registration
Request or (b) the managing underwriter for the offering in respect of such
Demand Registration Request, such subdivision would enhance the marketability of
the Registrable Securities. Each Holder agrees to vote all of its shares of
capital stock in a manner, and to take all other actions necessary, to permit
the Company to carry out the intent of the preceding sentence including, without
limitation, voting in favor of an amendment to the Company's Certificate of
Incorporation in order to increase the number of authorized shares of capital
stock of the Company; provided, however, that each Existing Stockholder agrees
that the Agent for the Existing Stockholder (as defined in the Purchase
Agreement) is authorized to act on his behalf with respect to all such necessary
actions.
4.2. Rule 144. If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement
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pursuant to the requirements of the Securities Act in respect of the Common
Stock or securities of the Company convertible into or exchangeable or
exercisable for Common Stock, the Company covenants that (i) so long as it
remains subject to the reporting provisions of the Exchange Act, it will timely
file the reports required to be filed by it under the Securities Act or the
Exchange Act (including, but not limited to, the reports under Sections 13 and
15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 under
the Securities Act), and (ii) will take such further action as any Holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (A) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (B) any similar rule or regulation hereafter adopted by
the SEC. Upon the request of any Holder of Registrable Securities, the Company
will deliver to such Holder a written statement as to whether it has complied
with such requirements.
4.3. Nominees for Beneficial Owners. If Registrable Securities are held
by a nominee for the beneficial owner thereof, the beneficial owner thereof may,
at its option, be treated as the Holder of such Registrable Securities for
purposes of any request or other action by any Holder or Holders of Registrable
Securities pursuant to this Agreement (or any determination of any number or
percentage of shares constituting Registrable Securities held by any Holder or
Holders of Registrable Securities contemplated by this Agreement), provided that
the Company shall have received assurances reasonably satisfactory to it of such
beneficial ownership.
4.4 Amendments and Waivers. The terms and provisions of this Agreement
may be modified or amended, or any of the provisions hereof waived, temporarily
or permanently, pursuant to the written consent of the Company, GSCP and the
Agent of the Existing Stockholders (as defined in the Purchase Agreement).
4.5. Notices. Except as otherwise provided in this Agreement, all
notices, requests, consents and other communications hereunder to any party
shall be deemed to be sufficient if contained in a written instrument delivered
in person or by telecopy (with a confirmatory copy sent by a different means
within three business days of such notice), nationally recognized overnight
courier or first class registered or certified mail, return receipt requested,
postage prepaid, addressed to such party at the address set forth below or such
other address as may hereafter be designated in writing by such party to the
other parties:
(i) if to the Company, to:
Transaction Information Systems, Inc.
115 Broadway, 20th Floor
New York, NY 10006
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Telecopy: (212) 962-7175
Attention: Jeffrey Najarian
with a copy to:
Esanu Katsky Korins & Siger, LLP
605 Third Avenue, 16th Floor
New York, NY 10158
Telecopy: (212) 953-6899
Attention: Roy M. Korins, Esq.
(ii) if to the Existing Stockholders, to the
addresses listed in Schedule 1 hereto,
with a copy to:
Esanu Katsky Korins & Siger, LLP
605 Third Avenue, 16th Floor
New York, NY 10158
Telecopy: (212) 953-6899
Attention: Roy M. Korins, Esq.
(iii) if to the Investors, to:
GS Capital Partners III, L.P.
85 Broad Street
New York, New York 10004
Telecopy: (212) 902-3000
Attention: Randall Blumenthal
with copies to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopy: (212) 859-8586
Attention: Paul M. Reinstein, Esq.
and
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GS Capital Partners III, L.P.
85 Broad Street
New York, New York 10004
Telecopy: (212) 357-5505
Attention: Ben Adler, Esq.
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
4.6. Miscellaneous.
(a) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and the respective
successors, personal representatives and assigns of the parties hereto, whether
so expressed or not. If any Person shall acquire Registrable Securities from any
Holder, in any manner, whether by operation of law or otherwise, such transferee
shall promptly notify the Company and such Registrable Securities acquired from
such Holder shall be held subject to all of the terms of this Agreement, and by
taking and holding such Registrable Securities such Person shall be entitled to
receive the benefits of and be conclusively deemed to have agreed to be bound by
and to perform all of the terms and provisions of this Agreement. If the Company
shall so request, any such successor or assign shall agree in writing to acquire
and hold the Registrable Securities acquired from such Holder subject to all of
the terms hereof. If any Holder shall acquire additional Registrable Securities,
such Registrable Securities shall be subject to all of the terms, and entitled
to all the benefits, of this Agreement.
(b) This Agreement (with the documents referred to herein or
delivered pursuant hereto) embodies the entire agreement and understanding
between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.
(c) This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of New York without giving
effect to the conflicts of law principles thereof.
(d) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. All
section references are to this Agreement unless otherwise expressly provided.
(e) This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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(f) Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
(g) The parties hereto acknowledge that there would be no
adequate remedy at law if any party fails to perform any of its obligations
hereunder, and accordingly agree that each party, in addition to any other
remedy to which it may be entitled at law or in equity, shall be entitled to
injunctive relief, including specific performance, to enforce such obligations
without the posting of any bond, and, if any action should be brought in equity
to enforce any of the provisions of this Agreement, none of the parties hereto
shall raise the defense that there is an adequate remedy at law.
(h) Each party hereto shall do and perform or cause to be done
and performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments, and documents as any other
party hereto reasonably may request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
4.7. Prior Agreements. Each of the Holders and the Company hereby
agrees that any agreement previously entered into by it pursuant to which the
Company granted to it any registration rights shall be superseded by this
Agreement and each such agreement (and any rights such Holder has pursuant to
such agreement) shall be terminated, null and void and no longer in effect.
4.8. No Inconsistent Agreements. The rights granted to the holders of
Registrable Securities hereunder do not in any way conflict with and are not
inconsistent with any other agreements to which the Company is a party or by
which it is bound. Without the prior written consent of GSCP, neither the
Company nor any Holder will, on or after the date of this Agreement, enter into
any agreement with respect to its securities which is inconsistent with the
rights granted in this Agreement or otherwise conflicts with the provisions
hereof, other than any lock-up agreement with the underwriters in connection
with any registered offering effected hereunder, pursuant to which the Company
shall agree not to register for sale, and the Company shall agree not to sell or
otherwise dispose of, Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, for a specified period following
the registered offering. The Company further agrees that if any other
registration rights agreement entered into after the date of this Agreement with
respect to any of its securities contains terms which are more favorable to, or
less restrictive on, the other party thereto than the terms and conditions
contained in this Agreement are (insofar as they are applicable) to the GSCP
Parties, then the terms and conditions of this Agreement shall immediately be
deemed to
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have been amended without further action by the Company or any of the holders of
Registrable Securities so that the GSCP Parties shall be entitled to the benefit
of any such more favorable or less restrictive terms or conditions.
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<PAGE> 140
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement as of the date first above written.
CORPORATION:
TRANSACTION INFORMATION SYSTEMS, INC.
By:
-------------------------
Name:
Title:
INVESTORS:
GS CAPITAL PARTNERS III, L.P.
By: GS Advisors III, L.P., its general partner
By: GS Advisors III, L.L.C., its general partner
By:
-------------------------
Authorized Signatory
GS CAPITAL PARTNERS III OFFSHORE, L.P.
By: GS Advisors III (Cayman), L.P., its General Partner
By: GS Advisors III, L.L.C., its General Partner
By:
-------------------------
Authorized Signatory
<PAGE> 141
GOLDMAN, SACHS & CO. VERWALTUNGS GmbH
By:
-------------------------
Managing Director
and
By:
-------------------------
Managing Director
Registered Agent
STONE STREET FUND 1998, L.P.
By: Stone Street Advantage Corp.
General Partner
By:
-------------------------
BRIDGE STREET FUND 1998, L.P.
By: Stone Street Advantage Corp.
Managing General Partner
By:
--------------------------
<PAGE> 142
EXISTING
STOCKHOLDERS:
------------------------------------
MARK ARZOOMANIAN
------------------------------------
PAUL BAYSE
------------------------------------
PETER BONJUKLIAN
------------------------------------
ARTHUR FARKAS
------------------------------------
MITCHELL FASS
------------------------------------
ROBERT GOLD
------------------------------------
PETER MELOMO
------------------------------------
JEFFREY NAJARIAN
------------------------------------
GEORGE SETFORD
------------------------------------
EDWARD SHAW
------------------------------------
JONATHAN TODER
<PAGE> 143
Exhibit F
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
TRANSACTION INFORMATION SYSTEMS, INC.
TRANSACTION INFORMATION SYSTEMS, INC., a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
1. The Certificate of Incorporation of the Corporation was
filed with the Secretary of State on May 9, 1997.
2. The Certificate of Incorporation is hereby amended by
deleting Articles FOURTH, SEVENTH and EIGHTH thereof and replacing such
Articles FOURTH, SEVENTH AND EIGHTH with the following:
"ARTICLE FOURTH:
(a) The total number of shares of capital stock which
this Corporation is authorized to issue is forty-five million
(45,000,000) shares, of which:
(i) 35,000,000 shares shall be designated as
Common Stock, and shall have a par value of $.01 per share;
and
(ii) 10,000,000 shares shall be designated
as Preferred Stock, and shall have a par value of $.01 per
share.
(b) The Board of Directors is expressly authorized at
any time, and from time to time, to provide for the issuance
of shares of Preferred Stock in one or more series, with such
voting powers, full or limited, or without voting powers and
with such designations, preferences and relative,
participating, optional or other special rights,
qualifications, limitations or restrictions thereof, as shall
be stated and expressed in the resolution or resolutions
providing for the issue thereof adopted by the Board of
Directors and as are not stated and expressed in this
Certificate of Incorporation, or any amendment thereto,
including (but without limiting the generality of the
foregoing) the following:
(i) the designation of such series;
(ii) the dividend rate of such series, the
conditions and dates upon which such dividends shall be
payable, the preference or relation which such dividends shall
bear to the dividends payable on any other class or classes or
of any other series or capital stock, whether such dividends
shall be cumulative or noncumulative, and whether such
<PAGE> 144
dividends may be paid in shares of any class or series of
capital stock or other securities of the Corporation;
(iii) whether the shares of such series shall
be subject to redemption by the Corporation, and, if made
subject to such redemption, the times, prices and other
terms and conditions of such redemption;
(iv) the terms and amount of any sinking fund
provided for the purchase or redemption of the shares of
such series;
(v) whether or not the shares of such series
shall be convertible into or exchangeable for shares of any
other class or classes or series of capital stock or other
securities of the Corporation, and, if provision be made for
conversion or exchange, the times, prices, rates, adjustment
and other terms and conditions of such conversion or exchange;
(vi) the extent, if any, to which the holders of
the shares of such series shall be entitled to vote, as
a class or otherwise, with respect to the election of the
directors or otherwise, and the number of votes to which the
holder of each share of such series shall be entitled;
(vii) the restrictions, if any, on the issue
or reissue of any additional shares or series of Preferred
Stock; and
(viii) the rights of the holders of the shares
of such series upon the dissolution of, or upon the
distribution of assets of, the Corporation.
(c) No holder of any shares of stock of the
Corporation of any class or series or any security now or
hereafter authorized, shall, as such holder, be entitled as of
right to purchase or subscribe for any shares of stock of the
Corporation of any class or any series now or hereafter
authorized, or any securities convertible into or exchangeable
for any such shares, or any warrants, options, rights or other
instruments evidencing rights to subscribe for, or purchase,
any such shares, whether such shares, securities, warrants,
options, rights or other instruments be unissued or issued and
thereafter acquired by the Corporation.
ARTICLE SEVENTH: A director of the Corporation shall
not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. For purposes of
the prior sentence, the term "damages" shall to the extent
permitted by law, include without limitation, any judgment,
fine, amount paid in settlement, penalty, punitive damages,
excise or other tax assessed with respect to an
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<PAGE> 145
employee benefit plan, or expense of any nature (including,
without limitation, counsel fees and disbursements). Each
person who serves as a director of the Corporation while this
Article SEVENTH is in effect shall be deemed to be doing so in
reliance on the provisions of this Article SEVENTH, and
neither the amendment or repeal of this Article SEVENTH nor
the adoption of any provision of this Restated Certificate of
Incorporation inconsistent with this Article SEVENTH, shall
apply to or have any effect on the liability or alleged
liability of any director of the Corporation for, arising out
of, based upon, or in connection with any acts or omissions of
such director occurring prior to such amendment, repeal, or
adoption of an inconsistent provision. The provisions of this
Article SEVENTH are cumulative and shall be in addition to and
independent of any and all other limitations on or
eliminations of the liabilities of directors of the
Corporation, as such, whether such limitations or eliminations
arise under or are created by any law, rule, regulation,
by-law, agreement, vote of stockholders or disinterested
directors, or otherwise. If the Delaware General Corporation
Law is hereafter amended to permit elimination or rotation of
the personal liability of directors, then the liability of a
director of the Corporation still be eliminated or limited to
the fullest extent permitted by the Delaware General
Corporation Law as so amended. Any repeal or modification of
this Article SEVENTH by the stockholders of the Corporation
shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such
repeal or modification with respect to acts or omissions
occurring prior to such repeal or modification. For purposes
of this Article SEVENTH, all references to a director shall
also be deemed to refer to any person or persons, if any, who,
pursuant to a provision of this Certificate of Incorporation,
exercise or perform any of the powers or duties otherwise
conferred or imposed upon the board of directors of the
Corporation.
ARTICLE EIGHTH: (a) The Corporation shall 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 he 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), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit or proceeding if he
acted in good faith and in manner he 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 he 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 reasonable cause to
believe that his conduct was unlawful. For
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<PAGE> 146
purposes of this Article EIGHTH, any person who pursuant to a
provision in this Restated Certificate of Incorporation,
exercises or performs any the powers or duties conferred or
imposed upon the board of directors of the Corporation shall
be entitled to all the benefits conferred upon directors and
officers of the Corporation (including, without limitation,
the right to indemnification and advancement of expenses) set
forth in this Article EIGHTH.
(b) The Corporation shall 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 he 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) actually and reasonably incurred by him in
connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
Corporation, provided 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 of
the State of Delaware 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 director, officer, employee
or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding
referred to in Paragraphs (a) and (b) of this ARTICLE EIGHTH,
or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection
therewith.
(d) Any indemnification under Paragraphs (a) and (b)
of this ARTICLE EIGHTH (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
director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of
conduct set forth in such Paragraphs (a) and (b). Such
determination shall be made (i) by the Board of a majority
vote of a quorum consisting of directors who were not parties
to such action, suit or proceeding, or (ii) if such a quorum
is not obtainable, or, even if obtainable and a quorum of
disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by
a director or officer in defending a civil, criminal,
administrative or investigative action,
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<PAGE> 147
suit or proceeding shall 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 the
director, officer, employee or agent to repay such amount if
it shall be ultimately determined that he is not entitled to
be indemnified by the Corporation as authorized in this
ARTICLE EIGHTH.
(f) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other paragraphs of
this ARTICLE EIGHTH shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement
of expenses may be entitled under any law, by-law, agreement,
vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in
another capacity while holding such office.
(g) The 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 him and incurred by him in any
such capacity, or arising out of his status as such, whether
or not the Corporation would have the power to indemnify him
against such liability under the provisions of this ARTICLE
EIGHTH.
(h) For the purposes of this ARTICLE EIGHTH,
references to "the Corporation" include all constituent
corporations absorbed in a consolidation or merger as well as
the resulting or surviving corporation so that any person who
is or was a director, officer, employee or agent of such a
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 the provisions of this ARTICLE EIGHTH with respect to
the resulting or surviving corporation as he would if he had
served the resulting or surviving corporation in the same
capacity.
(i) The indemnification and advancement of expenses
provided by, or granted pursuant to, this ARTICLE EIGHTH shall
continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person. No
subsequent amendment to this Article EIGHTH shall diminish the
rights hereunder of any director or officer with respect to
any action taken or claim made prior to such amendment."
3. This Amendment to the Certificate of Incorporation has been
duly adopted in accordance with the provisions of Sections 242 of the
General Corporation Law of Delaware.
4. The capital of the Corporation will not be reduced under or
by reason of any amendment herein certified.
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<PAGE> 148
IN WITNESS WHEREOF, the undersigned have caused this
Certificate to be signed by its president and attested by its assistant
secretary this 2nd day of September, 1998.
_____________________________________
Jeffrey Najarian
Chairman and Chief Executive Officer
ATTEST
_____________________________________
George Setford
Assistant Secretary
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<PAGE> 149
Exhibit G
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A PREFERRED STOCK
($.01 PAR VALUE PER SHARE)
of
Transaction Information Systems, Inc.
-------------
Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware
-------------
Transaction Information Systems, Inc. (hereinafter called the
"Corporation"), a corporation organized and existing under and by virtue of the
provisions of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: The Certificate of Incorporation (the "Certificate of
Incorporation") of the Corporation authorizes the issuance of 10,000,000 shares
of Preferred Stock, $.01 par value per share (the "Preferred Stock"), in one or
more series, and further authorizes the Board of Directors of the Corporation to
provide by resolution for the issuance of shares of Preferred Stock in one or
more series not exceeding the aggregate number of shares of Preferred Stock
authorized by the Certificate of Incorporation and to determine with respect to
each such series, the voting powers, if any (which voting powers if granted may
be full or limited), and such designations, preferences, and relative,
participating, optional and other rights, and the qualifications, limitations
and restrictions appertaining thereto.
SECOND: A resolution providing for and in connection with the issuance
of the Preferred Stock was duly adopted by the Board of Directors of the
Corporation pursuant to authority conferred on the Board of Directors of the
Corporation by the provisions of the Certificate of Incorporation as aforesaid,
which resolution provides as follows:
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<PAGE> 150
RESOLVED: that the Board of Directors of the Corporation (the "Board"),
pursuant to authority vested in it by the provisions of the certificate of
incorporation (the "Certificate of Incorporation"), of Transaction Information
Systems, Inc. (the "Corporation"), hereby authorizes the issuance of a series of
preferred stock (the "Preferred Stock") of the Corporation and hereby
establishes the powers, designations, preferences and relative, participating,
optional and other rights, and the qualifications, limitations and restrictions
appertaining thereto in addition to those set forth in such Certificate of
Incorporation (or otherwise provided by law) as follows (the following, referred
to hereinafter as "this resolution" or "this Certificate of Designations," is to
be filed as part of a Certificate of Designations under Section 151(g) of the
General Corporation Law of the State of Delaware):
[Remainder of Page Intentionally Left Blank]
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<PAGE> 151
1. Designation and Number. The designation of Preferred Stock created
by this resolution shall be a series of Preferred Stock to be known as "Series A
Preferred Stock." The number of shares constituting Series A Preferred Stock
which the Corporation shall be authorized to issue shall be 8,000,000.
2. Dividends. The holder of each share of Series A Preferred Stock
shall be entitled to receive the dividends declared by the Board; provided,
however, that the holder of each share of Series A Preferred Stock shall be
entitled to receive dividends per share of Series A Preferred Stock equal to the
dividends per share a holder of shares of Common Stock (as defined below) into
which Series A Preferred Stock is convertible pursuant to the provisions of
Section 6 is entitled to, at the record date for the determination of
stockholders entitled to such dividends, or, if no such record date is
established, at the date such dividend is declared.
3. Voting Rights. (a) In addition to any voting rights provided by law,
the holder of each share of Series A Preferred Stock shall be entitled to vote
on all matters and shall be entitled to the number of votes per share of Series
A Preferred Stock equal to the number of votes per share a holder of the shares
of Common Stock into which Series A Preferred Stock is convertible is entitled
to, at the record date for the determination of the stockholders entitled to
vote on all matters, or, if no such record date is established, at the date such
vote is taken or any written consent of stockholders is solicited. Except as
required by law, or as otherwise provided below, the holders of shares of Series
A Preferred Stock and Common Stock shall vote together as a single class and not
as separate classes.
(b) Series A Directors.
(i) Except as otherwise set forth in this Section
3(b), the holders of Series A Preferred Stock shall be entitled to vote as a
class to elect two persons to the Board. Each person elected to be a director by
the holders of Series A Preferred Stock pursuant to this Section 3(b)(i) or
Section 3(b)(iii) below shall be referred to as a "Series A Director."
(ii) At any meeting (or in a written consent in lieu
thereof) held for the purpose of electing directors, the presence in person or
by proxy (or the written consent) of the holders of a majority of the shares of
Series A Preferred Stock then outstanding shall constitute a quorum for the
election of each Series A Director. Any Series A Director may be removed only
with the prior approval (by vote or written consent, as provided by law) of the
holders of the Series A Preferred Stock.
(iii) Notwithstanding the foregoing, so long as that
the holders of the Series A Preferred Stock as of the date of issuance, together
with their affiliates (as defined under Rule 12b-2 under the Securities Exchange
Act of 1934, as amended) hold in the aggregate less than 50% of the number of
shares of Series A Preferred Stock (subject to appropriate adjustment from time
to time for any subdivision (by any stock split, stock dividend,
recapitalization or otherwise) or combination (by reverse stock split or
otherwise)
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of the Series A Preferred Stock by the Corporation), the holders of the Series A
Preferred Stock shall be entitled to vote as a class to elect one person to the
Board.
4. Reacquired Shares. Any shares of Series A Preferred Stock converted,
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. None of
such shares of Series A Preferred Stock shall be reissued by the Corporation.
5. Liquidation, Dissolution or Winding Up. (a) Upon the voluntary or
involuntary dissolution, liquidation or winding up (each, a "Liquidation") of
the Corporation, the holders of Series A Preferred Stock shall be entitled to
receive and to be paid out of the assets of the Corporation available for
distribution to its stockholders, before any payment or distribution shall be
made on any Junior Stock (as defined below), the Preferred Amount Per Share (as
defined below) with respect to each outstanding share of Series A Preferred
Stock; provided, however, that, if the amount which would have been paid in such
Liquidation in respect of the number of shares of Common Stock into which the
Preferred Stock is then convertible, divided by the number of outstanding shares
of Series A Preferred Stock issued by the Corporation, is greater than the
Preferred Amount Per Share, then the holders of Series A Preferred Stock shall
be entitled to receive in such Liquidation such greater amount for each share of
Series A Preferred Stock then issued and outstanding. For purposes of this
Section 5, "Liquidation" shall include any merger or consolidation, except for
any such merger or consolidation involving the Corporation after the
consummation of which the holders of the capital stock of the Corporation
immediately prior to such merger or consolidation will beneficially own voting
securities in excess of fifty percent (50%) of the voting power of the surviving
or resulting entity.
(b) If, upon any such Liquidation, whether voluntary or
involuntary, the assets to be distributed to the holders of Series A Preferred
Stock shall be insufficient to permit payment of the full amount of each share
of Series A Preferred Stock, then the entire assets of the Corporation to be
distributed among the holders of Series A Preferred Stock shall be distributed
ratably among such holders.
(c) "Preferred Amount Per Share" shall mean, with respect to
each share of Series A Preferred Stock, $7.6339 (as adjusted in accordance with
the Purchase Agreement).
6. Conversion of Preferred Stock.
(a) Optional Conversion. Subject to the provision for
adjustment set forth below, each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof at any time and from the time
to time after the date hereof, into a number of shares of Common Stock equal to
the then effective Conversion Ratio (as defined below).
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<PAGE> 153
(b) Mandatory Conversion. Subject to the provision for
adjustment set forth below, each share of Series A Preferred Stock shall be
automatically converted into a number of shares of Common Stock at the
Conversion Ratio in the event that the Corporation completes an IPO (as defined
below).
(c) Conversion Procedure.
(i) Conversion of Series A Preferred Stock may be
effected by any holder thereof upon the surrender to the Corporation at the
offices of the Corporation, or at the office of any agent or agents of the
Corporation, as may be designated by the Board (the "Transfer Agent"), of the
certificates representing Series A Preferred Stock to be converted, accompanied
by a written notice stating that such holder elects to convert all or, except in
the case of a conversion pursuant to paragraph (b) of this Section 6, a
specified portion of such Series A Preferred Stock in accordance with the
provisions of this Section 6 and specifying the name or names in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued. The Corporation shall pay any issue and transfer taxes that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of Series A Preferred Stock pursuant hereto. As promptly as
practicable, and in any event within five business days after the surrender of
such certificates representing Series A Preferred Stock and the receipt of such
notice relating thereto, the Corporation shall deliver or cause to be delivered
(i) certificates representing the number of validly issued, fully paid and
nonassessable shares of Common Stock to which the holder of Series A Preferred
Stock being converted shall be entitled and (ii) if less than all of the shares
represented by the surrendered certificates are being converted, a new
certificate representing the number of shares of Series A Preferred Stock which
remains outstanding upon such partial conversion. Such conversion shall be
deemed to have been made at the close of business on the date of giving such
notice so that the rights of the holder thereof as to Series A Preferred Stock
being converted shall cease except for the right to receive shares of Common
Stock in accordance herewith, and the person entitled to receive the shares of
Common Stock shall be treated for all purposes as having become the record
holder of such shares of Common Stock at such time.
(ii) The Corporation shall at all times reserve and
keep available for issuance upon the conversion of Series A Preferred Stock,
free from any preemptive rights, such number of its authorized but unissued
shares of Common Stock as will from time to time be necessary to permit the
conversion of all outstanding shares of Series A Preferred Stock into shares of
Common Stock, and shall take all action required to increase the authorized
number of shares of Common Stock if necessary to permit the conversion of all
outstanding shares of Series A Preferred Stock. The Corporation shall take all
actions as may be necessary to assure that all such shares of Common Stock may
be so issued without violation of any applicable law (including, without
limitation, applicable federal and state securities laws) or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock may be listed (except for official notice of issuance
which shall be immediately delivered by the Corporation upon each such
issuance).
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<PAGE> 154
(iii) The Corporation shall not close its books
against the transfer of Series A Preferred Stock or of Common Stock issued or
issuable upon conversion of Series A Preferred Stock in any manner which
interferes with the timely conversion of Series A Preferred Stock. The
Corporation shall assist and cooperate with any holder of shares of Series A
Preferred Stock required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of such
shares hereunder (including, without limitation, making any filings required to
be made by the Corporation).
(iv) If the shares of Common Stock issuable by reason
of such conversion of Series A Preferred Stock are convertible into or
exchangeable for any other stock or securities of the Corporation, the
Corporation shall, at the converting holder's option, upon surrender of shares
of Series A Preferred Stock to be converted by such holder as provided above
together with any notice, statement or payment required to effect such
conversion or exchange of Common Stock, deliver to such holder or as otherwise
specified by such holder a certificate or certificates representing the stock or
securities into which the shares of Common Stock issuable by reason of such
conversion are so convertible or exchangeable, registered in such name or names
and in such denomination or denominations as such holder has specified.
(d) Adjustments Upon Changes in Capitalization.
(i) Except with respect to Excluded Securities (as
defined below), in case the Corporation shall issue any shares of Common Stock
or Common Stock Equivalents (as defined below) after the date the first share of
Series A Preferred Stock is issued (the "Issue Date") at a price per share (or
having a conversion or exercise price per share) of less than the Preferred
Amount Per Share, in each such case the Conversion Ratio shall be appropriately
adjusted by multiplying (A) the Conversion Ratio in effect on the day
immediately prior to the date of issuance of such shares (or Common Stock
Equivalents) by (B) a fraction, the numerator of which shall be the sum of (1)
the number of shares of Common Stock outstanding on such date prior to such
issuance and (2) the number of additional shares of Common Stock issued (or
issuable upon conversion, exchange or exercise of such Common Stock
Equivalents), and the denominator of which shall be the sum of (x) the number of
shares of Common Stock outstanding on such date prior to such issuance and (y)
the number of shares of Common Stock purchasable at the then Preferred Amount
Per Share with the aggregate consideration receivable by the Corporation for the
total number of shares of Common Stock so issued (or, in the case of issuances
of Common Stock Equivalents, issuable upon conversion, exchange or exercise of
such Common Stock Equivalents). An adjustment made pursuant to this clause (ii)
shall be made on the next business day following the date on which any such
issuance is made and shall be effective retroactively to the close of business
on the date of such issuance. For purposes of this clause (ii), the
consideration receivable by the Corporation in connection with the issuance of
additional shares of Common Stock or of Common Stock Equivalents since the Issue
Date shall be deemed to be equal to (X) in the case the consideration received
by the Corporation is cash, the sum of the aggregate offering price (before
deduction of
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underwriting discounts or commissions and expenses payable to third parties, if
any) of all such Common Stock and/or Common Stock Equivalents plus the minimum
aggregate amount, if any, payable upon conversion, exchange or exercise of any
such Common Stock Equivalents, and (Y) in the case the consideration received by
the Corporation is other than cash, the fair market value of the consideration
received by the Corporation as determined by the good faith judgment of the
Board, which determination shall require the affirmative vote of at least one of
the directors designated by a majority of the holders of Series A Preferred
Stock. The issuance or reissuance of any shares of Common Stock (whether
treasury shares or newly issued shares) pursuant to a dividend or distribution
on, or subdivision, combination or reclassification of, the outstanding shares
of Common Stock requiring an adjustment in the Conversion Ratio pursuant to
clause (i) of this paragraph 6(d) of this Section 6, shall not be deemed to
constitute an issuance of Common Stock or Common Stock Equivalents by the
Corporation to which this clause (ii) applies. Upon the expiration or
termination of any unconverted, unexchanged or unexercised Common Stock
Equivalents for which an adjustment has been made pursuant to this clause (ii),
the adjustments shall forthwith be reversed to effect such Conversion Ratio as
would have been in effect at the time of such expiration or termination had such
Common Stock Equivalents, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
(ii) If the purchase price provided for in any Common
Stock Equivalents, the additional consideration, if any, payable upon the
conversion or exchange of any Common Stock Equivalents, or the rate at which any
Common Stock Equivalents are convertible into or exchangeable for Common Stock,
shall change at any time, the Conversion Ratio in effect at the time of such
change shall be readjusted to the Conversion Ratio which would have been in
effect at such time had such Common Stock Equivalents still outstanding provided
for such changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold.
(iii) "Excluded Securities" shall mean: (A) shares of
Common Stock issued or issuable upon stock conversion of the Series A Preferred
Stock; (B) shares of Common Stock issuable or issued upon conversion or exercise
of any securities outstanding on the Issue Date; (C) any capital stock issued as
a stock dividend or upon any stock split or other subdivision or combination of
shares of the Corporation's capital stock; (D) shares of Common Stock issued in
any public offering of the Corporation's securities; (E) shares of Common Stock
issuable or issued to employees of the Corporation pursuant to an employee
benefit plan duly approved by the Board in accordance with Section 9.12.; or (F)
shares of Common Stock issued upon the conversion or exercise of Common Stock
Equivalents issued after the Issue Date as to which an adjustment to the
Conversion Ratio has been made pursuant to this paragraph (d) of this Section 6
upon the issuance of such Common Stock Equivalents.
(iv) If the Corporation shall set a record date for
the holders of its Common Stock for the purpose of entitling them to receive a
dividend or other distribution
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and shall thereafter, and before such dividend or distribution is paid or
delivered to stockholders entitled thereto, legally abandon its plan to pay or
deliver such dividend or distribution, then no adjustment in the Conversion
Ratio then in effect shall be made by reason of the taking of such record, and
any such adjustment previously made as a result of the taking of such record
shall be reversed.
(e) As used in this Section 6, the term "Common Stock" shall
mean and include the Corporation's authorized Common Stock, par value $.01 per
share, as existing on the date of filing this Certificate of Designations, and
shall also include any capital stock of any class of the Corporation thereafter
authorized which shall neither be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in dividends nor be
entitled to a preference in the distribution of assets upon the Liquidation of
the Corporation, provided that the shares of Common Stock receivable upon
conversion of shares of Series A Preferred Stock shall include only shares
designated as Common Stock of the Corporation on the date of filing of this
instrument, or in case of any reorganization or reclassification of the
outstanding shares thereof, the stock, securities or assets to be issued in
exchange for such Common Stock pursuant thereto.
(f) The Corporation will at no time close its transfer books
against the transfer of any Series A Preferred Stock, or of any shares of Common
Stock issued or issuable upon the conversion of any shares of such Series A
Preferred Stock, except as may otherwise be required to comply with applicable
securities laws.
(g) The Corporation will not, by amendment of its Certificate
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 6 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of Series A
Preferred Stock against impairment.
(h) If the Corporation at any time (i) pays any dividend, or
makes any distribution, on the outstanding shares of Common Stock in shares of
Common Stock without payment of any consideration by the holders of Common
Stock, (ii) subdivides (by any stock split, stock divided, recapitalization or
otherwise) the outstanding shares of Common Stock, or (iii) combines (by reverse
stock split or otherwise) the outstanding shares of Common Stock into a smaller
number of shares, then, and in each such case, the Conversion Ratio in effect
immediately prior to such event or the record date therefor, whichever is
earlier, shall be adjusted so that the holder of any shares of Series A
Preferred Stock thereafter convertible into Common Stock pursuant to this
Section 6 shall be entitled to receive the number of shares of Common Stock
which such holder would have owned or have been entitled to receive after the
happening of any of the events described above, had such shares of Series A
Preferred
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Stock been converted into Common Stock immediately prior to the happening of
such event or the record date therefor, whichever is earlier.
(i) Prior to the consummation of any Organic Change (as
defined below), the Corporation shall make appropriate provisions (in form and
substance satisfactory to the holders of a majority of the Series A Preferred
Stock then outstanding) to insure that each of the holders of Series A Preferred
Stock shall thereafter have the right to acquire and receive, in lieu of or in
addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Series A Preferred Stock, such shares of stock, securities or assets as such
holder would have received in connection with such Organic Change if such holder
had converted its Series A Preferred Stock immediately prior to such Organic
Change. In each such case, the Corporation shall also make appropriate
provisions (in form and substance satisfactory to the holders of a majority of
the Series A Preferred Stock then outstanding) to insure that the provisions of
this Section 6 shall thereafter be applicable to the Series A Preferred Stock.
The Corporation shall not effect any such consolidation, merger or sale, unless
prior to the consummation thereof, the successor corporation (if other than the
Corporation) resulting from such consolidation or merger or the corporation
purchasing such assets provides in its charter documents (in form reasonably
satisfactory to the holders of a majority of the Series A Preferred Stock then
outstanding), the obligation to deliver to each such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
(j) If any recapitalization, conversion or exchange of shares
or any other change in the Corporation's capitalization structure, or any other
event occurs of the type contemplated by the provisions of this Section 6 but in
any such case, which is not expressly provided for by the provisions of this
Section 6 (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Board shall make an appropriate adjustment in the Conversion Ratio so as to
protect the rights of the holders of Series A Preferred Stock; provided that no
such adjustment shall increase the Conversion Ratio as otherwise determined
pursuant to this Section 6 or decrease the number of shares of Common Stock
issuable upon conversion of any share of Series A Preferred Stock.
7. Reports as to Adjustment. (a) Upon any adjustment of the Conversion
Ratio then in effect pursuant to the provisions of Section 6, then, and in each
such case, the Corporation shall promptly deliver to the Transfer Agent of
Series A Preferred Stock and the Common Stock and to each of the holders of
Series A Preferred Stock and the Common Stock, a certificate signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation setting forth in
reasonable detail the event requiring the adjustment, the method by which such
adjustment was calculated and the Conversion Ratio then in effect following such
adjustment. Where appropriate, such notice to holders of Series A Preferred
Stock may be given in advance.
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(b) The Corporation shall also give written notice to the
holders of Series A Preferred Stock at least twenty days prior to the date on
which any Organic Change takes place.
8. Protection of Rights. Any registered holder of Series A
Preferred Stock may proceed to protect and enforce its rights with any and all
remedies available at law or in equity.
9. Protective Provisions. So long as shares of Series A
Preferred Stock are outstanding, the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock:
(a) alter or change the rights, preference or privileges of
the shares of Series A Preferred Stock or otherwise amend the Certificate of
Incorporation, including, in either case, whether by merger, consolidation or
otherwise, so as to affect adversely the shares of Series A Preferred Stock;
(b) increase the authorized number of shares of Series A
Preferred Stock; or
(c) create or designate, or authorize the issuance of, any
new class or series of stock (i) ranking senior or having a preference over, or
being on a parity with, Series A Preferred Stock with respect to dividends or
upon Liquidation, (ii) having rights similar to any rights of Series A
Preferred Stock under Section 3 or Section 6 or (iii) convertible into any such
class or series of stock.
10. Major Transactions. Prior to an IPO, the Corporation shall
not, and shall not permit any of its Subsidiaries to, directly or indirectly,
take any of the actions set forth in Section 9.12 of the Stockholders'
Agreement (as defined below) without first obtaining approval (by vote or
written consent, as provided by law) of the holders of a majority of the then
outstanding shares of Series A Preferred Stock.
11. Definitions. In addition to any other terms defined herein,
for purposes of this Certificate of Designations, the following terms shall
have the meanings indicated: "Common Stock" shall mean shares of Common Stock,
par value $.01 per share, of the Corporation.
"Common Stock Equivalent" shall mean securities convertible into, or
exchangeable or exercisable for, shares of common stock of the Corporation.
"Conversion Ratio," determined as of any date, shall equal the number
of shares of Common Stock into which one share of Series A Preferred Stock is
convertible pursuant to
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Section 6. The Conversion Ratio shall initially equal one and shall be subject
to adjustment as provided in paragraph (d) of Section 6.
"GSCP" shall mean GS Capital Partners III, L.P., a Delaware limited
partnership.
"IPO" shall mean the closing of the sale of shares of Common Stock in a
bona fide, firm commitment, underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act").
"Junior Stock" shall mean any capital stock of the Corporation ranking
junior (either as to dividends or upon Liquidation) to the Preferred Stock.
"Organic Change" means any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Corporation's assets to another Person or other transaction which is effected in
such a manner that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) stock, securities or assets with
respect to or in exchange for Common Stock.
"Person" shall mean any individual, firm, corporation, partnership or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
"Purchase Agreement" shall mean the Preferred Stock Purchase Agreement
to be entered into in connection with the issuance of the Series A Preferred
Stock, among the Corporation, GSCP, certain affiliates of GSCP and the
stockholders of the Corporation.
"Stockholders' Agreement" shall mean the Stockholders Agreement to be
entered into in connection with the issuance of the Series A Preferred Stock,
among the Corporation, GSCP, certain affiliates of GSCP, and the stockholders of
the Corporation.
12. Notices. Unless otherwise expressly specified or permitted by the
terms hereof, all notices, requests, demands, consents and other communications
hereunder shall be in writing and shall be delivered by hand or shall be sent by
telex or telecopy (with a confirmatory copy sent by a different means within
three business days of such notice), to the following addresses:
(i) if to the holder of a share of Series A Preferred Stock,
at the holder's address as set forth in the stock register of the Corporation,
or at such other address as may have been furnished to the Corporation by the
holder in writing; or
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(ii) if to the Corporation, at
Transaction Information Systems, Inc.
115 Broadway, 20th Floor
New York, NY 10006
Telecopy: (212) 962-7175
Attention: Jeffrey Najarian
or at such other address as may have been furnished in writing by the
Corporation to the holders of the shares of Series A Preferred Stock.
Whenever any notice is required to be given hereunder, such notice shall be
deemed given and such requirement satisfied only when such notice is delivered
or, if sent by telex or telecopier, when received, unless otherwise expressly
specified or permitted by the terms hereof.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, Transaction Information Systems, Inc. has caused
this Certificate of Designations to be signed by its Chief Executive Officer
this 2nd day of September, 1998.
TRANSACTION INFORMATION SYSTEMS, INC.
By:
-------------------------------------
Jeffrey Najarian
Chief Executive Officer
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EXHIBIT H
BY-LAWS
OF
TRANSACTION INFORMATION SYSTEMS, INC.
ARTICLE I
Offices
SECTION 1. Registered Office. The registered office of Transaction
Information Systems, Inc. (the "Corporation") in the State of Delaware, shall be
in the city of Wilmington, county of New Castle, Delaware.
SECTION 2. Other Offices. The Corporation may also have offices at
other places either within or without the State of Delaware.
ARTICLE II
Meetings of Stockholders
SECTION 1. Annual Meetings. The annual meeting of the stockholders of
the Corporation for the election of directors and for the transaction of such
other business as may properly come before the meeting shall be held on such
date and at such place and hour as shall be designated by the Board of Directors
(the "Board") in the notice thereof.
SECTION 2. Special Meetings. A special meeting of the stockholders for
any purpose or purposes may be called at any time by the Board, the Chief
Executive Officer, the Chairman of the Board, the President, a majority of the
Directors then in office or by holders of 10% or more of all shares of stock
entitled to vote at such meeting, and such meeting shall be held on such date
and at such place and hour as shall be designated in the notice thereof. Special
meetings of the holders of any class of any stock may be called by the holders
of 50% or more of all shares of such class of stock.
SECTION 3. Notice of Meetings. Except as otherwise expressly required
by these By-laws or by law, notice of each meeting of the stockholders shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder of record entitled to notice of, or to vote at, such meeting by
delivering a typewritten or printed notice thereof to such stockholder
personally or by depositing such notice in the United States mail, postage
prepaid, directed to such stockholder at his address as it appears on the stock
records of the Corporation or by transmitting notice thereof to him at such
address by telegraph, cable or other form of recorded communication. Every such
notice shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Except
as otherwise expressly required by law, no publication of any notice of a
meeting of the stockholders shall be required. Notice of any adjourned meeting
of the stockholders shall not be required to be given if the time and place
thereof are announced at the meeting at which the adjournment is taken, the
adjourned meeting is held within 30 days thereafter and a new record date for
the adjourned meeting is not thereafter fixed.
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SECTION 4. Quorum and Manner of Acting. Except as otherwise expressly
required by law, if stockholders holding of record a majority of the shares of
stock of the Corporation, or in the case of a class vote, any class thereof
entitled to be voted shall be present in person or by proxy, a quorum for the
transaction of business at any meeting of the stockholders of the Corporation,
or in the case of a class vote, of such class, shall exist. In the absence of a
quorum at any such meeting or any adjournment or adjournments thereof, a
majority in voting interest of those present in person or by proxy and entitled
to vote thereat, or, in the absence therefrom of all the stockholders, or in the
case of a class vote of such class, any officer entitled to preside at, or to
act as secretary of, such meeting, may adjourn such meeting from time to time
until stockholders of the Corporation, or in the case of a class vote, of such
class, holding the amount of stock requisite for a quorum shall be present in
person or by proxy. At any such adjourned meeting at which a quorum is present,
any business may be transacted which might have been transacted at the meeting
as originally called. The absence from any meeting in person or by proxy of
stockholders holding the number of shares of stock of the Corporation, or in the
case of a class vote, of such class, required by law, by the Certificate of
Incorporation or by these By-laws for action upon any given matter shall not
prevent action at such meeting upon any other matter or matters which may
properly come before the meeting if there shall be present thereat in person or
by proxy stockholders holding the number of shares of stock of the Corporation,
or in the case of a class vote, of such class, required in respect of such other
matter or matters.
SECTION 5. Organization of Meetings. At each meeting of the
stockholders, one of the following shall act as chairman of the meeting and
preside thereat, in the following order of precedence:
the Chairman of the Board;
the President;
any other officer of the Corporation designated by the Board
to so act and preside;
any other officer of the Corporation designated by a majority
in voting interest of the stockholders present in person or by
proxy and entitled to vote thereat; or
a stockholder of record of the Corporation designated by a
majority in voting interest of the stockholders present in
person or by proxy and entitled to vote thereat.
The Secretary of the Corporation or, if he shall be absent from or
presiding over the meeting in accordance with the provisions of this Section,
the person (who shall be an Assistant Secretary of the Corporation, if an
Assistant Secretary shall be present thereat) whom the chairman of the meeting
shall appoint, shall act as secretary of the meeting and keep the minutes
thereof.
SECTION 6. Order of Business. The order of business at each meeting of
the stockholders shall be determined by the chairman of the meeting, but such
order of business may be changed by the vote of a majority in voting interest of
those present in person or by proxy at such meeting and entitled to vote
thereat.
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SECTION 7. Voting.
(a) Except as otherwise provided in the Certificate of
Incorporation, including any certificate of designation setting forth the
rights, preferences and privileges of the holders of any series of Preferred
Stock of the Corporation, each stockholder shall, at each meeting of the
stockholders, be entitled to one vote in person or by proxy for each share of
Common Stock of the Corporation on the matter in question held by him and
registered in his name on the stock record of the Corporation on the date fixed
pursuant to these By-laws as the record date for the determination of
stockholders who shall be entitled to receive notice of and to vote at such
meeting; or, if no record date shall have been so fixed, then at the close of
business on the day next preceding the day on which notice of the meeting shall
be given or, if notice of the meeting shall be waived, at the close of business
on the day next preceding the day on which the meeting shall be held.
(b) Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Any vote of stock of the Corporation may be held at any meeting of the
stockholders by the person entitled to vote the same in person or by proxy
appointed by an instrument in writing delivered to the Secretary or an Assistant
Secretary of the Corporation or the secretary of the meeting; provided, however,
that no proxy shall be voted or acted upon after three years from its date
unless such proxy provides for a longer period. The attendance at any meeting of
a stockholder who may theretofore have given a proxy shall not have the effect
of revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At all meetings of the stockholders,
all matters, except as otherwise provided in the Certificate of Incorporation,
in these By-laws or by law, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and entitled to vote
thereat, a quorum being present. Unless required by law or so directed by the
chairman of the meeting, the vote at any meeting of the stockholders on any
question need not be by ballot. On a vote by ballot, each ballot shall be signed
by the stockholder voting, or by his proxy if there be such proxy, and shall
state the number of shares voted.
SECTION 8. Consent in Lieu of Meeting. Any action required to be taken
at any annual or special meeting of stockholders of the Corporation or of any
class of Preferred Stock of the Corporation, or any action which may be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
SECTION 9. List of Stockholders. It shall be the duty of the Secretary
or other officer of the Corporation who shall have charge of the stock record,
either directly or through another officer of the Corporation or through a
transfer agent or transfer clerk appointed by the Board, to prepare and make, at
least 10 days before every meeting of the stockholders, a complete list of the
stockholders entitled to vote thereat, arranged in alphabetical order, and
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least 10 days prior to the meeting, either at the place
where the meeting is to be held or at such other place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting. Such
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list shall also be produced and kept at the time and place of the meeting during
the whole time thereof and may be inspected by any stockholder who is present.
The stock record shall be the only evidence as to who are the stockholders
entitled to examine the stock record, such list or the books of the Corporation
or to vote in person or by proxy at any meeting of the stockholders.
SECTION 10. Inspectors. Either the Board or, in the absence of a
designation of inspectors by the Board, the chairman of the meeting may, in its
or his discretion, appoint two or more inspectors, who need not be stockholders,
who shall receive and take charge of ballots and proxies and decide all
questions relating to the qualification of those asserting the right to vote and
the validity of ballots and proxies. In the event of the failure or refusal to
serve of any inspector designated by the Board, the chairman of the meeting
shall appoint an inspector to act in place of each such inspector designated by
the Board. In the absence of a designation of inspectors by the Board and the
chairman of the meeting, the secretary of the meeting shall perform the duties
which would otherwise have been performed by the inspectors.
ARTICLE III
Board of Directors
SECTION 1. General Powers. The property, business, affairs and policies
of the Corporation shall be managed by or under the direction of the Board.
SECTION 2. Number and Term of Office. The number of directors
constituting the Board shall be seven (7) and shall include two Series A
Directors (as defined in the Certificate of Designations of the Corporation).
Notwithstanding the foregoing, upon the occurrence of the event specified in
Section 9.1(a)(iii) of the Stockholders' Agreement, dated as of September 4,
1998, among the Corporation, GS Capital Partners III, L.P. ("GSCP"), certain
affiliates of GSCP and certain stockholders of the Corporation, the number of
directors constituting the Board shall consist of six (6) directors and shall
include one Series A Director. Each of the directors of the Corporation shall
hold office until the annual meeting after his election and until his successor
shall be elected and shall qualify or until his earlier death or resignation or
removal in the manner hereinafter provided.
SECTION 3. Election. At each annual meeting of the stockholders for the
election of directors at which a quorum is present, subject to the rights of the
holders of Series A Preferred Stock to elect the Series A Directors, the persons
receiving the greatest number of votes, up to the number of directors to be
elected, shall be the directors. Directors need not be stockholders of the
Corporation or residents of the State of Delaware.
SECTION 4. Meetings.
(a) Annual Meetings. As soon as practicable after each annual
election of directors, the Board shall meet for the purpose of organization, the
election of officers and the transaction of other business.
(b) Regular Meetings. Regular meetings of the Board or any
committee thereof shall be held as the Board or such committee shall from time
to time determine.
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(c) Special Meetings. Special meetings of the Board, at which
any and all business may be transacted, shall be held whenever called by the
President or by a written call signed by any two or more directors and filed
with the Secretary.
(d) Notice of Meetings. No notice of regular meetings of the
Board or of any committee thereof or of any adjourned meeting thereof need be
given. The Secretary shall give notice to each director of each special meeting
of the Board or adjournment thereof, including the time and place thereof. Such
notice shall be given not less than two (2) days before the date of the meeting
to each director by delivering a typewritten notice thereof to such director
personally or by depositing such notice in the United States mail, postage
prepaid by Express Mail or first class mail, or by messenger service or
overnight delivery service which guarantees next day delivery, directed to such
director at his residence or usual business address or by transmitting notice
thereof to him by telecopier or other form of recorded communication, including
recorded telephonic notice, provided, however, that if notice of the meeting
shall be given by first class mail, such notice shall be given not less than
five (5) days prior to the date of the meeting. Notice of any meeting of the
Board or any committee thereof shall not be required to be given to any director
who shall attend such meeting. Any meeting of the Board or any committee thereof
shall be a legal meeting without any notice thereof having been given if all the
directors then in office shall be present thereat. The purposes of a meeting of
the Board or any committee thereof need not be specified in the notice thereof.
(e) Time and Place of Meetings. Regular meetings of the Board
or any committee thereof shall be held at such time or times and place or places
as the Board or the committee may from time to time determine. Each special
meeting of the Board or any committee thereof shall be held at such time and
place as the caller or callers thereof may determine. In the absence of such a
determination, each meeting of the Board or any committee thereof shall be held
at such time and place as shall be designated in the notices or waiver of
notices thereof.
(f) Quorum and Manner of Acting. Except as otherwise expressly
required by these By-laws or by law, a majority of the directors then in office
and a majority of the members of any committee shall be present in person at any
meeting thereof in order to constitute a quorum for the transaction of business
at such meeting, and the vote of a majority of the directors present at any such
meeting at which a quorum is present shall be necessary for the passage of any
resolution or for an act to be the act of the Board or such committee; provided,
however, that prior to the closing of the sale of shares of the Corporation's
Common Stock in a bona fide, firm commitment, underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, at least one Series A Director shall be present (in person or
by telephone) at any meeting of the Board or such committee to constitute a
quorum. In the absence of a quorum, a majority of the directors present thereat
may adjourn such meeting from time to time until a quorum shall be present
thereat. Notice of any adjourned meeting need not be given.
(g) Organization of Meetings. At each meeting of the Board,
one of the following shall act as chairman of the meeting and preside thereat,
in the following order of precedence:
(i) the Chairman of the Board;
(ii) the President, if a director; or
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(iii) any director chosen by a majority of the
directors present thereat.
(h) Minutes. The Secretary or such other person present whom
the chairman of the meeting shall appoint, shall act as secretary of such
meeting and keep the minutes thereof. The order of business at each meeting of
the Board shall be determined by the chairman of such meeting.
(i) Consent in Lieu of Meeting. Any action required or
permitted to be taken at any meeting of the Board or any committee thereof may
be taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in a writing or writings, and such writing or writings
are filed with the minutes of the proceedings of the Board or committee.
(j) Action by Communications Equipment. The directors may
participate in a meeting of the Board or any committee thereof by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
SECTION 5. Compensation. Each director, in consideration of his serving
as such, shall be entitled to receive from the Corporation such amount per annum
and such fees for attendance at meetings of the Board or of any committee, or
both, as the Board shall from time to time determine. The Board may likewise
provide that the Corporation shall reimburse each director or member of a
committee for any expenses incurred by him on account of his attendance at any
such meeting. Nothing contained in this Section 5 shall be construed to preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor or to require the Board to provide for compensation to
directors.
SECTION 6. Resignation, Removal and Vacancies.
(a) Any director may resign at any time by giving written
notice of his resignation to the Board or the President of the Corporation. Any
such resignation shall take effect at the time specified therein or when
delivered to the Board or the President, as the Board shall determine. Except as
aforesaid, the acceptance of such resignation shall not be necessary to make it
effective.
(b) Any director may be removed at any time for cause or
without cause by vote of the holders of record of a majority in voting interest
of shares then entitled to vote at an election of directors at a duly
constituted meeting of stockholders; provided, however, that Series A Directors
may be removed only with the prior approval (by vote or written consent) of the
holders of Series A Preferred Stock. The vacancy in the Board caused by any such
removal may be filled by the stockholders at such meeting or, if not so filled,
then by the Board as provided in the next paragraph of these By-laws. Any
director may also be removed at any time for cause by vote of a majority of the
whole Board.
(c) In case of any vacancy on the Board or in case of any
newly created directorship, a majority of the directors of the Corporation then
in office, though less than a quorum, or the sole remaining director may elect a
director to fill the vacancy or the newly created directorship for the unexpired
portion of the term being filled; provided, however, that any vacancy on the
Board with respect to any Series A Director may be filled only by another Person
(as defined in the Stockholders' Agreement) designated by GSCP. The director
elected to fill such vacancy shall hold office for the unexpired term in respect
of which such vacancy occurred.
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SECTION 7. Committees. The Board from time to time may appoint from
among its members an executive committee and one or more other committees, each
of which shall have one or more members as the Board shall determine. At least
one Series A Director shall be entitled to be a member of all committees of the
Board. Each committee shall have and may exercise such powers as the Board may
delegate, to the extent permitted by law. The Board shall have power to change
the members of any committee at any time, to fill vacancies and to discharge any
such committee, either with or without cause, at any time.
ARTICLE IV
Officers
SECTION 1. Election and Appointment and Term of Office.
(a) The officers of the Corporation may be a Chairman of the
Board or Co-Chairmen, a President, such number, if any, of Vice Presidents
(including Executive or Senior Vice Presidents) as the Board may from time to
time determine, a Secretary and a Treasurer and such officers as the Board may
from time to time determine. The Chairman of the Executive Committee may, if the
Board of Directors so determines, be an officer of the Corporation. Each such
officer shall be elected by the Board at its annual meeting or such other time
as the Board shall determine, and shall serve at the discretion of the Board.
Two or more offices may be held by the same person except that the same person
shall not be both President and Secretary. The Board may elect or appoint (and
may authorize the President to appoint) such other officers (including one or
more Assistant Secretaries and Assistant Treasurers) as it deems necessary who
shall have such authority and shall perform such duties as the Board or the
President may from time to time prescribe. The Board of Directors may, but shall
not be required to, designate one or more officers who shall hold the
position(s) of, and perform the duties of, the Chief Executive Officer, the
Chief Operating Officer, the Chief Financial Officer and the Chief Accounting
Officer.
(b) If additional officers are elected or appointed during the
year, each shall hold office until the next annual meeting of the Board at which
officers are regularly elected or appointed and until his successor is elected
or appointed and qualified or until his earlier death or resignation or removal
in the manner hereinafter provided.
SECTION 2. Duties and Functions.
(a) Chairman. The Chairman, if any, shall preside at all
meetings of the Board and of the stockholders at which he is present. The Board
may, but need not, designate the Chairman as the Chief Executive Officer of the
Corporation, in which event he shall exercise all of those general supervisory
provisions described in Section 2(b) of Article IV of the By-Laws, and the
President will there upon act as Chief Operating Officer of the Corporation,
subject to the direction of the Chairman.
(b) President. Unless the Board shall have designated the
Chairman, if any, as the Chief Executive Officer of the Corporation, the
President shall be the chief executive officer of the Corporation. The President
shall be responsible for implementing the policies adopted by the Board and
shall report to the Board. The President shall also have the powers and duties
delegated to him by these By-laws and such other powers and duties as the Board
may from time to time determine.
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<PAGE> 169
(c) Vice Presidents. Each Vice President shall have such
powers and duties as shall be prescribed by the Board.
(d) Secretary. The Secretary shall keep the records of all
meetings of the stockholders, the Board and all other committees, if any, in one
or more books kept for that purpose. He shall give or cause to be given due
notice of all meetings in accordance with these By-laws and as required by law.
He shall be custodian of the seal of the Corporation and of all contracts,
deeds, documents and other corporate papers, records (except accounting records)
and indicia of title to properties owned by the Corporation as shall not be
committed to the custody of another officer by the Board, or by the President.
He shall affix or cause to be affixed the seal of the Corporation to instruments
requiring the same when the same have been signed on behalf of the Corporation
by a duly authorized officer. He shall perform all duties and have all powers
incident to the office of Secretary and shall perform such other duties as shall
be assigned to him by the Board or the President. The Secretary may be assisted
by one or more Assistant Secretaries.
(e) Treasurer. The Treasurer shall have charge and custody of
all moneys, stocks, bonds, notes and other securities owned or held by the
Corporation, except those held elsewhere at the direction of the Chief Executive
Officer or the Board. He shall perform all duties and have all powers incident
to the office of Treasurer and shall perform such other duties as shall be
assigned to him by the Board, the Chief Executive Officer and the Chief
Financial Officer, if any. The Treasurer may be assisted by one or more
Assistant Treasurers, and the Treasurer shall report to the Chief Executive
Officer and the Chief Financial Officer, if any, or to such other officer as may
be designated by the Board or to the Board of Directors, as the Board of
Directors shall determine.
SECTION 3. Resignation, Removal and Vacancies.
(a) Any officer may resign at any time by giving written
notice of his resignation to the Board or the President. Any such resignation
shall take effect at the time specified therein or when delivered to the Board,
as the Board shall determine. Except as aforesaid, the acceptance of such
resignation shall not be necessary to make it effective.
(b) Any officer, agent or employee elected or appointed by the
Board may be removed, with or without cause, at any time by the Board. Any
officer, agent or employee appointed by an officer may be removed, with or
without cause, at any time by the Board or such officer. Any removal pursuant to
Section 2 or 3 of this Article IV shall not affect any rights which a terminated
employee shall have under any employment agreement between such person and the
Corporation which has been approved by the Board of Directors and has been
executed by an officer authorized by the Board to execute such agreement.
(c) A vacancy in any office may be filled for the unexpired
portion of the term in the same manner as provided in these By-laws for election
or appointment to such office.
ARTICLE V
Waiver of Notices; Place of Meetings
SECTION 1. Waiver of Notices. Whenever notice is required to be given
by the Certificate of Incorporation, by these By-laws or by law, a waiver
thereof in writing, signed by the person entitled to such
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<PAGE> 170
notice or by an attorney thereunto authorized, shall be deemed equivalent to
notice, whether given before or after the time specified therein and, in the
case of a waiver of notice of a meeting, whether or not such waiver specifies
the purpose of or business to be transacted at such meeting. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
where the person attends the meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
SECTION 2. Place of Meetings. Any meeting of the stockholders, the
Board or any committee of the Board may be held within or outside the State of
Delaware.
ARTICLE VI
Execution and Delivery of Documents; Deposits; Proxies;
Books and Records
SECTION 1. Execution and Delivery of Documents; Delegation. The Board
shall designate the officers, employees and agents of the Corporation who shall
have power to execute and deliver deeds, contracts, mortgages, bonds,
debentures, checks, drafts and other orders for the payment of money and other
documents for and in the name of the Corporation and may authorize such
officers, employees and agents to delegate such power (including authority to
redelegate) by written instrument to other officers, employees or agents of the
Corporation. Such delegation may be by resolution or otherwise, and the
authority granted shall be general or confined to specific matters, all as the
Board may determine.
SECTION 2. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
or otherwise as the Board, the President, or any other officer of the
Corporation to whom power in that respect shall have been delegated by the Board
or these By-laws shall select.
SECTION 3. Proxies in Respect of Stock or Other Securities of Other
Corporations. The Chief Executive Officer, the Chairman of the Board, the
President or any other officer of the Corporation designated by the Board shall
have the authority from time to time to appoint an agent or agents of the
Corporation to exercise in the name and on behalf of the Corporation the powers
and rights which the Corporation may have as the holder of stock or other
securities in any other corporation, to vote or consent in respect of such stock
or securities and to execute or cause to be executed in the name and on behalf
of the Corporation and under its corporate seal or otherwise, such written
proxies, powers of attorney or other instruments as he may deem necessary or
proper in order that the Corporation may exercise such powers and rights. Any
such officer may instruct any person or persons appointed as aforesaid as to the
manner of exercising such powers and rights.
SECTION 4. Books and Records. The books and records of the Corporation
may be kept at such places within or without the State of Delaware as the Board
may from time to time determine.
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<PAGE> 171
ARTICLE VII
Certificates; Stock Record; Transfer and Registration;
New Certificates; Record Date; etc.
SECTION 1. Certificates for Stock.
(a) Every owner of stock of the Corporation shall be entitled
to have a certificate certifying the number of shares owned by him in the
Corporation and designating the class of stock to which such shares belong,
which shall otherwise be in such form as the Board shall prescribe. Each such
certificate shall be signed by, or in the name of the Corporation by, the Chief
Executive Officer, the Chairman of the Board, the President or a Vice President
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Corporation. Any or all of such signatures may be facsimiles.
(b) In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may nevertheless be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue. Every certificate surrendered to the Corporation for exchange or
transfer shall be cancelled and a new certificate or certificates shall not be
issued in exchange for any existing certificate until such existing certificate
shall have been so cancelled, except in cases provided for in Section 4 of this
Article.
SECTION 2. Stock Record. A stock record in one or more counterparts
shall be kept of the name of the person, firm or corporation owning the stock
represented by each certificate for stock of the Corporation issued, the number
of shares represented by each such certificate, the date thereof and, in the
case of cancellation, the date of cancellation. Except as otherwise expressly
required by law, the person in whose name shares of stock stand on the stock
record of the Corporation shall be deemed the owner thereof for all purposes as
regards the Corporation.
SECTION 3. Transfer and Registration of Stock.
(a) Transfer. The transfer of stock and certificates of stock
which represent the stock of the Corporation shall be governed by the Uniform
Commercial Code, as in effect in Delaware and as amended from time to time.
(b) Registration. Registration of transfers of shares of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the Corporation, on the surrender
of the certificate or certificates for such shares properly endorsed or
accompanied by a stock power duly executed.
SECTION 4. New Certificates.
(a) Lost, Stolen or Destroyed Certificates. Where a stock
certificate has been lost, apparently destroyed or wrongfully taken, the
issuance of a new stock certificate or the claims based on such certificate
shall be governed by the Uniform Commercial Code, as in effect in Delaware and
amended from time to time.
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<PAGE> 172
(b) Mutilated Certificates. Where the holder of any
certificate for stock of the Corporation notifies the Corporation of the
mutilation of such certificate within a reasonable time after he has notice of
it, the Corporation will issue a new certificate for stock in exchange for such
mutilated certificate theretofore issued by it.
(c) Bond. The Board may, in its discretion, require the owner
of the lost, stolen, destroyed or mutilated certificate to give the Corporation
a bond in such sum, limited or unlimited, in such form and with such surety or
sureties sufficient to indemnify the Corporation against any claim that may be
made against it on account of the loss, theft, destruction or mutilation of any
such certificate or the issuance of any such new certificate.
SECTION 5. Regulations. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these By-laws, concerning the
issue, transfer and registration of certificates for stock of the Corporation.
The Board may appoint or authorize any officer or officers to appoint one or
more transfer clerks or one or more transfer agents and one or more registrars
and may require all certificates for stock to bear the signature or signatures
of any of them.
SECTION 6. Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board
may fix, in advance, a record date, which shall not be more than 60 nor less
than 10 days before the date of such meeting, nor more than 60 days prior to any
other action. A determination of stockholders entitled to notice of or to vote
at a meeting of the stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
ARTICLE VIII
Seal
The Board shall provide a corporate seal which shall bear the full name
of the Corporation and the year and state of its incorporation.
ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall end on December 31 of
each year, or such other date as shall be determined by resolution of the Board
of Directors.
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<PAGE> 173
ARTICLE X
Amendments
Sections 2, 3, 4(f), 6 and 7 of Article III of these By-Laws and this
Article X of these By-Laws may not be altered or repealed without the prior
approval of the holders of a majority of the outstanding shares of Series A
Preferred Stock. Otherwise, these By-laws may be amended, altered or repealed by
the vote of a majority of the whole Board; provided, however, that the holders
of a majority of the outstanding stock of the Corporation entitled to vote in
respect thereof, may, by their vote given at an annual meeting or at any special
meeting, amend or repeal any By-law made by the Board.
<PAGE> 174
Exhibit I
TRANSACTION INFORMATION SYSTEMS, INC.
Secretary's Certificate
I, the undersigned, being the Secretary of Transaction Information
Systems, Inc., a corporation organized and existing under the laws of the State
of Delaware (the "Company"), DO HEREBY CERTIFY on behalf of the Company that:
1. This Certificate is being delivered at the Closing today pursuant to
Section 1.5(i) of the Stock Purchase Agreement, dated as of September 4, 1998
(the "Agreement"), among the Company, GS Capital Partners III, L.P. ("GSCP"),
certain affiliates of GSCP, and certain stockholders of the Company. Unless
otherwise defined herein, capitalized terms used in this Certificate have the
meanings given to them in the Agreement.
2. Attached hereto as Exhibit A is a correct and complete copy of the
resolutions adopted by the Company by written consent on September 3, 1998,
which resolutions are now in full force and effect and have not been altered,
amended or rescinded in any way.
3. The persons named below have been duly elected (or appointed),
qualified and acting officers of the Company at all times since September 3,
1998 (to and including the date hereof), each holding the respective offices set
forth opposite their names, and the signatures set forth below opposite their
names are the genuine signatures of such officers executing the Agreement and
any other agreements or documents on behalf of the Company in connection with
the Closing under the Agreement:
<TABLE>
<CAPTION>
Name Office Signature
<S> <C> <C>
Chairman of the Board
Jeffrey Najarian and Chief Executive Officer
Robert Gold President
Senior Vice President
Edward Shaw and Secretary
Senior Vice President
Mark Arzoomanian and Treasurer
Senior Vice President
George Setford and Assistant Secretary
Paul Bayse Senior Vice President
Peter Bonjuklian Senior Vice President
Arthur Farkas Senior Vice President
Senior Vice President
Mitchell Fass and Assistant Secretary
</TABLE>
<PAGE> 175
<TABLE>
<CAPTION>
Name Office Signature
<S> <C> <C>
Peter Melomo Senior Vice President 1
Jonathan Toder Senior Vice President 1
</TABLE>
4. Attached hereto as Exhibit B is a certificate, certifying as to the
good standing of the Company, issued by the Secretary of State of the State of
Delaware.
5. Attached hereto as Exhibit C is a copy of the Certificate of
Incorporation of the Company and all amendments thereto; no action has been
taken to amend such Certificate since the date of the last amendment; and there
are no proceedings pending or, to the best of my knowledge, threatened for the
liquidation or dissolution of the Company or threatening its existence.
6. Attached hereto as Exhibit D is a true and complete copy of the
By-Laws of the Company and all amendments thereto, as in full force and effect
on the date hereof.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate
on behalf of the Company as of September ___, 1998.
TRANSACTION INFORMATION SYSTEMS, INC.
By: ________________________________
Edward Shaw
Secretary
I, Jeffrey Najarian, Chairman of the Board and Chief Executive Officer
of the Company, DO HEREBY CERTIFY on behalf of the Company that Edward Shaw, is,
and at all times since September 3, 1998 has been, duly elected and qualified as
the Secretary of the Company, and that his signature set forth above is his
genuine signature.
TRANSACTION INFORMATION SYSTEMS, INC.
By: _______________________________
Jeffrey Najarian
Chairman of the Board and
Chief Executive Officer
- -----------------------
1 Not Available.
<PAGE> 176
EXHIBIT A
---------
RESOLUTIONS
<PAGE> 177
Exhibit B
---------
Good Standing Certificate
<PAGE> 178
Exhibit C
---------
Certificate of Incorporation and Amendments
<PAGE> 179
Exhibit D
---------
By-Laws
<PAGE> 180
Exhibit J
September 4, 1998
GS Capital Partners III, L.P.
GS Capital Partners III Offshore, L.P.
Goldman, Sachs & Co. Verwaltungs GmbH
Stone Street Fund 1998, L.P.
Bridge Street Fund 1998, L.P
85 Broad Street
New York, NY 10004
Ladies and Gentlemen:
We have acted as counsel to Transaction Information Systems, Inc., a
corporation formed under the laws of the State of Delaware (the "Corporation"),
in connection with that certain Preferred Stock Purchase Agreement, dated as of
September 4, 1998 (the "Stock Purchase Agreement"), by and among the
Corporation, GS Capital Partners III, L.P., GS Capital Partners III Offshore,
L.P., Goldman, Sachs & Co. Verwaltungs GmbH, Stone Street Fund 1998, L.P., and
Bridge Street Fund 1998, L.P (collectively, the "Investors," and each
individually an "Investor") and the existing stockholders of the Corporation
(the "Existing Stockholders"). All capitalized terms used but not otherwise
defined herein shall have the respective meanings ascribed to them in the Stock
Purchase Agreement.
In connection with rendering this opinion, we have examined the
Documents, as hereafter defined, and have examined and relied upon such matters
of law and such certificates of public officials as we have deemed relevant to
the rendering of our opinion.
Based upon the foregoing and subject to the qualifications hereinafter
set forth, we are of the opinion that:
<PAGE> 181
GS Capital Partners III, L.P.
September 4, 1998
Page 2
1. The Corporation (i) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and (ii)
has all requisite corporate power to own, lease and operate its properties, to
carry on the business of the Corporation as presently conducted and to enter
into and carry out the transactions contemplated by the Stock Purchase
Agreement, the Stockholders' Agreement and the Registration Rights Agreement
(collectively, the "Documents").
2. The execution, delivery and performance by the Corporation of each
of the Documents has been duly authorized by all requisite corporate action on
the part of the Corporation, and each of the Documents constitutes a legal,
valid and binding obligation of the Corporation, enforceable against the
Corporation in accordance with its terms.
3. (a) The authorized capitalization of the Corporation consists of (i)
10,000,000 shares of Preferred Stock, par value $.01 per share, of which
8,000,000 shares have been designated Series A Preferred Stock, none of which
shares of Preferred Stock are outstanding, and (ii) 35,000,000 shares of Common
Stock, par value $.01 per share (the "Common Stock"), of which (A) 20,000,000
shares of Common Stock are outstanding, and all such shares have been validly
issued and are fully paid and nonassessable, with no personal liability
attaching to the ownership thereof, (B) 1,898,800 shares of Common Stock have
been duly reserved for issuance upon the exercise of certain options granted to
persons as set forth in Schedule 2.3(a) of the Stock Purchase Agreement (the
"Existing Options") and (C) 165,000 shares of Common Stock have been duly
reserved for issuance upon the exercise of certain options, to be granted to
certain employees, which options have not yet been granted (the "Management
Options").
(b) The authorized capitalization of TIS Equipment Corp.
("TEC") consists of (i) 5,000,000 shares of Preferred Stock, par value $.01 per
share, none of which shares of Preferred Stock are outstanding, and (ii)
25,000,000 shares of Common Stock, par value $.01 per share (the "TEC Common
Stock"), of which 10,000,000 shares of TEC Common Stock are outstanding, and
which, immediately prior to the Closing and before giving effect to the capital
contribution of such shares to TIS, are owned by the same Existing Stockholders
and in the same respective amounts as is set forth in Schedule 2.3(a) with
respect to the Corporation.
(c) The authorized capitalization of Setford-Shaw-Najarian
Associates, Ltd. ("SSN") consists of (i) 200 shares of Common Stock, no par
value per share (the "SSN Common Stock"), of which 200 shares of SSN Common
Stock are outstanding, and all such shares are owned by the Corporation.
4. To our knowledge, (a) Schedule 2.3(a) of the Stock Purchase
Agreement contains a list of all outstanding warrants, options, agreements,
convertible securities or other commitments pursuant to which the Corporation is
or may become obligated to issue any shares of the capital stock or other
securities of the Corporation (except as otherwise contemplated by the
Documents), and which names all persons entitled of record to receive such
shares or other
<PAGE> 182
GS Capital Partners III, L.P.
September 4, 1998
Page 3
securities, the shares of capital stock or other securities required to be
issued thereunder as of the date hereof and the price per share, if any, payable
with respect to the issuance of any share of capital stock issuable thereunder;
(b) except as set forth on Schedule 2.3(b) of the Stock Purchase Agreement or as
otherwise contemplated by the Documents, there are no rights, including
preemptive or similar rights, to purchase or otherwise acquire shares or sell or
otherwise transfer shares of the capital stock of the Corporation pursuant to
any provision of law, the Certificate of Incorporation, the By-Laws, or any
agreement known to us to which the Corporation is a party, except for the
Stockholders Agreement among the Corporation and its stockholders being
terminated immediately before the Closing (the "Old Stockholders Agreement");
and (c) except as set forth on Schedule 2.3(b) of the Stock Purchase Agreement
or as otherwise contemplated by the Documents, or in the Old Stockholders
Agreement, the Corporation is not a party to any agreements, restrictions or
encumbrances (such as a right of first refusal, right of first offer, proxy,
voting agreement, voting trust, registration rights agreement, stockholders'
agreement, or similar arrangement whether or not the Corporation is a party
thereto) with respect to the purchase, sale or voting of any shares of capital
stock of the Corporation (whether outstanding or issuable upon conversion or
exercise of outstanding securities).
5. The authorization, issuance, sale and delivery of Series A Preferred
Stock pursuant to the Stock Purchase Agreement and the authorization,
reservation, issuance, sale and delivery of the Conversion Shares have been duly
authorized by all requisite corporate action on the part of the Corporation, and
when issued and delivered in accordance with the Stock Purchase Agreement and
the Certificate of Designations, the Series A Preferred Stock and the Conversion
Shares will be validly issued and outstanding, fully paid and nonassessable with
no personal liability attached to the ownership thereof, free of any
Encumbrances and not subject to preemptive or similar rights of the stockholders
of the Corporation or others, except as provided in the Documents or under
applicable securities laws.
6. The execution, delivery and performance by the Corporation of each
of the Documents and the consummation by the Corporation and the Existing
Stockholders of the transactions contemplated hereby and thereby will not (a)
violate any provision of law, statute, rule or regulation that, in our
experience, is normally applicable to transactions of the type contemplated by
the Documents, or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body known to us applicable
to any of the TIS Entities, or any of their properties or assets, except with
respect to the contribution of the TEC Common Stock to TIS under the agreements
with Merrill Lynch Business Financial Services Inc. ("Merrill Lynch") set forth
on Schedule 2.23 to the Stock Purchase Agreement and related agreements
supporting the lines of credit with Merrill Lynch (collectively, the "Merrill
Documents"), (b) conflict with or result in any breach of any of the term,
conditions or
<PAGE> 183
GS Capital Partners III, L.P.
September 4, 1998
Page 4
provisions of, or constitute (with due notice or lapse of time, or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, or result in the creation of any Encumbrance upon any of the properties
or assets of any of the TIS Entities under, any Contract known to us, except
under the Merrill Documents, or (c) violate the Certificate of Incorporation or
the By-Laws of any of the TIS Entities.
7. The offer and sale of the Series A Preferred Stock, the issuance and
delivery of the Conversion Shares to the Investors upon the conversion of the
Series A Preferred Stock in accordance with the terms of the Stock Purchase
Agreement and the Certificate of Designations, and all prior issuances of
securities of the Corporation are each exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), as currently in
effect.
8. No consent or approval of or by, or any notification of or filing
with, any person (governmental or, to our knowledge, private) which has not
heretofore been made is required in connection with the execution, delivery and
performance by the Corporation of the Documents or any documentation relating
thereto, the consummation by the Corporation of the transactions contemplated
hereby or thereby, the issuance, sale or delivery of the Series A Preferred
Stock and the Conversion Shares in accordance with the terms of the Stock
Purchase Agreement and the Certificate of Designations.
The foregoing opinion is limited as follows:
(a) The opinion expressed herein with respect to the
enforceability of the Agreements is subject to the effects of bankruptcy,
insolvency, avoidance and other laws affecting the enforcement of creditors'
rights generally, general principles of equity, including, without limitation,
doctrines of reasonableness, materiality, good faith and fair dealing and
limitations on the rights to recover attorneys' fees (regardless of whether such
enforceability is considered in a proceeding in equity or at law). In addition,
we express no opinion as to the enforceability of: (i) self-help and other
non-judicial remedies; (ii) provisions which purport to create powers of
attorney (or similar powers to act on behalf of the Corporation without the
Corporation's express consent as to each specific action taken pursuant to such
power at the time such action is taken or proposed to be taken); (iii)
provisions related to waiver of rights or remedies (or the delay or omission of
enforcement thereof), disclaimers, liability limitations with respect to third
parties, releases of legal rights or equitable discharge of defenses; (iv)
indemnifications for environmental matters or for violation of securities laws
and similar provisions; (v) default interest rates, late payment charges,
liquidated damages provisions and other similar items to the extent that they
are deemed to be penalties or forfeitures or are found to be usurious; and (vi)
the availability of injunctive relief or specific performance in any particular
<PAGE> 184
GS Capital Partners III, L.P.
September 4, 1998
Page 5
case.
(b) The opinion expressed herein is further premised on the
assumption that: (i) all records, agreements and documents examined by us in
connection with the preparation of this opinion are complete, authentic and
accurate; (ii) all signatures contained in such records, agreements and
documents are genuine signatures of the parties purporting to have signed the
same; (iii) all parties signing such records, agreements and documents had, at
the time of such signing, full legal capacity to sign and deliver such records
and documents and that the facts recited in the affidavits concerning certain
powers of attorney are accurate; (iv) the Documents have been duly authorized,
executed and delivered by, constitute legal, valid and binding obligations of,
and are enforceable against, the Investors; (v) all documents submitted to us as
copies or by telecopier conform in all respects to the respective originals; and
(vi) all of the representations and warranties of the Corporation and the
Investors in the Stock Purchase Agreement are accurate.
(c) The opinion set forth in paragraphs 3 and 4 above are
based solely on our review of the Certificate of Incorporation, as amended to
date, of the Corporation, TEC and SSN (collectively, the "TIS Group"), the
Corporation's Certificate of Designations, the minutes and stock ledgers of the
TIS Group, and certificates of such officers of the TIS Group as we have deemed
necessary. The opinions set forth in paragraphs 7 and 8 above are based in part
on the accuracy of the Investors' representations contained in the Stock
Purchase Agreement including, without limitation, those contained in Section
3(h) thereof, that there is no requirement for the Investors to file under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended. The opinion set
forth in paragraph 7 above also assumes that the parties acquiring Conversion
Shares do so for investment and not as part of a distribution.
(d) All statements made herein "to our knowledge", "to our
actual knowledge", "as to which we have actual knowledge", "to the best of our
knowledge" "known to us" and the like refers to our actual knowledge.
We are admitted to practice law in the State of New York and
we express no opinion as to the laws of any other jurisdiction except for the
corporate law of the State of Delaware and the laws of the United States to the
extent referred to herein. The opinions expressed herein are based on applicable
laws, rules and regulations in effect and factual circumstances as of the date
hereof and we assume no obligation to advise you of any changes concerning the
matters discussed herein. This opinion is intended solely for the use of the
Investors and may not be reproduced or filed publicly
<PAGE> 185
GS Capital Partners III, L.P.
September 4, 1998
Page 6
or relied upon by any other person without our written consent, except nothing
herein shall prevent disclosure of this opinion if specifically required by law
or court order or in connection with any litigation involving the transactions
contemplated by the Documents.
Very truly yours,
ESANU KATSKY KORINS & SIGER, LLP
<PAGE> 186
EXHIBIT K
NONDISCLOSURE AGREEMENT
This NONDISCLOSURE AGREEMENT (this "Agreement"), is made as of
September 3, 1998, by and among TRANSACTION INFORMATION SYSTEMS, INC., a
corporation formed under the Laws of the State of Delaware (the "Company") and
the stockholder set forth on the signature page hereto (the "Stockholder").
WHEREAS, as of the date hereof, the Company, each of the existing
stockholders of the Company, including the Stockholder (the "Existing
Stockholders"), GS Capital Partners III, L.P., a Delaware limited partnership
("GSCP"), GS Capital Partners III Offshore, L.P. ("GSCP Offshore"), Goldman,
Sachs & Co. Verwaltungs GmbH ("GS Germany"), Stone Street Fund 1998, L.P.
("Stone 1998"), Bridge Street Fund 1998, L.P. ("Bridge 1998," collectively with
GSCP, GSCP Offshore, GSCP Germany, Stone 1998 and Bridge 1998, the "GSCP
Parties") are entering into a Preferred Stock Purchase Agreement (the "Purchase
Agreement") and certain other agreements; and
WHEREAS, as an inducement to GSCP and the GSCP Parties to enter into
the Purchase Agreement, each of the Existing Stockholders have agreed to enter
into this Agreement with the Company.
ACCORDINGLY, the parties hereto agree as follows:
1. Nondisclosure. The Stockholder acknowledges that (i) the Stockholder
has access to and knowledge of Confidential Information (as defined below); (ii)
the disclosure of any such Confidential Information to existing or potential
competitors of the Company would place the Company at a competitive disadvantage
and would cause damage, monetarily or otherwise, to the Company's business and
(iii) the engaging by the Stockholder in any of the activities prohibited by
this Agreement may constitute improper appropriation and/or use of Confidential
Information. The Stockholder expressly acknowledges the trade secret status of
the Confidential Information and that the Confidential Information constitutes a
protectable business interest of the Company. The Stockholder will not, during
or at any time after the term of his employment with the Company, disclose any
Confidential Information to any person, firm, corporation, association, or other
entity for any reason or purpose whatsoever except (a) as required in the
performance of the Stockholder's duties on behalf of the Company, (b) as
required by applicable law or (c) to affiliates of the GSCP Parties or potential
investors in the Company. For purposes of this Agreement, "Confidential
Information" means any confidential or proprietary information relating to the
Company and its affiliates
<PAGE> 187
including, without limitation, the identity of the Company's customers, the
identity of representatives of customers with whom the Company has dealt, the
kinds of services provided by the Company to customers, the manner in which such
services are performed or offered to be performed, the service need of actual or
prospective customers, pricing information, financial information, information
concerning the creation, acquisition or disposition of products and services,
customer maintenance listings, computer software applications, research and
development data, know-how, personnel information and other trade secrets.
2. Remedies. The Stockholder agrees that any breach of this Agreement
would result in irreparable injury and damage to the Company for which the
Company would have no adequate remedy at law. The Stockholder therefore also
agrees that in the event of said breach or any threat of breach, the Company (or
GSCP or any GSCP Party) shall be entitled to an immediate injunction and
restraining order to prevent such breach and/or threatened breach and/or
continued breach by the Stockholder and/or any and all entities acting for
and/or with the Stockholder, without having to prove damages, in addition to any
other remedies to which the Company (or GSCP or any GSCP Party) may be entitled
at law or in equity. The terms of this paragraph shall not prevent the Company
(or GSCP or any GSCP Party) from pursuing any other available remedies for any
breach or threatened breach hereof, including but not limited to the recovery of
damages from the Stockholder. The Stockholder acknowledges that GSCP and the
GSCP Parties would not have entered into the Purchase Agreement had the
Stockholder not entered into this Agreement.
3. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to the
principles of conflicts of law. Each of the parties hereto hereby irrevocably
and unconditionally consents to submit to the exclusive jurisdiction of the
courts of the State of New York and of the United States of America, in each
case located in the County of New York, for any action, proceeding or
investigation in any court or before any governmental authority arising out of
or relating to this Agreement.
4. Third Party Rights. The Stockholder hereby expressly agrees and
acknowledges that GSCP and each of the GSCP Parties are intended beneficiaries
of this Agreement and shall have any and all rights, individually or
collectively, to enforce the terms of this Agreement, including pursuant to
Section 2 hereof.
-2-
<PAGE> 188
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
COMPANY:
TRANSACTION INFORMATION SYSTEMS, INC.
By:_________________________________
Name:Jeffrey Najarian
Title: Chief Executive Officer
STOCKHOLDER:
___________________________________
<PAGE> 189
Exhibit L
INVESTOR PURCHASE OPTION AGREEMENT
----------------------------------
AGREEMENT made and entered into as of September 4, 1998 by and among
the stockholders of Transaction Information Systems, Inc., a Delaware
corporation (the "Corporation") set forth on Schedule I hereto (the "Selling
Stockholders") and, GS CAPITAL PARTNERS III, L.P., a Delaware limited
partnership ("GSCP") GS CAPITAL PARTNERS III OFFSHORE, L.P., GOLDMAN, SACHS &
CO. VERWALTUNGS GMBH, STONE STREET FUND 1998, L.P. and BRIDGE STREET FUND 1998,
L.P., each of which is an affiliate of The Goldman Sachs Group, L.P. (together
with GSCP, the "Investors," each individually referred to as an "Investor").
W I T N E S S E T H
-------------------
WHEREAS, simultaneously herewith, the Investors are purchasing from the
Corporation, and the Corporation is issuing to the Investors, Series A Preferred
Stock ("Series A Preferred Stock"), pursuant to a Preferred Stock Purchase
Agreement of even date herewith (the "Purchase Agreement"), by and among the
Corporation, the Investors and the Selling Stockholders.
Whereas, in order to induce the Investors to enter into the Purchase
Agreement, the Selling Stockholders have agreed to grant to the Investors
options to purchase from the Selling Stockholders, in the aggregate, up to the
Maximum Number of Shares (as defined herein) (the shares of Common Stock subject
to the Options are referred to as the "Option Shares").
ACCORDINGLY, the parties hereto agree as follows:
SECTION 1. Definitions. (a) As used herein, the following terms shall
have the following meanings:
"Anniversary Date" shall mean the second anniversary of the date
hereof.
"Closing Price" shall have the meaning set forth in Section 2(f).
"Common Stock" shall mean any shares of Common Stock of the Corporation
and any stock into which such Common Stock may hereafter be changed or for which
such Common Stock may be exchanged (other than any such change or exchange in a
Sale Transaction) after giving effect to the terms of such
<PAGE> 190
change or exchange (by way of reorganization, recapitalization, merger,
consolidation or otherwise).
"Common Stock Equivalents" shall mean securities convertible into, or
exchangeable for, shares of Common Stock.
"Defaulting Selling Stockholder" shall have the meaning set forth in
Section 3(c).
"IPO" shall mean the closing of the sale of shares of Common Stock in a
bona fide, firm commitment, underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended.
"Market Price" shall have the meaning set forth in Section 2(e).
"Maximum Number of Shares" shall mean the number of shares of Common
Stock equal to the product of (i) 3.65% and (ii) the total number of shares of
Common Stock outstanding on a Fully Diluted Basis (as defined in the Purchase
Agreement) immediately following the Closing (i.e., 818,723 shares of Common
Stock assuming no adjustment pursuant to Section 1.9 of the Purchase Agreement),
as adjusted in accordance with Section 1.9 of the Purchase Agreement.
"Original Price" shall mean $7.63.
"Purchase Options" shall have the meaning set forth in Section 2.
"Sale Number" shall have the meaning set forth in Section 2(b).
"Sale Transaction" shall mean a transaction (by way of merger, sale of
stock or otherwise) pursuant to which all of the shares of Common Stock and
Common Stock Equivalents are sold or exchanged for cash or other property. In
the event that any such sale or exchange involves property (including
securities) other than cash, then the value of such property, for purposes of
determining the consideration received in such Sale Transaction, shall equal (a)
if such property consists of equity securities admitted or listed for trading on
a national securities exchange or reported on the Automated Quotation System of
NASDAQ or a similar service, the average Closing Price of such securities for
the 10 trading days ending on the 10th day prior to consummation of the Sale
Transaction and (b) in all other cases, as agreed in good faith by the Board of
Directors of the Corporation and GSCP.
"Valuation Multiple" shall have the meaning set forth in Section
- 2 -
<PAGE> 191
2(g).
"Value Per Share" shall have the meaning set forth in Section 2(d).
(b) Capitalized terms used but not otherwise defined herein shall have
the meaning assigned to such terms in the Purchase Agreement.
SECTION 2. Purchase by the Investors. Upon a determination of the Value
Per Share (as defined herein) of a share of Common Stock, the options
contemplated by, and granted under, this Agreement (the "Purchase Options")
shall be exercisable as follows:
(a) To the extent that the Valuation Multiple is equal to or less than
1.5, the Investors shall have the right, upon the terms and subject to the
conditions set forth in this Agreement, to purchase from all of the Selling
Stockholders the Maximum Number of Shares, and each of the Selling Stockholders,
upon any such exercise, shall sell to the Investors a number of shares of Common
Stock equal to the product of such Selling Stockholder's Pro Rata Percentage (as
defined in Section 1.3 of the Purchase Agreement) times the Maximum Number of
Shares, at a purchase price of $.01 per share.
(b) To the extent that the Valuation Multiple is greater than 1.5 but
less than 2, the Investors shall have the right, upon the terms and subject to
the conditions set forth in this Agreement, to purchase from all of the Selling
Stockholders the number of shares of Common Stock equal to the product (the
"Sale Number") of (x) the difference of (i) 1 minus (ii) the quotient of (A) the
Valuation Multiple minus 1.5, divided by (B) .5 (which difference, if a negative
number, shall be deemed to be zero for purposes hereof), times (y) the Maximum
Number of Shares, and each of the Selling Stockholders, upon any such exercise,
shall sell to the Investors the product of such Selling Stockholder's Pro Rata
Percentage times the Sale Number, at a purchase price of $.01 per share.
(c) To the extent that the Valuation Multiple is equal to or greater
than 2, the Purchase Options shall be canceled and shall not be exercisable.
(d) For purposes of this Agreement, "Value Per Share" shall mean (i) in
the event of a Sale Transaction which is consummated prior to the Anniversary
Date, the consideration received for each share of Common Stock in the Sale
Transaction, (ii) in the event of an IPO which is consummated prior to the
Anniversary Date, the Market Price of each share of Common Stock, and (iii) in
the event that no Sale Transaction or IPO is consummated prior to the
Anniversary Date, zero.
- 3 -
<PAGE> 192
(e) For purposes of this Agreement, "Market Price" shall mean, with
respect to shares of Common Stock on any date, the highest arithmetic average of
the Closing Prices per share of Common Stock for any 30 consecutive trading day
period commencing at any time after the 30th trading day following an IPO, with
the last of any such 30 day period ending on the Anniversary Date.
(f) For purposes of this Agreement, "Closing Price" shall mean, with
respect to an equity security for any day, (i) the last reported sale price
regular way or, in case no such sale takes place on such day, the average of the
closing bid and asked prices regular way, in either case as reported on the
principal national securities exchange on which such security is listed or
admitted for trading or (ii) if such security is not listed or admitted for
trading on any national securities exchange, the last reported sale price or, in
case no such sale takes place on such day, the average of the last reported bid
and the last reported asked quotation for such security, in either case as
reported on the Automated Quotation System of NASDAQ or a similar service if
NASDAQ is no longer reporting such information.
(g) For purposes of this Agreement, "Valuation Multiple" shall mean the
quotient of the Value Per Share divided by the Original Price.
SECTION 3. Notice of Exercise; Closing; Violation of Agreement by
Selling Stockholder.
(a) Notice of Exercise. The Investors shall exercise the Purchase
Options by written notice from GSCP to the Agent for the Existing Stockholders
(as defined in the Purchase Agreement) or to each of the Selling Stockholders,
(i) if the Value Per Share is being determined as a result of a Sale
Transaction, at any time within the 30 day period prior to the consummation of
the Sale Transaction or (ii) if the Value Per Share is being determined as a
result of an IPO or if no Sale Transaction or IPO is consummated prior to the
Anniversary Date, at any time within 30 days after the Anniversary Date. If
notice of exercise is given with respect to a Sale Transaction and such Sale
Transaction is not consummated, such exercise shall be of no force and effect
and the Purchase Options shall thereupon continue in accordance with the terms
hereof.
(b) Closing. (i) The closing of the purchase and sale of the Option
Shares under the Purchase Options (the "Closing") shall take place on a date
determined by the Investors not later than 15 business days after the applicable
notice of exercise is rendered or the fifth business day after the expiration or
termination of all waiting periods under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended, as applicable to such transaction.
- 4 -
<PAGE> 193
The Closing shall take place at 10:00 a.m. New York City time at the offices of
Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York
10004 or at such other place and date as the parties thereto may agree in
writing.
(ii) The purchase price payable for the Option Shares
hereunder shall be paid in full at the Closing by check or wire transfer of
immediately available funds at a bank account designated in writing by the
Selling Stockholders. At the Closing, each of the Selling Stockholders selling
Option Shares shall deliver to the Investors (i) duly executed certificates
representing the Option Shares purchased by the Investors hereunder duly
endorsed in blank and (ii) an affidavit, in form reasonably satisfactory to the
Investors, as described in Treasury Regulation Section1.1445-2(b)(2). The Option
Shares purchased by the InvestorS hereunder shall be free and clear of any and
all liens, claims and encumbrances of any kind, nature and description.
(c) Violation of Agreement by Selling Stockholder. To the extent that
any Selling Stockholder (a "Defaulting Selling Stockholder"), in violation of
this Agreement, fails to deliver the number of shares required to be sold by him
pursuant to any exercise of the Purchase Options, the Investors shall have the
right, in addition to all other remedies available to the Investors, to require
any other Selling Stockholder or Selling Stockholders to deliver to the
Investors, upon any such exercise, the number of shares of Common Stock which
the Defaulting Selling Stockholder so failed to deliver, and each Selling
Stockholder agrees to deliver such number of shares upon any such request.
SECTION 4. Adjustments. The total number of shares of Common Stock
purchasable upon the exercise of the Purchase Options and the Original Price
shall be subject to adjustment from time to time as follows:
In the event of any change in, or distributions in respect of, the
outstanding shares of Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions, exchanges
of shares or the like, the type and number of shares of Common Stock purchasable
upon exercise of the Purchase Options and the Original Price shall be
appropriately adjusted in such manner as shall fully preserve the economic
benefits provided hereunder and proper provision shall be made in any agreement
governing any such transaction to provide for such proper adjustment and the
full satisfaction of the Selling Stockholders' obligations hereunder.
SECTION 5. Representations and Warranties. (a) Each party hereto
represents and warrants to the other parties hereto as follows:
- 5 -
<PAGE> 194
(i) It has full power and authority to execute, deliver and
perform its obligations under this Agreement.
(ii) This Agreement has been duly and validly authorized,
executed and delivered by it, and constitutes a valid and binding obligation of
it, enforceable against it in accordance with its terms except to the extent
that enforceability may be limited by bankruptcy, insolvency or other similar
laws affecting creditors' rights generally.
(iii) The execution, delivery and performance of this
Agreement by it does not (x) violate, conflict with, or constitute a breach of
or default under its organizational documents, if any, or any material agreement
to which it is a party or by which it is bound or (y) violate any law,
regulation, order, writ, judgment, injunction or decree applicable to it.
(b) The Selling Stockholders represent, warrant and covenant to the
Investors that:
(i) at all times prior to termination of the Purchase Options,
they will beneficially own a number of shares of Common Stock at
least equal to the Maximum Number of Shares, and
(ii) the Option Shares, when sold and delivered pursuant to
this Agreement, will be (x) validly issued and outstanding, fully
paid and nonassessable, (y) free and clear of any restriction or
Encumbrance (as defined in the Purchase Agreement) and (z) free
and clear of any rights, including preemptive or similar rights,
to purchase or sell or otherwise transfer the Option Shares, or
any agreement relating to any of the foregoing, except as
otherwise provided by the Stockholders' Agreement.
SECTION 6. Transfer Taxes. The Selling Stockholders agree that they
will pay, and will hold the Investors harmless from any and all liability with
respect to any stamp, transfer or other Taxes which may be determined to be
payable in connection with the execution and delivery and performance of this
Agreement or any modification, amendment or alteration of the terms or
provisions of this Agreement, and that they will similarly pay and hold the
Investors harmless from all such Taxes in respect of the sale of the Option
Shares to the Investors.
SECTION 7. Notices. All notices hereunder shall be in writing and shall
be sufficiently given when sent by facsimile (subject to telephonic confirmation
of receipt and mailing of a confirmation copy), personally delivered
- 6 -
<PAGE> 195
or when sent by a nationally recognized overnight or local courier service or
mailed by registered or certified mail, return receipt requested, postage
prepaid, to the parties hereto at the following addresses and facsimile numbers:
If to the Selling Stockholders: to the addresses listed in Schedule 1 hereto
with a copy to:
Esanu Katsky Korins & Siger, LLP
605 Third Avenue, 16th Floor
New York, NY 10158
Telecopy: (212) 953-6899
Attention: Roy M. Korins, Esq.
If to the Investors: GS Capital Partners III, L.P.
85 Broad Street
New York, New York 10004
Telecopy: (212) 902-3000
Attention: Randall Blumenthal
with a copy to: GS Capital Partners III, L.P.
85 Broad Street
New York, New York 10004
Telecopy: (212) 357-5505
Attention: Ben Adler, Esq.
and a copy to: Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopy: (212) 859-8586
Attention: Paul M. Reinstein, Esq.
or at such other address or facsimile number as any party may designate to any
other party by written notice. Notices shall be deemed to have been given when
received.
SECTION 8. Miscellaneous. (a) This Agreement may be executed in any
number of counterparts which, when executed and delivered by all parties hereto,
shall be binding on all parties hereto and shall constitute one agreement,
notwithstanding that all parties have not signed the same counterpart.
(b) This Agreement shall bind and inure to the benefit of each party
- 7 -
<PAGE> 196
hereto and its respective successors and assigns. The Corporation and each of
the Selling Stockholders acknowledge that the Investors shall have the right to
assign all or part of its rights and obligations under this Agreement to any
party without the consent of the Corporation or any of the Selling Stockholders.
Upon any such assignment, such assignee shall have the obligations and be able
to exercise all rights of the Investors hereunder and shall agree to be bound by
the terms of this Agreement.
(c) The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with its specific terms or was otherwise breached. It is accordingly
agreed that the parties shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any New York court, this being in addition to any other
remedy to which they may be entitled at law or in equity.
(d) The headings in this Agreement are for purposes of reference only
and shall not be considered in construing this Agreement. As used herein, the
neuter gender shall also denote the masculine and feminine where the context so
permits.
(e) This Agreement shall be governed by and construed in accordance
with the laws of the state of New York without giving effect to the principles
of conflicts of law thereof. Each of the parties hereto hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the state of New York and of the United States of America, in each case
located in the county of New York, for any action, proceeding or investigation
in any court or before any governmental authority ("Litigation") arising out of
or relating to this Agreement and the transactions contemplated hereby (and
agrees not to commence any Litigation relating thereto except in such courts),
and further agrees that service of any process, summons, notice or document by
U.S. registered mail to its respective address set forth in this Agreement shall
be effective service of process for any Litigation brought against it in any
such court. Each of the parties hereto hereby irrevocably and unconditionally
waives any objection to the laying of venue of any Litigation arising out of
this Agreement or the transactions contemplated hereby in the courts of the
state of New York or the United States of America, in each case located in the
county of New York, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such Litigation
brought in any such court has been brought in an inconvenient forum.
(f) If any term or provision of this Agreement, or the application
- 8 -
<PAGE> 197
thereof to any person or circumstance, shall to any extent be invalid or
unenforceable, the remainder thereof, and the application thereof to any other
persons and circumstances, shall not be affected thereby, and each term and
provision hereof shall be enforced to the fullest extent permitted by applicable
law.
(g) This Agreement may be amended only by a written instrument signed
by the parties hereto. No provision of this Agreement may be waived except by an
instrument in writing signed by the party sought to be bound. No failure or
delay by any party in exercising any right or remedy hereunder shall operate as
a waiver thereof, and a waiver of a particular right or remedy on one occasion
shall not be deemed a waiver of any other right or remedy or a waiver of the
same right or remedy on any subsequent occasion.
- 9 -
<PAGE> 198
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement as of the date first above written.
CORPORATION:
TRANSACTION INFORMATION SYSTEMS, INC.
By:
-------------------------------------------
Name:
Title:
INVESTORS:
GS CAPITAL PARTNERS III, L.P.
By: GS Advisors III, L.P., its general partner
By: GS Advisors III, L.L.C., its general partner
By:
------------------------------------
Authorized Signatory
GS CAPITAL PARTNERS III OFFSHORE, L.P.
By: GS Advisors III (Cayman), L.P., its General Partner
By: GS Advisors III, L.L.C., its General Partner
By:
------------------------------------
Authorized Signatory
<PAGE> 199
GOLDMAN, SACHS & CO. VERWALTUNGS GmbH
By:
---------------------------------
Managing Director
and
By:
---------------------------------
Managing Director
or
Registered Agent
STONE STREET FUND 1998, L.P.
By: Stone Street Advantage Corp.
General Partner
By:
------------------------------
BRIDGE STREET FUND 1998, L.P.
By: Stone Street Advantage Corp.
Managing General Partner
By:
------------------------------
<PAGE> 200
EXISTING STOCKHOLDERS:
--------------------------------------
MARK ARZOOMANIAN
--------------------------------------
PAUL BAYSE
--------------------------------------
PETER BONJUKLIAN
--------------------------------------
ARTHUR FARKAS
--------------------------------------
MITCHELL FASS
--------------------------------------
ROBERT GOLD
--------------------------------------
PETER MELOMO
--------------------------------------
JEFFREY NAJARIAN
--------------------------------------
GEORGE SETFORD
--------------------------------------
EDWARD SHAW
--------------------------------------
JONATHAN TODER
<PAGE> 201
SCHEDULE 1
----------
SELLING STOCKHOLDER NAMES AND ADDRESSES
---------------------------------------
Name and Address of Stockholder
- -------------------------------
Mark Arzoomanian
52 Alpine Drive
Closter, New Jersey 07624
Facsimile:
Paul Bayse
446 Stuyvesant
Rutherford, New Jersey 07070
Facsimile:
Peter Bonjuklian
25 Column Court
Ramsey, New Jersey 07446
Facsimile:
Arthur Farkas
63 Sutton Drive
Manalapan, New Jersey 07726
Facsimile:
Mitchell Fass
89 King Street
Edison, New Jersey 08820
Facsimile:
Robert Gold
11 Candeub Court
Manalapan, New Jersey 07726
Facsimile:
<PAGE> 202
Name and Address of Stockholder
- -------------------------------
Peter Melomo
2205 Maple Avenue
Cortlandt Manor, New York 10566
Facsimile:
Jeffrey Najarian
7 Oakwood Court
Holmdel, New Jersey 07733
Facsimile:
George Setford
110 Catalpa Avenue
Hackensack, New Jersey 07601
Facsimile:
Edward Shaw
60 Furnace Woods Road
Cortlandt Manor, New York 10566
Facsimile:
Jonathan Toder
31 Whitlaw Close
Chappaqua, New York 10514
Facsimile:
14
<PAGE> 203
Exhibit M
EXISTING STOCKHOLDER PURCHASE OPTION AGREEMENT
----------------------------------------------
AGREEMENT made and entered into as of September 4, 1998 by and among GS
CAPITAL PARTNERS III, L.P., a Delaware limited partnership ("GSCP"), GS CAPITAL
PARTNERS III OFFSHORE, L.P., GOLDMAN, SACHS & CO. VERWALTUNGS GMBH, STONE STREET
FUND 1998, L.P. and BRIDGE STREET FUND 1998, L.P., each of which is an affiliate
of The Goldman Sachs Group, L.P., (together with GSCP, the "Investors," each
individually referred to as an "Investor") and the stockholders (the "Existing
Stockholders") of Transaction Information Systems, Inc., a Delaware corporation
(the "Corporation") set forth on Schedule I hereto.
W I T N E S S E T H
-------------------
WHEREAS, simultaneously herewith, the Investors are purchasing from the
Corporation, and the Corporation is issuing to the Investors, Series A Preferred
Stock ("Series A Preferred Stock"), pursuant to a Preferred Stock Purchase
Agreement of even date herewith (the "Purchase Agreement"), by and among the
Corporation, the Investors and the Existing Stockholders.
Whereas, the Investors have agreed to grant to the Existing
Stockholders options to purchase from the Investors in the aggregate, a number
of Shares of Common Stock equal to (i) the number of Subject Shares (as defined
herein), and (ii) the Previously Purchased Shares (as defined herein), if any,
(the Subject Shares and the Previously Purchased Shares collectively referred to
herein as the "Option Shares").
ACCORDINGLY, the parties hereto agree as follows:
SECTION 1. Definitions. (a) As used herein, the following terms shall
have the following meanings:
"Anniversary Date" shall mean March 2, 2001.
"Closing Price" shall have the meaning set forth in Section 2(f).
"Common Stock" shall mean any shares of Common Stock of the Corporation
and any stock into which such Common Stock may hereafter be changed or for which
such Common Stock may be exchanged (other than any such change or exchange in a
Sale Transaction) after giving effect to the terms of such change or exchange
(by way of reorganization, recapitalization, merger, consolidation or
otherwise).
"Common Stock Equivalents" shall mean securities convertible into, or
exchangeable for, shares of Common Stock.
<PAGE> 204
"Defaulting Investor" shall have the meaning set forth in Section 3(c).
"Investor Percentage" shall mean a fraction, the numerator of which is
the number of shares of Series A Preferred Stock held by an Investor on the date
(the "Initial Issuance Date") of initial issuance of such shares and the
denominator of which is equal to the total number of shares of outstanding
Series A Preferred Stock as of the Initial Issuance Date.
"IPO" shall mean the closing of the sale of shares of Common Stock in a
bona fide, firm commitment, underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended.
"Market Price" shall have the meaning set forth in Section 2(e).
"Previously Purchased Shares" shall mean any shares of Common Stock
purchased by the Investors under that certain Investor Purchase Option
Agreement, dated as of September __, 1998, by and among the Corporation, the
Investors and the Existing Stockholders.
"Original Price" shall mean $7.63.
"Purchase Option" shall have the meaning set forth in Section 2.
"Sale Number" shall have the meaning set forth in Section 2(b).
"Sale Transaction" shall mean a transaction (by way of merger, sale of
stock or otherwise) pursuant to which all of the shares of Common Stock and
Common Stock Equivalents are sold or exchanged for cash or other property. In
the event that any such sale or exchange involves property (including
Securities) other than cash, then the value of such property for purposes of
determining the consideration received in such Sale Transaction, shall equal (a)
if such property consists of equity securities admitted or listed for trading on
a national securities exchange or reported on the Automated Quotation System of
NASDAQ or a similar service, the average Closing Price of such securities for
the 10 trading days ending on the 10th day prior to consummation of the Sale
Transaction and (b) in all other cases, as agreed in good faith by the Board of
Directors of the Corporation and GSCP.
"Subject Shares" shall mean number of shares of Common Stock equal to
the product of (i) 1.825% and (ii) the total number of shares of Common Stock
outstanding on a Fully Diluted Basis (as defined in the Purchase Agreement)
immediately following the Closing (i.e., 409,361 shares of Common Stock assuming
no adjustment pursuant to Section 1.9 of the Purchase Agreement), as adjusted in
accordance with Section 1.9 of the Purchase Agreement.
"Valuation Multiple" shall have the meaning set forth in Section 2(g).
- 2 -
<PAGE> 205
"Value Per Share" shall have the meaning set forth in Section 2(d).
(b) Capitalized terms used but not otherwise defined herein shall have
the meaning assigned to such terms in the Purchase Agreement.
SECTION 2. Purchase by the Existing Stockholders. Upon a determination
of the Value Per Share (as defined herein) of a share of Common Stock, the
options contemplated by, and granted under, this Agreement (the "Purchase
Option") shall be exercisable as follows:
(a) To the extent that the Valuation Multiple is 2.75 or greater, the
Agent for the Existing Stockholders, (as defined in the Purchase Agreement)
acting for the Existing Stockholders, shall have the right, upon the terms and
subject to the conditions set forth in this Agreement, to purchase from each of
the Investors, and each of the Investors, upon any such exercise, shall sell to
the Existing Stockholders, the number of shares of Common Stock equal to the
product of (x) such Investor's Investor Percentage times (y) the number of
Subject Shares, at a purchase price of $.01 per share.
(b) In addition, to the extent that the Valuation Multiple is greater
than 2.75, the Agent for the Existing Stockholders, acting for the Existing
Stockholders, shall have the right, upon the terms and subject to the conditions
set forth in this Agreement, to purchase from each of the Investors, and each of
the Investors, upon any such exercise, shall sell to the Existing Stockholders,
the number of shares of Common Stock owned by such Investor equal to the number
of Previously Purchased Shares purchased by such Investor, at a purchase price
of $.01 per share.
(c) To the extent that the Valuation Multiple is 2.75 or less, this
Purchase Option shall not be exercisable and all rights of the Existing
Stockholders hereunder shall terminate on the Anniversary Date.
(d) For purposes of this Agreement, "Value Per Share" shall mean (i) in
the event of a Sale Transaction which is consummated prior to the Anniversary
Date, the consideration received for each share of Common Stock in the Sale
Transaction, (ii) in the event of an IPO which is consummated prior to the
Anniversary Date, the Market Price of each share of Common Stock, and (iii) in
the event that no Sale Transaction or IPO is consummated prior to the
Anniversary Date, zero.
(e) For purposes of this Agreement, "Market Price" shall mean, with
respect to shares of Common Stock on any date, the highest arithmetic average of
the Closing Prices per share of Common Stock for any 30 consecutive trading day
period commencing at any time after the 30th trading day following an IPO, with
the last of any such 30 day period ending on the Anniversary Date.
- 3 -
<PAGE> 206
(f) For purposes of this Agreement, "Closing Price" shall mean, with
respect to an equity security for any day, (i) the last reported sale price
regular way or, in case no such sale takes place on such day, the average of the
closing bid and asked prices regular way, in either case as reported on the
principal national securities exchange on which such security is listed or
admitted for trading or (ii) if such security is not listed or admitted for
trading on any national securities exchange, the last reported sale price or, in
case no such sale takes place on such day, the average of the last reported bid
and the last reported asked quotation for such security, in either case as
reported on the Automated Quotation System of NASDAQ or a similar service if
NASDAQ is no longer reporting such information.
(g) For purposes of this Agreement, "Valuation Multiple" shall mean the
quotient of the Value Per Share divided by the Original Price.
SECTION 3. Notice of Exercise; Closing; Violation of Agreement by
Investor.
(a) Notice of Exercise. The Existing Stockholders shall exercise the
Purchase Option by written notice given by the Agent for the Existing
Stockholders to each of the Investors, (i) if the Value Per Share is being
determined as a result of a Sale Transaction, at any time within the 30 day
period prior to the consummation of the Sale Transaction or (ii) if the Value
Per Share is being determined as a result of an IPO or if no Sale Transaction or
IPO is consummated prior to the Anniversary Date, at any time within 30 days
after the Anniversary Date. If notice of exercise is given with respect to a
Sale Transaction and such Sale Transaction is not consummated, such exercise
shall be of no force and effect and the Purchase Option shall thereupon continue
in accordance with the terms hereof.
(b) Closing. (i) The closing of the purchase and sale of the Option
Shares under the Purchase Option (the "Closing") shall take place on a date
determined by the Existing Stockholders not later than 15 business days after
the applicable notice of exercise is rendered or the fifth business day after
the expiration or termination of all waiting periods under the Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended, as applicable to such
transaction. The Closing shall take place at 10:00 a.m. New York City time at
the offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New
York, New York 10004 or at such other place and date as the parties thereto may
agree in writing.
(ii) The purchase price payable for the Option Shares hereunder
shall be paid in full at the Closing by check or wire transfer of immediately
available funds at a bank account designated in writing by the Investors. At the
Closing, each of the Investors selling Option Shares shall deliver to the
Existing Stockholders (i) duly executed certificates representing the Option
Shares purchased by the Existing Stockholders hereunder duly endorsed in blank
and (ii) an affidavit, in form reasonably
- 4 -
<PAGE> 207
satisfactory to the Existing Stockholders, as described in Treasury Regulation
Section 1.1445-2(b)(2). The Option Shares purchased by the Existing Stockholders
hereunder shall be free and clear of any and all liens, claims and encumbrances
of any kind, nature and description.
SECTION 4. Adjustments. The total number of shares of Common Stock
purchasable upon the exercise of the Purchase Option and the Original Price
shall be subject to adjustment from time to time as follows:
In the event of any change in, or distributions in respect of, the
outstanding shares of Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions, exchanges
of shares or the like, the type and number of shares of Common Stock purchasable
upon exercise of the Purchase Option and the Original Price shall be
appropriately adjusted in such manner as shall fully preserve the economic
benefits provided hereunder and proper provision shall be made in any agreement
governing any such transaction to provide for such proper adjustment and the
full satisfaction of the Investors' obligations hereunder.
SECTION 5. Representations and Warranties. (a) Each party hereto
represents and warrants to the other parties hereto as follows:
(i) It has full power and authority to execute, deliver and
perform its obligations under this Agreement.
(ii) This Agreement has been duly and validly authorized,
executed and delivered by it, and constitutes a valid and binding obligation of
it, enforceable against it in accordance with its terms except to the extent
that enforceability may be limited by bankruptcy, insolvency or other similar
laws affecting creditors' rights generally.
(iii) The execution, delivery and performance of this Agreement
by it does not (x) violate, conflict with, or constitute a breach of or default
under its organizational documents, if any, or any material agreement to which
it is a party or by which it is bound or (y) violate any law, regulation, order,
writ, judgment, injunction or decree applicable to it.
(b) The Investors represent, warrant and covenant to the Existing
Stockholders:
(i) at all times prior to termination of the Purchase Options,
they will beneficially own a number of shares of Common Stock at least equal to
the number of Subject Shares and the number of Previously Purchased Shares, if
any, and
(ii) the Option Shares, when sold and delivered pursuant to this
Agreement, will be (x) validly issued and outstanding, fully paid and
nonassessable,
- 5 -
<PAGE> 208
(y) free and clear of any restriction or Encumbrance (as defined in the Purchase
Agreement) and (z) free and clear of any rights, including preemptive or similar
rights, to purchase or sell or otherwise transfer the Option Shares, or any
agreement relating to any of the foregoing, except as otherwise provided by the
Stockholders' Agreement.
SECTION 6. Transfer Taxes. The Investors agree that they will pay, and
will hold the Existing Stockholders harmless from any and all liability with
respect to any stamp, transfer or other Taxes which may be determined to be
payable in connection with the execution and delivery and performance of this
Agreement or any modification, amendment or alteration of the terms or
provisions of this Agreement, and that they will similarly pay and hold the
Existing Stockholders harmless from all such Taxes in respect of the sale of the
Option Shares to the Existing Stockholders.
SECTION 7. Notices. All notices hereunder shall be in writing and shall
be sufficiently given when sent by facsimile (subject to telephonic confirmation
of receipt and mailing of a confirmation copy), personally delivered or when
sent by a nationally recognized overnight or local courier service or mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
parties hereto at the following addresses and facsimile numbers:
If to the Corporation: Transaction Information Systems, Inc.
115 Broadway, 20th Floor
New York, NY 10006
Telecopy: (212) 962-7175
Attention: Jeffrey Najarian
with a copy to: Esanu Katsky Korins & Siger, LLP
605 Third Avenue, 16th Floor
New York, NY 10158
Telecopy: (212) 953-6899
Attention: Roy M. Korins, Esq.
If to the Existing Stockholders: to the addresses listed in Schedule 1 hereto
with a copy to:
Esanu Katsky Korins & Siger, LLP
605 Third Avenue, 16th Floor
New York, NY 10158
Telecopy: (212) 953-6899
Attention: Roy M. Korins, Esq.
- 6 -
<PAGE> 209
If to the Investors: GS Capital Partners III, L.P.
85 Broad Street
New York, New York 10004
Telecopy: (212) 902-3000
Attention: Randall Blumenthal
with a copy to: GS Capital Partners III, L.P.
85 Broad Street
New York, New York 10004
Telecopy: (212) 357-5505
Attention: Ben Adler, Esq.
and a copy to: Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopy: (212) 859-8586
Attention: Paul M. Reinstein, Esq.
or at such other address or facsimile number as any party may designate to any
other party by written notice. Notices shall be deemed to have been given when
received.
SECTION 8. Miscellaneous. (a) This Agreement may be executed in any
number of counterparts which, when executed and delivered by all parties hereto,
shall be binding on all parties hereto and shall constitute one agreement,
notwithstanding that all parties have not signed the same counterpart.
(b) No Existing Stockholder may transfer or assign any of his rights or
obligations hereunder other than, upon the death of an Existing Stockholder, to
the heirs or testamentary legatees of such Existing Stockholder.
(c) The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with its specific terms or was otherwise breached. It is accordingly
agreed that the parties shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any New York court, this being in addition to any other
remedy to which they may be entitled at law or in equity.
(d) The headings in this Agreement are for purposes of reference only
and shall not be considered in construing this Agreement. As used herein, the
neuter gender shall also denote the masculine and feminine where the context so
permits.
(e) This Agreement shall be governed by and construed in accordance
with the laws of the state of New York without giving effect to the principles
of conflicts of law thereof. Each of the parties hereto hereby irrevocably and
unconditionally
- 7 -
<PAGE> 210
consents to submit to the exclusive jurisdiction of the courts of the state of
New York and of the United States of America, in each case located in the county
of New York, for any action, proceeding or investigation in any court or before
any governmental authority ("Litigation") arising out of or relating to this
Agreement and the transactions contemplated hereby (and agrees not to commence
any Litigation relating thereto except in such courts), and further agrees that
service of any process, summons, notice or document by U.S. registered mail to
its respective address set forth in this Agreement shall be effective service of
process for any Litigation brought against it in any such court. Each of the
parties hereto hereby irrevocably and unconditionally waives any objection to
the laying of venue of any Litigation arising out of this Agreement or the
transactions contemplated hereby in the courts of the state of New York or the
United States of America, in each case located in the county of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such Litigation brought in any such court has
been brought in an inconvenient forum.
(f) If any term or provision of this Agreement, or the application
thereof to any person or circumstance, shall to any extent be invalid or
unenforceable, the remainder thereof, and the application thereof to any other
persons and circumstances, shall not be affected thereby, and each term and
provision hereof shall be enforced to the fullest extent permitted by applicable
law.
(g) This Agreement may be amended only by a written instrument signed
by the parties hereto. No provision of this Agreement may be waived except by an
instrument in writing signed by the party sought to be bound. No failure or
delay by any party in exercising any right or remedy hereunder shall operate as
a waiver thereof, and a waiver of a particular right or remedy on one occasion
shall not be deemed a waiver of any other right or remedy or a waiver of the
same right or remedy on any subsequent occasion.
- 8 -
<PAGE> 211
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement as of the date first above written.
CORPORATION:
TRANSACTION INFORMATION SYSTEMS, INC.
By:
-------------------------------------
Name:
Title:
INVESTORS:
GS CAPITAL PARTNERS III, L.P.
By: GS Advisors III, L.P., its general partner
By: GS Advisors III, L.L.C., its general partner
By:
----------------------------------
Authorized Signatory
GS CAPITAL PARTNERS III OFFSHORE, L.P.
By: GS Advisors III (Cayman), L.P., its General Partner
By: GS Advisors III, L.L.C., its General Partner
By:
-----------------------------------
Authorized Signatory
<PAGE> 212
GOLDMAN, SACHS & CO. VERWALTUNGS GmbH
By:
---------------------------------
Managing Director
and
By:
---------------------------------
Managing Director
or
Registered Agent
STONE STREET FUND 1998, L.P.
By: Stone Street Advantage Corp.
General Partner
By:
---------------------------------
BRIDGE STREET FUND 1998, L.P.
By: Stone Street Advantage Corp.
Managing General Partner
By:
---------------------------------
<PAGE> 213
EXISTING STOCKHOLDERS:
--------------------------------------
MARK ARZOOMANIAN
--------------------------------------
PAUL BAYSE
--------------------------------------
PETER BONJUKLIAN
--------------------------------------
ARTHUR FARKAS
--------------------------------------
MITCHELL FASS
--------------------------------------
ROBERT GOLD
--------------------------------------
PETER MELOMO
--------------------------------------
JEFFREY NAJARIAN
--------------------------------------
GEORGE SETFORD
--------------------------------------
EDWARD SHAW
--------------------------------------
JONATHAN TODER
<PAGE> 214
SCHEDULE 1
----------
EXISTING STOCKHOLDER NAMES AND ADDRESSES
----------------------------------------
Name and Address of Stockholder
- -------------------------------
Mark Arzoomanian
52 Alpine Drive
Closter, New Jersey 07624
Facsimile:
Paul Bayse
446 Stuyvesant
Rutherford, New Jersey 07070
Facsimile:
Peter Bonjuklian
25 Column Court
Ramsey, New Jersey 07446
Facsimile:
Arthur Farkas
63 Sutton Drive
Manalapan, New Jersey 07726
Facsimile:
Mitchell Fass
89 King Street
Edison, New Jersey 08820
Facsimile:
Robert Gold
11 Candeub Court
Manalapan, New Jersey 07726
Facsimile:
<PAGE> 215
Name and Address of Stockholder
- -------------------------------
Peter Melomo
2205 Maple Avenue
Cortlandt Manor, New York 10566
Facsimile:
Jeffrey Najarian
7 Oakwood Court
Holmdel, New Jersey 07733
Facsimile:
George Setford
110 Catalpa Avenue
Hackensack, New Jersey 07601
Facsimile:
Edward Shaw
60 Furnace Woods Road
Cortlandt Manor, New York 10566
Facsimile:
Jonathan Toder
31 Whitlaw Close
Chappaqua, New York 10514
Facsimile:
<PAGE> 216
ANNEX I
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
LIST OF EXISTING STOCKHOLDERS
NAME OF STOCKHOLDER
Mark Arzoomanian
Paul Bayse
Peter Bonjuklian
Arthur Farkas
Mitchell Fass
Robert Gold
Peter Melomo
Jeffrey Najarian
George Setford
Edward Shaw
Jonathan Toder
<PAGE> 217
Annex II
To the Preferred Stock Purchase Agreement
by and among
Transaction Information Systems, Inc.
The Shareholders of Transaction Infromation Systems, Inc.
and GS CAPITAL PARTNERS III, L.P.
Investors
GS Capital Partners III, L.P. 68.126% 34,063,120.89
GS Capital Partners III Offshore, L.P. 18.729% 9,364,351.65
GS Capital Partners III (Germany) C.L.P. 3.145% 1,572,527.46
Stone Street Fund 1998, L.P. 7.682% 3,840,830.00
Bridge Street Fund 1998, L.P. 2.318% 1,159,170.00
-------------
50,000,000.00
=============
<PAGE> 218
ANNEX III
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
LIST OF SHARES BEING PURCHASED
<TABLE>
<CAPTION>
NUMBER OF
NAME OF STOCKHOLDER SHARES REPURCHASED(1)
- ------------------- ---------------------
<S> <C>
Mark Arzoomanian 780,800
Paul Bayse 59,603
Peter Bonjuklian 178,809
Arthur Farkas 119,206
Mitchell Fass 387,420
Robert Gold 900,006
Peter Melomo 89,405
Jeffrey Najarian 1,019,213
George Setford 1,019,213
Edward Shaw 1,019,213
Jonathan Toder 387,420
Total: 5,960,308
</TABLE>
(1) After giving effect to the stock dividend.
<PAGE> 219
SCHEDULE 1.2
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
USE OF PROCEEDS
THE NUMBERS IN SCHEDULE 1.2 AND 2.3(A) DO NOT REFLECT THE STOCK DIVIDEND.
<TABLE>
<CAPTION>
Name Number of Options
<S> <C>
Dan Bello 6,250
Peter Donan 6,250
Scott Faktor 12,500
Tom Laux 5,000
Paula Lerner 5,000
Sally Ann Martins 6,250
Joe Mule 5,000
Nick Pasquale 12,500
Gary Raymond 12,500
Ana Robatto 5,000
Pat Roughan 12,500
John Schroeder 5,000
Steve Tracy 5,000
Paul Wanuga 12,500
TOTAL 111,250
</TABLE>
<PAGE> 220
SCHEDULE 1.3
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
PRO RATA PERCENTAGE
<TABLE>
<CAPTION>
Number of Percentage
Name of Stockholder Shares Owned(1) Ownership
- ------------------- --------------- ----------
<S> <C> <C>
Mark Arzoomanian 1,310,000 13.100%
Paul Bayse 100,000 1.000
Peter Bonjuklian 300,000 3.000
Arthur Farkas 200,000 2.000
Mitchell Fass 650,000 6.500
Robert Gold 1,510,000 15.100
Peter Melomo 150,000 1.500
Jeffrey Najarian 1,710,000 17.100
George Setford 1,710,000 17.100
Edward Shaw 1,710,000 17.100
Jonathan Toder 650,000 6.500
Total: 10,000,000 100.000%
</TABLE>
1 Before giving effect to the stock dividend.
-2-
<PAGE> 221
SCHEDULE 1.7
SHAREHOLDER ALLOCATION
Mark Arzoomanian $426,143
Paul Bayse $32,530
Peter Bonjuklian $37,090
Arthur Farkas $65,060
Mitchell Fass $16,445
Robert Gold $341,203
Peter Melomo $26,295
Jeffrey Najarian $556,263
George Setford $556,263
Edward Shaw $556,263
Jonathan Toder $136,445
Total $2,750,000
<PAGE> 222
SCHEDULE 2.1
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
QUALIFICATIONS IN CERTAIN JURISDICTIONS
Transaction Information Systems, Inc. (Delaware)
In Good Standing in the State of Delaware
Currently qualified in New York and California and in Good Standing
Pending qualifications in the states of New Jersey, Massachusetts, Texas, North
Carolina and Pennsylvania
TIS Equipment Corp. (Delaware)
In Good Standing in the State of Delaware
Pending qualification in the State of New York
Setford-Shaw-Najarian Associates Ltd. (New York)
In Good Standing in the State of New York
Currently qualified in Massachusetts and in Good Standing
Pending qualifications in the states of New Jersey, Texas, North Carolina and
Pennsylvania
-4-
<PAGE> 223
SCHEDULE 2.3(A)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
CAPITALIZATION
THE NUMBERS IN SCHEDULE 1.2 AND 2.3(A) DO NOT REFLECT THE STOCK DIVIDEND.
Transaction Information Systems, Inc. Stock Option List
<TABLE>
<CAPTION>
Option
Exercise Number
Name Price of Shares
- ---- -------- ---------
<S> <C> <C>
Josh Abrams $12.00 2,500
Mark Alashaian 4.00 6,600
12.00 5,000
Audra Arzoomanian 12.00 5,000
Seth Babikian 4.00 5,000
12.00 5,000
Stu Biering 12.00 5,000
Dan Bello 4.00 25,000(1)
Andy Brown 4.00 6,600
16.00 10,000
Vinnie Campasano 12.00 30,000
Chris Cassidy 12.00 1,000
Joe Chechel 4.00 5,000
Rosemarie Chen 16.00 10,000
Peter Donan 4.00 25,000(1)
Tom Donnelly 12.00 10,000(2)
Greg Donovan 12.00 10,000
Dan Doyon 4.00 6,600
12.00 10,000
Mark Elder 4.00 6,600
12.00 5,000
</TABLE>
1 25% of such options to be purchased and retired.
2 Options issued, but none vested because employment ceased.
-5-
<PAGE> 224
SCHEDULE 2.3(A) (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
CAPITALIZATION
<TABLE>
<CAPTION>
Option
Exercise Number
Name Price of Shares
- ---- -------- ---------
<S> <C> <C>
George Engelbrecht 12.00 20,000
Vince Epifanio 4.00 6,600
12.00 5,000
Scott Faktor 4.00 50,000(1)
John Grabowski 4.00 10,000
16.00 10,000
Bruce Gigarjian 12.00 10,000
Kirina Gnip 4.00 6,600
Sachin Gogri 12.00 7,500
John Heinzinger 4.00 10,000
12.00 5,000
Bob Jeronowitz 12.00 26,500
Wayne Kaufhold 12.00 5,000
Tom Kitrick 12.00 5,000
David Kristiansen 12.00 10,000
Tom Laux 4.00 20,000(1)
12.00 5,000
Paula Lerner 4.00 20,000(1)
Steve Listhaus 4.00 6,600
12.00 5,000
Matt Malvese 12.00 10,000
Kelvin Mapp 12.00 10,000
</TABLE>
1 25% of such options to be purchased and retired.
2 Options issued, but none vested because employment ceased.
-6-
<PAGE> 225
SCHEDULE 2.3(a) (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
CAPITALIZATION
<TABLE>
<CAPTION>
Option
Exercise Number
Name Price of Shares
- ---- -------- ---------
<S> <C> <C>
Dolly Marquez 16.00 1,000
Sally Ann Martins 4.00 25,000(1)
Margi Miller 16.00 5,000
Bob McCarthy 16.00 10,000
Jim McCarthy 12.00 5,000(2)
Mike McCabe 12.00 5,000(2)
Keith Miscione 16.00 10,000
Joe Mule 4.00 20,000(1)
Anthony Nelson 12.00 10,000
Tom Nolan 12.00 5,000
Peter Outerbridge 4.00 6,600
12.00 5,000
Nick Pasquale 4.00 50,000(1)
Jennifer Pinco 12.00 10,000
Sara Pursley 12.00 5,000
Meghan Quinn 12.00 26,500
Gary Raymond 4.00 50,000(1)
Ana Robatto 4.00 20,000(1)
Pat Roughan 4.00 50,000(1)
John Schroeder 4.00 20,000(1)
16.00 10,000
Bill Schmidt 16.00 10,000
</TABLE>
1 25% of such options to be purchased and retired.
2 Options issued, but none vested because employment ceased.
-7-
<PAGE> 226
SCHEDULE 2.3(a) (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
CAPITALIZATION
<TABLE>
<CAPTION>
Option
Exercise Number
Name Price of Shares
- ---- -------- ---------
<S> <C> <C>
Mark Schneider 12.00 20,000
Pat Slutsky 12.00 10,000
Greg Surles 12.00 5,000
Steve Tracy 4.00 20,000(1)
Lynn Tusa 4.00 10,000
12.00 5,000
Ray Viggiano 4.00 10,000
12.00 5,000
Paul Wanuga 4.00 50,000(1)
Cathy Weber 16.00 10,000
Bob Weiner 4.00 6,600
</TABLE>
Management anticipates granting the following additional stock
options, calculated on a pre-dividend basis, after the Closing:
<TABLE>
<S> <C>
[David Schiffman] 7,500
[Chief financial officer] 50,000
[Systems architect] 10,000
[Sales manager] 10,000
[In-house lawyer] 5,000
------
82,500 (165,000 post dividend)
</TABLE>
-8-
<PAGE> 227
SCHEDULE 2.3(a) (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
CAPITALIZATION
Transaction Information Systems, Inc. Stockholders (Common Stock Issuance Only)
<TABLE>
<CAPTION>
Shareholder Name Certificate Number Number of Shares
- ---------------- ------------------ ----------------
<S> <C> <C>
Arzoomanian, Mark C-1 1,310,000
Bayse, Paul C-2 100,000
Bonjuklian, Peter C-3 300,000
Farkas, Arthur C-4 200,000
Fass, Mitchell C-5 650,000
Gold, Robert C-6 1,510,000
Melomo, Peter C-7 150,000
Najarian, Jeffrey C-8 1,710,000
Setford, George C-9 1,710,000
Shaw, Edward C-10 1,710,000
Toder, Jonathan C-11 650,000
</TABLE>
-9-
<PAGE> 228
SCHEDULE 2.3(b)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
CAPITALIZATION
See Schedule 2.3(a) regarding options.
-10-
<PAGE> 229
SCHEDULE 2.5
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
OUTSTANDING TIS EQUIPMENT CORP. STOCK OPTIONS
<TABLE>
<CAPTION>
Number of
Shares subject
Name to Option(1)
---- --------------
<S> <C>
George Engelbrecht 20,000
Bob Jeronowitz 26,500
Paula Lerner 20,000
Bob McCarthy 5,000
Keith Miscione 10,000
Jennifer Pinco 10,000
Sara Pursley 5,000
Meghan Quinn 26,500
--------
123,000
</TABLE>
1 Before giving effect to stock dividend.
-11-
<PAGE> 230
SCHEDULE 2.7
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
LIABILITIES
NONE
-12-
<PAGE> 231
SCHEDULE 2.8
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
ABSENCE OF CHANGES
NONE
-13-
<PAGE> 232
SCHEDULE 2.9
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
NO CONFLICT
NONE
-14-
<PAGE> 233
SCHEDULE 2.10
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
AGREEMENTS
Atlantic Mutual Insurance Company, Worker's Compensation, Policy Number
401520007, Premium Payment $103,798.26. Atlantic Mutual Insurance Company, Fire,
General Liability, Crime and Umbrella, Policy Number 486304219, Premium Payment
$81,550.00.
Lease, between Transaction Information Systems, Inc. and 11/115 Broadway Limited
Partnership for certain space located at 111/115 Broadway, New York, New York
10006, Annual Base Rent $518,060.04.
BancBoston Leasing Master Lease Agreement, approximately $576,000 in annual
payments.
AT&T Capital Corporation Lease Agreements, approximately $90,000 in annual
payments.
Sanwa Leasing Corporation Lease Agreements, approximately $100,000 in annual
payments.
Merrill Lynch Business Financial Services Inc. WCMA Line of Credit, in the
principal amount of $2,000,000 to Setford-Shaw-Najarian Associates, Ltd., and
related loan, security and guaranty agreements.
Merrill Lynch Business Financial Services Inc. WCMA Line of Credit, in the
principal amount of $5,000,000, to Transaction Information Systems, Inc, and
related loan, security and guaranty agreements.
-15-
<PAGE> 234
SCHEDULE 2.10 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
AGREEMENTS
Transaction Information Systems, Inc., TIS Equipment Corp. and
Setford-Shaw-Najarian Associates, Ltd. Employee Salaries
<TABLE>
<CAPTION>
Annual Base
Employee Name Salary Amount
------------- -------------
<S> <C>
Najarian, Jeff $241,707.56
Arzoomanian, Mark 229,707.56
Shaw, Edward 229,707.56
Bayse, Paul 179,707.56
Bonjuklian, Peter 179,707.56
Farkas, Arthur 179,707.56
Fass, Mitchell 179,707.56
Toder, Jonathan 179,707.56
Campasano, Vincent 175,000.00
Schroeder, John 175,000.00
Slutsky, Patricia 175,000.00
Donan, Peter 150,000.00
Burt, James 150,000.00
Hoffart, John 140,000.00
Jetton, Nancy 140,000.00
Meyer, Fred 135,000.00
Djamoos, Gregeory 132,000.00
Silveira, Charles 130,000.00
</TABLE>
-16-
<PAGE> 235
SCHEDULE 2.10 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
AGREEMENTS
<TABLE>
<CAPTION>
Annual Base
Employee Name Salary Amount
------------- -------------
<S> <C>
Catanzaro, Dean $130,000.00
Tindell, Larry 130,000.00
Jensen, Randy 130,000.00
Kandebo, Richard 130,000.00
Hampton, Scott 130,000.00
Frankel, Yan 130,000.00
Sumilat, Ben 125,000.00
Miscione, Keith 125,000.00
Rodzevik, Stephen 125,000.00
Elder, Mark 120,000.00
Reddy, Koti 120,000.00
Schmidt, William 120,000.00
Blokhin, Vitaliy 120,000.00
Shaver, Chandra 115,000.00
Lozada, Humberto 115,000.00
Shapiro, Lori 115,000.00
Harper Sr., Reginald 115,000.00
Haddad, Sadie 115,000.00
Brown, Andrew 110,000.00
Martinage, Elizabeth 110,000.00
</TABLE>
-17-
<PAGE> 236
SCHEDULE 2.10 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
AGREEMENTS
<TABLE>
<CAPTION>
Annual Base
Employee Name Salary Amount
------------- -------------
<S> <C>
Kristiansen, David $110,000.00
Monin, Ludmila 110,000.00
Trinidad, Oscar 110,000.00
Davis, William 110,000.00
Brady, Bridget 107,500.00
Chen, Rosemarie 105,000.00
Netzer, Malcah 105,000.00
Nolan, Thomas 102,000.00
Clark, Brenda 100,000.00
Ely, Edward 100,000.00
Hunter, Edward 100,000.00
Faktor, Scott 100,000.00
Heinzinger, John 100,000.00
Hubert, Dick 100,000.00
Van Camp, Jason 100,000.00
Harris, Jon 100,000.00
Lam, Kai Wing 100,000.00
Kitrick, Tom 100,000.00
Listhaus, Steve 100,000.00
Folgia, Michael 100,000.00
</TABLE>
-18-
<PAGE> 237
SCHEDULE 2.10 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
AGREEMENTS
<TABLE>
<CAPTION>
Annual Base
Employee Name Salary Amount
------------- -------------
<S> <C>
Mule, Joseph $100,000.00
Robatto, Ana 100,000.00
Parise, Robert 100,000.00
Roughan, Patricia 100,000.00
Schneider, Mark 100,000.00
Tusa, Lynn 100,000.00
Viggiano, Raymond 100,000.00
Khandaker, Zahid 100,000.00
</TABLE>
Outside Contractors
<TABLE>
<CAPTION>
Amounts Billed for the
Company Name months 1/1/98-6/30/98
------------ ----------------------
<S> <C>
A&Z Software Group $141,776.00
Advanced Software Services 102,169.20
Alpha-Omega Tech 152,847.50
Amerisource 137,720.00
Churchill Benefits Group 256,592.50
Computech 131,851.25
Delta International 128,193.00
Forward Tech Inc. 175,970.00
Holland Technology Group 135,443.75
</TABLE>
-19-
<PAGE> 238
SCHEDULE 2.10 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
AGREEMENTS
<TABLE>
<CAPTION>
Amounts Billed for the
Company Name months 1/1/98-6/30/98
------------ ----------------------
<S> <C>
IKRON Inc. $122,640.00
Intelligroup 168,758.00
International Comp. Tech. 103,870.00
International Software Group 829,426.13
NSA Inc. 162,000.00
Software Research Group 190,237.15
Stellar Tech Inc. 194,895.00
Syntel 174,340.00
Systems Task Inc. 247,529.50
Technosoft 141,000.00
The Boston Group 120,217.00
</TABLE>
-20-
<PAGE> 239
SCHEDULE 2.10 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
AGREEMENTS
Top Clients
<TABLE>
<CAPTION>
Client Name Amount Billed for
----------- the months 1/1/98-6/30/98
-------------------------
<S> <C>
Chase Manhattan Bank $4,979,101.00
Citibank 4,610,884.00
Ernst & Young 1,600,067.00
Paine Webber Inc 1,281,723.00
MAS, Inc. 1,097,650.00
CS First Boston 810,691.00
Dow Jones & Company Inc. 787,280.00
Putnam Investments 698,708.00
Bear Stearns 652,539.00
Merrill Lynch 624,569.00
Schneider Automation 553,050.00
First Data Merchant Services 487,353.00
Prudential 467,271.00
Hoffmanlaroche 453,186.00
Olde Discount 437,942.00
Mckinsey & Co 420,520.31
Automatic Data Processing 397,285.00
State Street Bank 396,444.00
American International Group 340,332.00
</TABLE>
-21-
<PAGE> 240
SCHEDULE 2.10 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
AGREEMENTS
<TABLE>
<CAPTION>
Amount Billed for
Client Name the months 1/1/98-6/30/98
----------- -------------------------
<S> <C>
Fuji Capital Markets $304,084.00
Martin Gellar CPA 303,170.00
ABB Turbocharger, Inc. 292,039.00
JP Morgan 291,027.00
Stop & Shop 273,347.00
Hoechst Marion Roussell, 272,752.00
Inc.
Deloitte & Touche 258,858.00
</TABLE>
-22-
<PAGE> 241
SCHEDULE 2.11
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
INTELLECTUAL PROPERTY MATTERS
NONE
-23-
<PAGE> 242
SCHEDULE 2.11(a)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
INTELLECTUAL PROPERTY RIGHTS
Transaction Information Systems, Inc. Intellectual Property Rights
<TABLE>
<CAPTION>
Intellectual Property Rights Registration Number Date of Filings
- ---------------------------- ------------------- ---------------
<S> <C> <C>
FLITE 78/075,334 01/12/98
AppTech 74/231,656 07/24/98
HumanActive 75/231,657 07/31/98
</TABLE>
-24-
<PAGE> 243
SCHEDULE 2.11(b)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
THIRD PARTY INTELLECTUAL PROPERTY RIGHTS
<TABLE>
<CAPTION>
Logo Names Payments
---------- ----------
<S> <C>
Digital Equipment Corporation Software & Application Partner (ASAP) $ 0
IBM BESTeam Partner 0
Lotus Premium Partner 0
Microsoft Solutions Partner 0
Netscape Alliance Plus and Gold DevEdge Partner 1,395.00
Oracle Development Partner 595.00
PeopleSoft Global Alliance Partner 2,000.00
SAP Partner: TeamSAP, Accelerated ASAP Partner 20,000.00
Sun Development Partner 15,000.00
Sun Authorized Java Center 0
Sybase Development Partner 1,500.00
</TABLE>
-25-
<PAGE> 244
SCHEDULE 2.14(a)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
PERSONAL PROPERTY, REAL PROPERTY
SEE ATTACHED ITEMS
-26-
<PAGE> 245
SCHEDULE 2.14(b)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
PERSONAL PROPERTY, REAL PROPERTY
Office Leases for Certain Premises Located at:
(A) Trevose, PA - Suite 301, Three Neshaminy Interplex, Offices#33, #34,
#35, Trevose, PA 19053
(B) Iselin, NJ - 100 Wood Avenue South, Iselin, New Jersey 08830 (Metro
Center One)
(C) New York, NY - 115 Broadway, 20th and 21st floors, New York, NY
(D) Charlotte, NC - 5925 Carnegie Blvd; Charlotte, NC 28209
(E) San Francisco, CA - 44 Montgomery Street, Suite 500, San Francisco, CA
(F) Dallas, TX - 3010 LBJ Freeway, Suite 1200, Dallas, TX 75234
(G) Boston, MA - 10 High Street, Suite 650, Boston, MA 02110
The leased property in connection with the BancBoston Master Lease Agreement and
the above-mentioned Office Leases are accounted for under GAAP as capitalized
leases.
-27-
<PAGE> 246
SCHEDULE 2.15
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
EMPLOYEE BENEFITS MATTERS
Dental Insurance
Short/long Term Disability Insurance
Long/term Disability Insurance
Major Medical Insurance
Life Insurance
401(k) Plan
Transaction Information Systems, Inc. Employment Agreements with the following
persons:
Ahmad, Naseer
Burt, James
Campasano, Vincent
Djamoos, Gregory
Donan, Peter
Hoffart, John
Jensen, Randy
Jetton, Nancy
Kandebo, Richard
Meyer, Fred
Schroeder, John
Silveira, Charles
Slutsky, Patricia
Tindell, Larry
Blokhin, Vitaliy
Brady, Bridget
Brown, Andrew
Chen, Rosemarie
Clark, Brenda
Davis, William
Elder, Mark
-28-
<PAGE> 247
SCHEDULE 2.15 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
EMPLOYEE BENEFITS MATTERS
Transaction Information Systems, Inc. Employment Agreements
Bauigadda, Madhusudhana Rao
Ely, Edward
Faktor, Scott
Frankel, Yan
Haddad, Sadie
Harper Sr., Reginald
Heinzinger, John
Hubert, Dick
Hunter, Edward
Kaufhold, Wayne
Kristiansen, David
Lozada, Humberto
Martinage, Elizabeth
McCarthy, Robert
Miscione, Keith
Monin, Ludmila
Netzer, Malcah
Nolan, Thomas
Reddy, Koti
Rodzevik, Stephen
Schmidt, William
Shapiro, Lori
Shaver, Chandra
Sumilat, Ben
Trinidad, Oscar
Van Camp, Jason
Betancur, Alex
Bierig, Stu
Chandrasekaran, Bala
Da Ponte, Diana
Dahlberg, Michael
Denney, Kirsten
Engelbrecht, George
-29-
<PAGE> 248
SCHEDULE 2.15 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
EMPLOYEE BENEFITS MATTERS
Transaction Information Systems, Inc. Employment Agreements
Bentacur, Alexander
Folgia, Michael
Gadayev, Georgiy
Grabowski, Jon
Hult, Chris
Khandaker, Zahid
Kitrick, Tom
Lam, Kai Wing
Lindeman, William
Listhaus, Steve
Martin, Eladio
Mills, Holland
Mule, Joseph
Parise, Robert
Pasquale, Nicholas
Pinco, Jennifer
Quinn, Meghan
Robatto, Ana
Schneider, Mark
Shah, Keten
Spyros, Spyros
Tusa, Lynn
Wu, Kang
Abrams, Josh
Albert, Toya
Angelis, Virginia
Arcot, Raj
Barbara, Mark
Bello, Dan
Bhowmick, Jayadratha
Bianco, Francesca
-30-
<PAGE> 249
SCHEDULE 2.15 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
EMPLOYEE BENEFITS MATTERS
Transaction Information Systems, Inc. Employment Agreements
Huske, Michael
Buono, Anthony
Chaykov, Alex
Chong, George
Desmond, Anne
DiMartini, Krista
Eframi, Lazar
Karia, Bharat
Karnowski, David
Kasny, Steve
Kirichenko, Vadim
Kouznetski, Alex
Kramer, Will
Kress, Russell
Maduramuthu, Vijay
Martins, Sally Ann
Mayo, Marlene
Ng, Judy Kent
Panjabi, Raj
Pursley, Sara
Pydishetty, Raj
Raymond, Gary
Riley, James
Soloway Amy
Wendt, Kurt
Wong, Edward
Agarwal, Manoj
Aggarwal, Kapil
Alashaian, Mark
Babikian, Seth
Berman, a
Diver, Eugene
-31-
<PAGE> 250
SCHEDULE 2.15 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
EMPLOYEE BENEFITS MATTERS
Transaction Information Systems, Inc. Employment Agreements
Doan, Luc
Drew, Chris
Epifanio, Vince
Jumarito, Paul
Kalyuzhny, Arkady
Kolikineni, Jhansi
Koronides, Christos
Lerner, Paula
Levine, Stu
Lo, Lynette
Malik, Punit
Margulis, Galina
Marquez, Dolly
Miller, Margi
Perrault, Ivy
Peterson, Andrew
Presman, Yevgeniy
Radomyslsky, Boris
Richard, Anthony
Rini, Elizabeth
Rogin, Robert
Sfer, George
Siddabathuni, Prasad
Tarasek, Judith
Wong, Paul
Agarkar, Kedar
Bissooridial, Yoginand
Caron, Paul
Chechel, Joseph
Cornelison, Chad
Doucette, Tim
-32-
<PAGE> 251
SCHEDULE 2.15 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
EMPLOYEE BENEFITS MATTERS
Transaction Information Systems, Inc. Employment Agreements
Spille, Michael
Edelshain, Nigel
Estevez, Lisa
Fabre, Ralph
Fevrier, McCous
Flaschner, John
Fore, Jonathan
Gigarjian, Bruce
Hagopian, Gary
Hassan, Atif
Houghtalen, Eric
Hoyt, Burt
Iyer, Suresh
Jain, Ravi
Jalal, Mohammed
Kanthamneni, Sitaramaiah
Kuske, Michael
Mapp, Kelvin
Patel, Rohit
Ricciardi, Anthony
Shah, Rishi
Spirito, Thomas
Voskoboynikov, Peter
Weber, Catherine
Wigren, James
Zavinsky, Joseph
Babusis, Grazina
Bhattacherjee, De
Boylan, Joanne
Brey, Lauren
Brice, Roman
-33-
<PAGE> 252
SCHEDULE 2.15 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
EMPLOYEE BENEFITS MATTERS
Transaction Information Systems, Inc. Employment Agreements
Catalfumo, Mike
Curtiss, Alan
Dande, Daniel
Delahunt, Peter
Delgizzo, Fred
Flecha , Ann
Garcia-Torres, Javier
Gorokhovsky, Gennady
Guerrero, Alberto
Harvey, Mike
Holdenrid, Malia
Huegel, Ken
Kelley, Karen
Kogan, Daniel
Leshner, Josh
Marszal, Stan
Mcdevitt, John
McPherson, Charles
Mudie-Modeste, Monette
O'Neill, Katie
Sant Ram, Mohit
Sinha, Poonam
Smith, Chad
Varshavskiy, Leonid
Wolf, Chris
Wu, Jian
Zhuk, Igor
Rutkowski, Michael
Schreck, Mitch
Sottilare, Colleen
-34-
<PAGE> 253
SCHEDULE 2.15 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
EMPLOYEE BENEFITS MATTERS
TIS Equipment Corp. Employment Agreements
Zhandaker, Zahia
Aleles, Joe
Bavigadda, Madhu
Donovan, Greg
Doyon, Daniel
Gogri, Sachin
Jeronowitz, Robert
Krolak, Amy
Levine, Josh
Lin, Jack
Nelson, Anthony
Outerbridge, Peter
Raikanti, Vivekananda
Topolosky, Jason
Wanuga, Paul
Setford-Shaw-Najarian Associates, Ltd. Employment Agreements
Arzoomanian, Audra
Enright, Thomas
Epifanio, Michael
Gnip, Kirina
Kalikas, George
Laux, Thomas
Malvese, Matthew
Schreiber, James
Tracy, Stephen
Weiner, Robert
-35-
<PAGE> 254
SCHEDULE 2.15(a)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
EMPLOYEE BENEFITS MATTERS
NONE
-36-
<PAGE> 255
SCHEDULE 2.16
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
LABOR
Transaction Information Systems, Inc. Employees
<TABLE>
<CAPTION>
Employee Name Annual Base Compensation
------------- ------------------------
<S> <C>
Arzoomanian, Mark $229,707.56
Bayse, Paul $179,707.56
Bonjuklian, Peter $179,707.56
Burt, James $150,000.00
Campasano, Vincent $175,000.00
Catanzaro, Dean $130,000.00
Djamoos, Gregory $132,000.00
Donan, Peter $150,000.00
Farkas, Arthur $179,707.56
Fass, Mitchell $179,707.56
Frankel, Yan $130,000.00
Hampton, Scott $130,000.00
Hoffart, John $140,000.00
Jensen, Randy $130,000.00
Jetton, Nancy $140,000.00
Kandebo, Richard $130,000.00
Meyer, Fred $135,000.00
Najarian, Jeff $241,707.56
Schroeder, John $175,000.00
Shaw, Edward $229,707.56
Silveira, Charles $130,000.00
Slutsky, Patricia $175,000.00
Tindell, Larry $130,000.00
Toder, Jonathan $179,707.56
</TABLE>
-37-
<PAGE> 256
SCHEDULE 2.16 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
LABOR
Transaction Information Systems, Inc. Employees
<TABLE>
<CAPTION>
Employee Name Annual Base Compensation
------------- ------------------------
<S> <C>
Blokhin, Vitaliy $120,000.00
Brady, Bridget $107,500.00
Brown, Andrew $110,000.00
Chen, Rosemarie $105,000.00
Clark, Brenda $100,000.00
Davis, William $110,000.00
Elder, Mark $120,000.00
Haddad, Sadie $115,000.00
Harper Sr., Reginald $115,000.00
Kaufhold, Wayne $125,000.00
Kristiansen, David $110,000.00
Lozada, Humberto $115,000.00
Martinage, Elizabeth $110,000.00
McCarthy, Robert $125,000.00
Miscione, Keith $125,000.00
Monin, Ludmila $110,000.00
Netzer, Malcah $105,000.00
Nolan, Thomas $102,000.00
Reddy, Koti $120,000.00
Rodzevik, Stephen $125,000.00
Schmidt, William $120,000.00
Shapiro, Lori $115,000.00
Shaver, Chandra $115,000.00
Sumilat, Ben $125,000.00
Trinidad, Oscar $110,000.00
</TABLE>
-38-
<PAGE> 257
SCHEDULE 2.16 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
LABOR
Transaction Information Systems, Inc. Employees
<TABLE>
<CAPTION>
Employee Name Annual Base Compensation
------------- ------------------------
<S> <C>
Betancur, Alex $ 95,000.00
Ely, Edward $100,000.00
Faktor, Scott $100,000.00
Folgia, Michael $100,000.00
Harris, Jon $100,000.00
Heinzinger, John $100,000.00
Hubert, Dick $100,000.00
Hunter, Edward $100,000.00
Khandaker, Zahid $100,000.00
Kitrick, Tom $100,000.00
Lam, Kai Wing $100,000.00
Listhaus, Steve $100,000.00
Martin, Eladio $ 98,000.00
Mule, Joseph $100,000.00
Parise, Robert $100,000.00
Quinn, Meghan $ 99,000.00
Robatto, Ana $100,000.00
Roughan, Patricia $100,000.00
Schneider, Mark $100,000.00
Shah, Keten $ 97,160.00
Spyros, Spyros $ 96,000.00
Tusa, Lynn $100,000.00
Van Camp, Jason $100,000.00
Viggiano, Raymond $100,000.00
Viscovich, Robert $ 96,000.00
</TABLE>
-39-
<PAGE> 258
SCHEDULE 2.16 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
LABOR
Transaction Information Systems, Inc. Employees
<TABLE>
<CAPTION>
Employee Name Annual Base Compensation
------------- ------------------------
<S> <C>
Bhowmick, Jayadratha $85,000.00
Bianco, Franchesca $85,000.00
Bierig, Stu $92,500.00
Chandrasekaran, B $95,000.00
Chaykov, Alex $85,000.00
Da Ponte, Diana $91,000.00
Dahlberg, Michael $95,000.00
Denney, Kirsten $90,000.00
Engelbrecht, George $95,000.00
Franklin, Jim $90,000.00
Gadayev, Gregory $90,000.00
Grabowski, Jon $95,000.00
Hult, Chris $90,000.00
Karnowski, David $85,000.00
Lindeman, William $95,000.00
Mills, Holland $90,000.00
Ng, Judy $86,500.00
Pasquale, Nicholas $90,000.00
Pinco, Jennifer $90,000.00
Pursley, Sara $90,000.00
Pydishetty, Raj $90,000.00
Raymond, Gary $90,000.00
Riley, James $88,000.00
Wong, Edward $90,000.00
Wu, Kang $93,500.00
</TABLE>
-40-
<PAGE> 259
SCHEDULE 2.16 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
LABOR
Transaction Information Systems, Inc. Employees
<TABLE>
<CAPTION>
Employee Name Annual Base Compensation
------------- ------------------------
<S> <C>
Abrams, Josh $82,500.00
Chong, George $82,000.00
Dimartini, Krista $85,000.00
Kasny, Steve $84,000.00
Kirichenko, Vadim $83,000.00
Kramer, Will $83,000.00
Maduramuthu, Vijay $85,000.00
Panjabi, Raj $85,000.00
</TABLE>
TIS Equipment Corp. Employees
<TABLE>
<CAPTION>
Employee Name Annual Base Compensation
------------- ------------------------
<S> <C>
Bavigadda, Madhu $ 75,000.00
Donovan, Greg $ 75,000.00
Doyon, Daniel $145,000.00
Gogri, Sachin $ 93,500.00
Gold, Robert $229,707.56
Jeronowitz, Robert $ 99,000.00
Krolak, Amy $ 79,500.00
Melomo, Peter $179,707.56
Nelson, Anthony $ 93,500.00
Outerbridge, Peter $ 72,000.00
Spille, Michael $106,000.00
Topolosky, Jason $ 68,000.00
Wanuga, Paul $134,000.00
</TABLE>
-41-
<PAGE> 260
SCHEDULE 2.16 (CONTINUED)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
LABOR
TIS Equipment Corp. Employees
<TABLE>
<CAPTION>
Employee Name Annual Base Compensation
------------- ------------------------
<S> <C>
Aleles, Joe $60,000.00
Levine, Josh $55,000.00
Lin, Jack $51,000.00
Raikanti, Vivekananda $60,000.00
</TABLE>
Setford-Shaw-Najarian Associates Ltd. Employees
<TABLE>
<CAPTION>
Employee Name Annual Base Compensation
------------- ------------------------
<S> <C>
Arzoomanian, Audra $ 60,000.00
Enright, Thomas $ 60,000.00
Epifanio, Michael $ 52,000.00
Gnip, Kirina $ 78,000.00
Kalikas, George $ 50,000.00
Laux, Thomas $ 62,000.00
Malvese, Matthew $ 70,000.00
Schreiber, James $ 50,000.00
Setford, George $229,707.56
Tracy, Stephen $ 78,000.00
Weiner, Robert $156,000.00
</TABLE>
-42-
<PAGE> 261
SCHEDULE 2.17
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
LITIGATION
PMG Securities Corporation v. Transaction Information Systems, and Robert Gold
d/a/a Transaction Information Systems, Index No. 97/602608
Claude Nadaf and Nadcomp Systems, Inc. v. Transaction Information Systems, Inc.,
Index No.15122/98
-43-
<PAGE> 262
SCHEDULE 2.18
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
COMPLIANCE WITH LAWS, PERMITS
Transaction Information Systems, Inc. (Delaware)
Pending qualifications in the states of New Jersey, Massachusetts, Texas, North
Carolina and Pennsylvania
TIS Equipment Corp. (Delaware)
Pending qualification in the State of New York
Setford-Shaw-Najarian Associates Ltd. (New York)
Pending qualifications in the states of New Jersey, Texas, North Carolina and
Pennsylvania
-44-
<PAGE> 263
SCHEDULE 2.19
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
COMMISSIONS, ETC.
NONE.
-45-
<PAGE> 264
SCHEDULE 2.21(a)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
RELATED TRANSACTIONS
NONE
-46-
<PAGE> 265
SCHEDULE 2.22(a)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
TAXES
Income Tax Returns are Filed in the Following Jurisdictions:
Massachusetts
New Jersey
New York
New York City
Pennsylvania
-47-
<PAGE> 266
SCHEDULE 2.22(b)(ii)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
TAXES
S-Corporation Election (Transaction Information Systems, Inc.)
<TABLE>
<CAPTION>
Jurisdiction Date
- ------------ ----
<S> <C>
Federal July 1, 1994
Delaware September 1, 1997
Massachusetts January 1, 1996
New York July 1, 1994
New Jersey December 1, 1996
Pennsylvania September 29, 1997
</TABLE>
S-Corporation Election (TIS Equipment Corp.)
<TABLE>
<CAPTION>
Jurisdiction Date
- ------------ ----
<S> <C>
Federal January 1, 1997
New York January 1, 1997
</TABLE>
S-Corporation Election (Setford-Shaw-Najarian Associates, Ltd.)
<TABLE>
<CAPTION>
Jurisdiction Date
- ------------ ----
<S> <C>
Federal January 1, 1994
New York January 1, 1994
</TABLE>
Federal Subchapter S Subsidiary Election (Setford-Shaw-Najarian Associates,
Ltd.)
<TABLE>
<CAPTION>
Jurisdiction Date
- ------------ ----
<S> <C>
Federal December 31, 1997
</TABLE>
-48-
<PAGE> 267
SCHEDULE 2.22(d)
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
TAXES
NONE.
-49-
<PAGE> 268
SCHEDULE 2.24
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
INSURANCE
<TABLE>
<CAPTION>
Policy Type Company Policy Number Effective Expiration Premium
----------- ------- ------------- Date Date -------
--------- ----------
<S> <C> <C> <C> <C> <C>
Bond Reliance Insurance TBD 07/20/98 07/20/99 $ 13,845.00
Employee Dishonesty Company
Bond U.S.F.G. & Co. 59006059209954 07/26/98 07/26/01 $ 675.00
Employee Dishonesty Blanket Insurance Co.
Fire Atlantic Mutual 486304219 08/03/98 08/03/99 $ 81,550.00
General Liability Insurance Co.
Crime
Umbrella Commercial
Errors & Omissions Lloyds of London MPL0111400 12/22/97 12/22/98 $ 47,970.00
Worker's Compensation Atlantic Mutual
Insurance Company 401520007 11/25/97 11/25/98 $103,798.26
Employment Practices London Special
Risks, Ltd 047/276 04/25/98 04/25/99 $ 24,084.00
</TABLE>
-51-
<PAGE> 269
SCHEDULE 2.27
TO THE PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANSACTION INFORMATION SYSTEMS, INC.
THE SHAREHOLDERS OF TRANSACTION INFORMATION SYSTEMS, INC.
AND GS CAPITAL PARTNERS III, L.P.
INVESTMENT BANKING SERVICES
NONE
-52-
<PAGE> 1
EXHIBIT 10.7
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of this 30th day of
November 1999, by and between Transaction Information Systems, Inc., a Delaware
corporation (the "Company"), and Mark Gutterman (the "Employee").
WHEREAS, the Employee and the Company entered into an Employment
Agreement dated September __, 1998, as amended by an Amended Employment
Agreement, dated as of May 28, 1999 (collectively the "Original Amended
Agreement"); and
WHEREAS, the parties agree that it is in their mutual best interests,
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, to amend and restate the Original Amended Agreement to read
in its entirety as set forth below;
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual promises and covenants herein contained, the parties hereto hereby agree
as follows:
1. Modification. The Original Amended Agreement is hereby amended by
deleting all of the provisions thereof in their entirety, which are hereby
superseded and rendered null and void, and substituting the following restated
Agreement in lieu thereof.
2. Employment.
The Company hereby agrees to employ the Employee, and the
Employee hereby agrees to serve, subject to the provisions of this Agreement, as
an employee of the Company. During the Term, the Employee shall perform the
duties associated with the position of Chief Financial Officer at the principal
offices of the Company in New York, New York, including overseeing the Company's
finances and financial affairs and any other reasonable duties and
responsibilities consistent with that position as are from time to time assigned
to the Employee by the Board of Directors of the Company (the "Board") and any
officer designated by the Board. The Employee agrees to devote all of his
business time, attention and energies to the performance of the duties assigned
to him hereunder, and to perform such duties faithfully, diligently and to the
best of his abilities and subject to such laws, rules, regulations and policies
from time to time applicable to the Company's Employees. The Employee agrees to
refrain from engaging in any activity that does, will conflict with the best
interests of the Company.
3. Term of Agreement. Subject to Section 8 hereof, the term of this
Agreement shall commence on the date hereof, and shall expire on December 31,
2005 (the "Term").
<PAGE> 2
4. Compensation. (a) During the Term, the Company shall pay to the
Employee a base salary at an annual rate of $200,000 for the 1999 calendar year
and $225,000 for the 2000 calendar year. For each calendar year thereafter, the
base salary shall be increased as of each January 1 by $25,000 or such greater
amount (if any) as the Company in its sole discretion shall determine on an
annual basis following Employee's annual performance review. All salary payments
shall be payable in accordance with the Company's regular payroll practices, no
less frequently than bi-weekly. All applicable withholding taxes shall be
deducted from such base salary payments.
(b) In addition to Employee's base salary, Employee may
receive such annual or special bonus (if any) as the Company in its sole
discretion shall determine.
5. Benefits. During the Term, the Employee shall be entitled to receive
the following benefits at the Company's expense: (a) disability insurance
coverage providing Employee with benefits equal to his base salary after a
waiting period of one hundred and eighty (180) days, (b) health insurance
coverage for the Employee and his dependents consistent with the health
insurance benefits provided to the Company's officers and (c) life insurance
coverage with a minimum death benefit of One Million Five Hundred Thousand
Dollars ($1,500,000). Employee shall have the right to name the beneficiary or
beneficiaries of the life insurance policy and may purchase or continue the
policy, at Employee's expense, upon the termination of this Agreement. In
addition, during the Term, the Company, at its expense, shall provide Employee
with a new car of Employee's choice each three years.
6. Vacation. During each year of the Term, the Employee shall be
entitled to four weeks paid vacation pursuant to the terms of the Company's
vacation policy, which shall be consistent with the past practice of the
Company. Such vacation shall be taken at such times so as to minimize
interference with the performance of the Employee's duties hereunder.
7. Expenses. The Company shall reimburse the Employee for reasonable
and necessary business expenses of the Employee for travel, meals and similar
items, incurred during the Term in connection with the performance of the
Employee's duties, in accordance with the established guidelines of the Company
as revised by the senior executive officers and/or the Board from time to time.
All payments for reimbursement of such expenses shall be made to the Employee
only upon the presentation to the Company of appropriate vouchers or receipts.
8. Termination; Notice by Employee.
(a) Notwithstanding any provision of this Agreement to the
contrary, the employment of the Employee hereunder shall terminate on the first
to occur of the following:
(i) the date of the Employee's death;
(ii) the date on which the Company gives the
Employee notice of termination on account of
Disability (as defined below);
2
<PAGE> 3
(iii) the date on which the Company gives the
Employee notice of termination for Cause (as
defined below); or
(iv) the expiration of the Term.
(b) The Company shall have the right in its sole and
reasonable discretion to terminate the Employee's employment for "Disability,"
namely, if, as a result of the Employee's incapacity due to physical or mental
illness, the Employee shall have been absent or otherwise unable to perform the
Employee's duties hereunder in substantially the same manner as previously
provided for a period of 180 consecutive days during the Term. The Employee
agrees to submit to such medical examinations as may be necessary to determine
whether a Disability exists, pursuant to reasonable requests which may be made
by the Company from time to time.
(c) For purposes of this Agreement:
"Cause" shall mean the occurrence of any of the
following, as reasonably determined by the Company:
(A) the willful engaging by the Employee in
conduct outside the scope of the Employee's duties which in the reasonable
opinion of the Board is materially and demonstrably injurious to the Company or
any of its parents, subsidiaries or affiliates. Notwithstanding the foregoing,
the Employee will not be deemed to have been terminated for Cause within the
meaning of this clause if the Employee cures (provided cure is possible) or
ceases the alleged conduct, as the case may be, within ten days of delivery of
written notice to the Employee setting forth the reasons for the Company's
intention to terminate for Cause.
(B) the conviction of the Employee (or the
entering by the Employee of a plea of guilty or nolo contendere) for any felony
or any lesser crime which involved the Company or its property, or any of the
Company's parents, subsidiaries or affiliates or any such entity's property.
(d) In the event the Employee's employment is terminated by
the Company pursuant to Section 8(a) hereof or voluntarily by the Employee, the
Employee or his estate, conservator or designated beneficiary, as the case may
be, shall be entitled to payment of any earned but unpaid salary, and accrued
but unused vacation days, through the date of termination or the date on which
his resignation becomes effective (such amount, the "Accrued Earnings").
Following such payments, the Company shall have no further obligation to the
Employee under this Agreement.
(e) In the event that this Agreement is terminated by the
Company prior to the expiration of the Term for any reason other than those set
forth in Section 8(a) hereof, then Employee shall receive (i) his Accrued
Earnings, and (ii) a severance payment in an amount equal to four (4) times the
sum of (x) the total salary paid to the Employee during the twelve month period
preceding the date of termination plus (y) the annual bonus payment (if any) the
Employee actually received during such twelve month period, which severance
payment shall be payable in 104 equal
3
<PAGE> 4
bi-weekly payments commencing with the Company's next regular payable period
following the date of termination.
9. Return of Company Property. The Employee agrees that following the
termination of his employment for any reason, he shall return all property of
the Company, its subsidiaries, affiliates and any divisions thereof he may have
managed which is then in or thereafter comes into his possession, including, but
not limited to, documents, contracts, agreements, plans, photographs, books,
notes, data stored electronically on tapes, computer disks or in any other
manner and all copies of the foregoing as well as any other materials or
equipment supplied by the Company to the Employee.
10. Confidentiality; Non-Solicitation.
(a) As used herein, "Confidential Information" means any
confidential or proprietary information relating to the Company and its
affiliates including, without limitation, the identity of the Company's
customers, the identity of representatives of customers with whom the Company
has dealt, the kinds of services provided by the Company to customers, the
manner in which such services are performed or offered to be performed, the
service needs of actual or prospective customers, pricing information, financial
information, information concerning the creation, acquisition or disposition of
products and services, customer maintenance listings, computer software
applications, research and development data, know-how, personnel information and
other trade secrets. Notwithstanding the above, Confidential Information shall
not include any information that the Employee can demonstrate:
(i) is generally known to entities in the
Company's trade or business;
(ii) is generally available to the public without
conducting a substantial search of published
literature;
(iii) is part of the professional skills and
know-how developed by the Employee during
the course of his career before the Employee
commenced employment with the Company; or
(iv) is subject to disclosure pursuant to any
order or regulation of any governmental,
regulatory or administrative agency or
authority or court of judicial authority.
If a particular portion or aspect of Confidential Information becomes subject to
any of the foregoing exceptions, all other portions or aspects of such
information shall remain subject to all of the provisions of this Agreement.
(b) The Employee acknowledges that: (i) the Employee's
employment by the Company has and will require that the Employee have access to
and knowledge of Confidential Information; (ii) the disclosure of any such
Confidential Information to existing or potential competitors of the Company
would place the Company at a competitive disadvantage and would do damage,
monetary or otherwise, to the Company's business; and (iii) the engaging by the
Employee
4
<PAGE> 5
in any of the activities prohibited by this Section 10 may constitute improper
appropriation and/or use of Confidential Information. The Employee expressly
acknowledges the trade secret status of the Confidential Information and that
the Confidential Information constitutes a protectable business interest of the
Company. Accordingly, the Company and the Employee agrees as follows:
(i) So long as he is employed by the Company
(whether or not under this Agreement) and
for a period of three years thereafter, the
Employee shall not, directly or indirectly,
whether individually, as a director,
stockholder, owner, partner, employee,
principal or agent of any business, or in
any other capacity, make known, disclose,
furnish, make available or utilize any of
the Confidential Information, other than in
the proper performance of the duties as an
employee of the Company. Notwithstanding the
foregoing, any information which meets the
definition of trade secret under the Uniform
Trade Secret Act and does not fall within
subparagraphs (a)(i) to (a)(iii) of this
Section 10, will be maintained in confidence
so long as it continues to be treated as a
trade secret.
(ii) The Employee agrees to return promptly all
Confidential Information in tangible form,
including, without limitation, all
photocopies, extracts and summaries thereof,
and any such information stored
electronically on tapes, computer disks or
in any other manner to the Company at any
time during employment upon the Company's
request and automatically, without request,
within five days after the termination of
his employment for any reason.
5
<PAGE> 6
(c) In consideration of the severance payment payable to
Employee pursuant to Section 8(e) hereof, Employee agrees that for a period of
three years following a termination of the Employee's employment with the
Company pursuant to Section 8(e), he will not, directly or indirectly, for
his benefit or for the benefit of any other person, firm or entity, do any of
the following:
solicit the employment or services of any person who was known
to be employed by or was a known consultant to the Company
upon the termination of the Employee's employment, or within
six months prior thereto.
(d) The Employee acknowledges that the services to be rendered
by him to the Company are of a special and unique character, which gives this
Agreement a peculiar value to the Company, the loss of which may not be
reasonably or adequately compensated for by damages in an action at law, and
that a material breach or threatened breach by him of any of the provisions
contained in this Section 10 will cause the Company irreparable injury. The
Employee therefore agrees that the Company shall be entitled, in addition to any
other right or remedy, to a temporary, preliminary and permanent injunction,
without the necessity of proving the inadequacy of monetary damages or the
posting of any bond or security, enjoining or restraining the Employee from any
such violation or threatened violations.
(e) The parties acknowledge that the type and periods of
restriction imposed in this Section 10 are fair and reasonable and are
reasonably required for the protection of the Company; and that the time, scope
and other provisions of such section have been specifically negotiated by the
parties. The Employee specifically acknowledges that the restrictions
contemplated by this Agreement will not prevent him from being employed or
earning a livelihood in the type of business conducted by the Company.
11. Survival of Employee Covenants. The provisions set forth in Section
10 hereof shall remain in full force and effect after the termination of the
Employee's employment, notwithstanding the expiration of the Term or termination
of the Term.
12. Entire Agreement. This Agreement sets forth the entire agreement
between the parties with respect to its subject matter and merges and supersedes
all prior discussions, agreements and understandings of every kind and nature
between them including, without limitation, the Original Amended Agreement, and
neither party shall be bound by any term or condition other than as expressly
set forth or provided for in this Agreement. Any such change or modification
must be set forth in a written agreement, signed by the parties hereto.
13. Waiver. The failure of either party to this Agreement to enforce
any of its terms, provisions or covenants shall not be construed as a waiver of
the same or of the right of such party to enforce the same. Waiver by either
party hereto of any breach or default by the other party of any term or
provision of this Agreement shall not operate as a waiver of any other breach or
default.
14. Successors and Assignability. This Agreement is intended to bind
and inure to the benefit of and be enforceable by the Employee and his heirs,
executors or administrators, and to bind and inure to the benefit of and be
enforceable by the Company and its successors and assigns. This
6
<PAGE> 7
Agreement shall not be assignable by the Employee. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business.
15. Severability. If any of the covenants in this Agreement, including,
without limitation, Section 10, or any part thereof, is hereafter construed to
be invalid or unenforceable, it is the intention of the parties that the same
shall not affect the remainder of the covenant or covenants, which shall be
given full effect without regard to the invalid portions. If any of the
covenants contained in this Agreement, including, without limitation, Section
10, or any part hereof, is held to be unenforceable because of the duration of
such provision the parties agree that the court making such determination should
reduce the duration of such provision such that, in its reduced form, said
provision shall then be enforceable to the maximum extent permitted by
applicable law.
16. Notices. Any notice given hereunder shall be in writing and shall
be deemed to have been given when sent by facsimile, delivered by messenger or
courier service (against appropriate receipt), or mailed by registered or
certified mail (return receipt requested), addressed as follows:
<TABLE>
<S> <C>
If to the Company: Transaction Information Systems, Inc.
115 Broadway
New York, New York 10006
Attn: Jeffrey Najarian
Facsimile Number: (212) 962-7175
If to the Employee: Mr. Mark Gutterman
4 Newport Drive
Plainview, New York 11803
</TABLE>
or at such other address as shall be indicated to either party in writing.
Notice of change of address shall be effective only upon receipt.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to its
conflict of law rules.
18. Arbitration. The parties agree that all claims and controversies
arising from or relating to this Agreement will be settled by arbitration in New
York, New York in accordance with the commercial arbitration rules of the
American Arbitration Association. The arbitrators may award the prevailing party
all costs of filing, arbitrator fees, legal fees and related costs. The decision
of the arbitrators shall be final. Judgment may be entered on the arbitration
award in the Supreme Court, New York County, or any other court having
jurisdiction.
[intentionally left blank]
7
<PAGE> 8
19. Descriptive Headings. The paragraph headings contained herein are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in one or more
counterparts, which, together, shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
TRANSACTION INFORMATION SYSTEMS,
INC.
/s/ Jeffrey Najarian
By:_______________________________________
Name: Jeffrey Najarian
Title: Chief Executive Officer
/s/ Mark Gutterman
__________________________________________
MARK GUTTERMAN
8
<PAGE> 1
Exhibit 21
Subsidiaries of Registrant
Setford-Shaw-Najarian Associates, Ltd., a New York corporation.
TIS Equipment Corp., a Delaware corporation.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our reports dated November 12, 1999 relating to the financial statements and
financial statement schedule of Transaction Information Systems, Inc., which
appear in such Registration Statement. We also consent to the references to us
under the headings "Experts" and "Selected Consolidated Financial Data" in such
Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
December 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,175,316
<SECURITIES> 0
<RECEIVABLES> 24,293,320
<ALLOWANCES> 1,025,801
<INVENTORY> 0
<CURRENT-ASSETS> 29,380,395
<PP&E> 5,099,388
<DEPRECIATION> 1,691,659
<TOTAL-ASSETS> 33,041,731
<CURRENT-LIABILITIES> 23,354,963
<BONDS> 0
0
49,160,426
<COMMON> 201,000
<OTHER-SE> (40,427,648)
<TOTAL-LIABILITY-AND-EQUITY> 33,041,731
<SALES> 76,578,872
<TOTAL-REVENUES> 76,578,872
<CGS> 48,672,209
<TOTAL-COSTS> 48,672,209
<OTHER-EXPENSES> 25,217,932
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 262,594
<INCOME-PRETAX> 2,234,299
<INCOME-TAX> 1,057,285
<INCOME-CONTINUING> 1,177,014
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,177,014
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.05
</TABLE>
