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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1997.
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to __________
Commission file number 0-10560.
CTI Group (Holdings) Inc.
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(Exact name of Small Business Issuer in its charter)
DELAWARE 51-0308583
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(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification Number)
901 S. Trooper Road, P.O. Box 80360, Valley Forge, PA l9484
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (610) 666-1700
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of each class Name of each exchange on which
Common Stock, Par Value $.01 Per Share registered None
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes No X .
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Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this Form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment of this Form 10-KSB. X
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The Issuer's revenues for its most recent fiscal year were $3,223,290.
The aggregate market value of voting stock held by non-affiliates of the
Issuer as of August 8, 1997 was $973,863.
The number of shares of common stock outstanding as of August 8, 1997 was,
6,390,314.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
A. BUSINESS DEVELOPMENT
The Company was incorporated in Pennsylvania in 1968 and
reincorporated in the State of Delaware as of April 1, 1988
pursuant to a merger of the Company into a wholly-owned
subsidiary formed as a Delaware corporation. In November 1995,
the Company changed its name to CTI Group (Holdings) Inc.
In 1995, the Company restructured into a holding company.
In January 1995, the Company established a Delaware corporation,
CTI Data Solutions (USA) Inc. In May 1995, the Company
established a UK-based company, CTI Data Solutions
(International) Ltd. In December 1995, the Company established
a Delaware corporation, CTI Delaware Holdings, Inc. In January
1997 the Company completed an acquisition of Soft-Com Inc., a
New York corporation, which was re-established as a Delaware
corporation, CTI Soft-Com Inc. These organizations are
wholly-owned subsidiaries of the Company.
CTI Data Solutions (USA) Inc. and CTI Soft-Com Inc. own all
of the tangible assets and liabilities of the Company's U.S.
operations and perform all of the necessary functions to conduct
the Company's U.S. businesses. CTI Delaware Holdings, Inc. owns
all of the intangible assets of the Company. CTI Delaware
Holdings, Inc. has research and development royalty agreements
between itself and both CTI Data Solutions (USA) Inc. and CTI
Soft-Com Inc. These agreements provide CTI Delaware Holdings,
Inc. with appropriate resources to develop the Company's
proprietary software products while allowing CTI Data Solutions
(USA) Inc. and CTI Soft-Com Inc. to market and use the software
products to conduct business in their respective market sectors.
CTI Data Solutions (International) Ltd. was formed to market
the Company's products and services into the UK and European
marketplaces. This subsidiary's operations were suspended in
March 1997.
The Company has two inactive subsidiaries, Plymouth
Communications, Inc. and Telephone Budgeting Systems, Inc.
The Company's executive offices are located at 901 South
Trooper Road, Valley Forge, Pennsylvania 19482. The Company's
telephone number is (610) 666-1700.
B. BUSINESS OF ISSUER
The Company designs, develops, markets and supports software
and services for managing telecommunications systems. The
Company's two operating subsidiaries compete in complementary
market sectors. CTI Data Solutions (USA) Inc. concentrates on
billing solutions for providers of telecommunications services.
CTI Soft-Com Inc. focuses on network management solutions for
corporate users of telecommunications services. All of the
Company's business relates to information processing;
specifically, the collection, formatting and processing of
electronic event records into data reporting instruments. The
Company obtains its revenue from service bureau operations,
software licensing and software maintenance agreements.
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CLIENTS. Billing products are marketed to providers of
telecommunications services. Generally, clients are switched and
switchless resellers of long-distance (includes international)
voice and data services, who purchase services wholesale from
IXCs (inter-exchange carriers) for resale to business and
residential end-users. Billing products are also available to
wholesalers to bill their resellers. Since passage of the
Telecommunications Act of 1996, CLECs (competitive local exchange
carriers), ISPs (Internet service providers), cellular and PCS
(personal communications systems) companies, cable television
operators, utility companies and universities have become future
candidates for the Company's billing products. The Company
targets all types of telecommunications service providers pending
advancement of technological capabilities by its own development
efforts, by partnering with companies offering complementary
technology and through acquisitions. (The Company works toward
the capability to retrieve and process all forms of billable
electronic event records.)
Telemanagement products are marketed to organizations with
internal telecommunications systems supporting an aggregate of
telephone, fax and modem equipment. The Company's clients
include domestic Fortune 500 companies, mid-size and small
companies, hospitals, universities and government agencies
(local, county, state and federal).
REVENUE GENERATION. The Company generates revenue through
service bureau contracts, software licensing agreements and
maintenance agreements supporting licensed software. Maintenance
agreements are either on a time and material basis or full
service agreements which are generally for periods of 12 months.
The Company also generates revenue from invoice printing and
mailing services which it subcontracts to third-party vendors.
Service bureau contracts provide monthly recurring revenue.
The Company has approximately 67 contracts (15 for billing
services and 52 for telemanagement services) with original terms
of up to 36 months. Many of these contracts are for multiple
sites which equate to the Company processing data for
approximately 161 separate locations. Generally, contracts of 12
to 36 months carry automatic 12-month renewals until canceled.
For software licensing agreements on a direct distribution
basis, payment terms are 50% deposit upon receipt of order and
50% balance upon installation which is normally completed within
60 days. Occasionally, larger software orders may require up to
six months to complete custom software development and
installation. For software licensing via distributor channels,
payment terms are net 30. Approximately 4500 software licenses
are in effect for telemanagement systems.
The Company purchases data collection devices specifically
designed for use with telecommunications switches and other
hardware such as modems as are necessary to perform its business.
The Company rents or resells such equipment to end-users.
SALES CHANNELS. All sales for billing software and services
are Company direct. Telemanagement product sales use direct and
distributor sales channels.
TELECOMMUNICATIONS DATA PROCESSING. The Company processes
event records generated by telecommunications switching vehicles
that, to date, include telephone PBX (private branch exchange)
and CENTREX (central office exchange) equipment. The Company
anticipates processing records from computer-telephone LAN
servers and other electronic event systems such as utility
metering systems and cable television headend controllers.
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The event records processed by the Company detail billable
activity: e.g., call origin and destination numbers, date and
time stamping, call duration, etc. The records are processed
against pricing algorithms and other tables to derive data
necessary to support a provider's need to invoice customers or a
volume-user's need to track telecommunications activity.
Outputs from the Company's software and services are various
summary and detail reports and statements which are generally
provided as hard-copy printouts. Outputs are also available for
viewing on computer monitors and are transportable via modem and
magnetic media (tapes, disks and CD-ROMs).
DATA COLLECTION. Event records are collected and stored in
real-time by solid-state devices specifically designed for use
with telecommunications switches, or by computer memory. Data is
obtained for processing by polling the storage devices, by
reading the data from a magnetic media prepared by the client,
the client's service provider, or by e-mail.
BILLING PRODUCTS: GENERAL. The Company's billing products
support telecommunications providers' needs to invoice customers.
Software and services are designed to collect and process data
describing accounts receivable; to generate and deliver invoices;
to support a customer service call center; and, to interface with
other operational support systems (OSS). The billing products
are mission-critical to providers inasmuch as they affect cash
flow, customer service and capabilities to define, design,
package and market competitive services. Billing products are
presently provided on a service bureau basis exclusively;
however, the Company does consider proposals for restricted
object code/source code licensing that the Company assesses to be
non-competitive to its billing business.
Service bureau billing solutions require a "front-end"
software to be licensed by the client. The client uses the
software to maintain a customer database and to fulfill needs to
maintain customer profiles; to define services, packaging and
pricing plans; to operate a customer service call center; and to
control all parameters for the invoice processing performed by
the Company. Invoices are generated at the Company's service
bureau by processing extracts from the client's customer database
against customers' call/event records. After processing a
client's data and creating invoice image files, the Company
outsources most invoice printing and mailing to mail houses.
Invoice data are returned to the client for updating the customer
database.
BILLING PRODUCTS: WINDOWS OS PLATFORM. The Company began
delivery of its new NEPTUNE Billing and Customer Care System for
the telecommunications billing market sector during the year
ended March 31, 1997. Eight new clients contracted for NEPTUNE
services with six of the clients having completed or near
completion of product implementation. All contracts are with
providers of telephony services.
NEPTUNE, written in Visual C++, is designed to operate on
Windows-based LAN and PC platforms and, with additional
programming, for coexistence with DOS mainframe computers and
competing client/server systems such as UNIX and Novell NetWare.
Initial product implementation supports wireline telephony
billing applications. With continuing product development and/or
integration with third-party complementary-technology systems,
NEPTUNE's open system design is intended to be capable of billing
for convergent cellular, PCS and cable television services, and
of integrating other operational support functions such as
service provisioning and trouble/repair tracking into a single,
coherent system.
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NEPTUNE is currently marketed as a service bureau product.
The Company considers proposals for restricted object code/source
code licensing that the Company assesses to be non-competitive to
its billing business. The Company anticipates at some future
time the packaging and marketing of NEPTUNE as a licensed
software product to complement its billing service bureau
product. Should the Company license NEPTUNE as a complete
billing software package, the product would include a pricing
module and invoice/statement generation module in addition to
database management/reporting software already licensed to
service bureau clients.
BILLING PRODUCTS: DOS PLATFORM. For the year ended March
31, 1997, twelve billing clients representing approximately 36
reseller sites remained under contract for the Company's RESYS
Billing System. RESYS employs DOS mainframe processing to
generate invoices and requires users to license a proprietary
PC-based customer database software. The system conforms to the
telephone industry standard "legacy system" and serves only
providers of telephony services.
The Company anticipates migrating RESYS clients to the
Company's new NEPTUNE (Windows OS) platform. Such migration will
be affected by the complexity of each client's billing
applications, resources available to the Company without
impacting new business, and a client's urgency to migrate. The
Company expects to complete migration prior to March 31, 1999.
TELEMANAGEMENT PRODUCTS: GENERAL. Telemanagement products
are used by companies, institutions and government agencies for
fiscal or legal purposes to track telecommunications activity and
to control costs associated with operating telecommunications
networks. They perform functions of call recording, call
accounting, cost allocation, client bill-back, analyses of trunk
traffic and calling patterns, toll fraud detection, directory
services and integration with other PBX administration and
peripheral products. (See previous paragraphs on
"Telecommunications Data Processing" and "Data Collection.")
The availability of Internet access to employees via
corporate networks introduces new areas of fiscal and legal
concern for telecommunications managers such that the Company
anticipates new telemanagement applications for usage tracking
and cost allocation of Internet activity over its clients'
networks.
With the acquisition of Soft-Com Inc., now "CTI Soft-Com
Inc.," in January 1997, the Company's installed base increased
substantially to over 4,500 systems total. The Company is
currently in the process of consolidating its telemanagement
sales, marketing and service operations.
TELEMANAGEMENT PRODUCTS: TMS SERVICE BUREAU. The Company's
TMS (Telephone Management System) Service Bureau processes
clients' telecommunications data into management reports on a
monthly basis. The Company's service bureau account managers
oversee processing schedules, collection of data to be processed,
quality control and shipments of deliverables. Account managers
work with clients as necessary to help interpret reports, answer
questions about telecommunications systems and providers, and
make recommendations when improvements to clients' systems are
sought. Clients achieve the intended purposes of routine
telemanagement tasks with minimal responsibilities.
TELEMANAGEMENT PRODUCTS: WINDOWS OS SOFTWARE SYSTEMS. The
Company licenses software products to clients who prefer and have
the personnel resources to operate and maintain a call accounting
or telemanagement system in-house. Such clients have advantages
of near-real-time call record processing, ad hoc system queries
and on-demand management reporting in addition to routine,
end-of-month telemanagement reports. However, clients assume all
responsibilities for collecting, storing and interpreting data.
Clients are supported by the Company with routine updates of
time-sensitive tariff files and V&H coordinate files which
correlate area and exchange codes to city, state and country
locations.
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The Company's UNITY platform products (UNITY Call Accounting
System and UNITY Telemanagement Server) apply state-of-the-art
Windows OS technology to upgrade and expand traditional call
accounting and telemanagement market applications. New UNITY
platform features for example include: call accounting report
distribution via e-mail; CDR (call detail record) polling via
Internet, Intranets or WANs; TAPI (telephony applications
programming interface) dialer which facilitates point-and-click
dialing from database-resident corporate and local directories;
and 911 notification which allows organizations to assign any
number of Windows-based PCs on their corporate LAN with an
immediate screen-pop notification when a 911 call is made (the
screen-pop pinpoints the caller's exact location within the
building). Aside from being a true Windows system with
sophisticated features not yet seen in telemanagement, UNITY adds
capabilities to integrate other unique products onto the call
accounting platform, thereby centralizing database management and
eliminating data entry duplication for voice mail systems,
attendant consoles, auto attendants, toll fraud detection systems
and digital PBX systems, all of which are designed as discrete
products.
TELEMANAGEMENT PRODUCTS: MS-DOS SOFTWARE SYSTEMS. For the
year ended March 31, 1997, most (over 4,000 installations) of the
Company's telemanagement software base remained under license
agreements for the Company's older call accounting and
telemanagement products designed for PCs and LANs using MS-DOS.
Products include ITMS/III (Interactive Telecommunications
Management System, Version 3), CMS (Call Management System),
SCOUT Call Accounting System, and COMMANDER Telemanagement
System. The Company anticipates substantial repeat-sales
opportunity over the next several years as it seeks to upgrade
this telemanagement software base to UNITY platform Windows OS
products.
TELEMANAGEMENT PRODUCTS: INTERACTIVE SERVICE BUREAU. The
Company has deployed on a limited basis hybrid systems which
combine the most desirable benefits of service bureau outsourcing
and in-house telemanagement. Under Interactive Service Bureau
agreements, clients' routine telemanagement processing and
monthly reporting are performed by the Company's service bureau
while an on-site terminal facilitates ad hoc system queries and
reporting.
TELEMANAGEMENT PRODUCTS: TOLL-FRAUD MONITORING SERVICE.
The Company provides a service for 24-hour alarm monitoring of
toll-fraud detection equipment. All call accounting clients are
offered the option of toll-fraud protection. Detection equipment
is purchased by the Company and resold or rented to clients. (A
majority of clients elect to assume responsibility for monitoring
and responding to alarms in lieu of the Company's service.)
EMPLOYEES. The Company employs 36 people on a full-time
basis, of whom three persons are executive officers and the
balance are engaged in development, installation and servicing of
software, data processing, customer service, sales and marketing,
and general administrative services.
PATENTS. The Company has not applied for patent protection
with respect to any of its software programs or other technology
which it deems proprietary. Management believes that available
patent protection would not afford the Company significant
protection against competitors' development of infringing
software or other technology. The Company seeks to protect the
confidentiality of its proprietary software and other technology
through non-disclosure agreements with its employees, clients and
prospective clients.
TRADEMARKS. Prior to the year ended March 31, 1997, the
Company had filed with the U.S. Department of Commerce Patent and
Trademark Office four trademark applications for its stylized
CTI1 logo and the product names "Neptune," "Proteus," and
"Nereus." During the year ended March 31, 1997, a
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trademark registration was issued for the Company's CTI1 logo.
The trademark application for "Neptune" was rejected due to an
existing registration for "computer programs." In the opinion of
the Company's trademark attorney, the Company can seek a partial
cancellation of the registered mark based on the grounds that
"computer programs" were too broad an interpretation for the mark
when registered and that the Company's business does not infringe
on the business of the registrant. After waiting the outcome of
two similar cancellation actions against the registrant, which
were eventually dismissed by the Patent and Trademark Office, the
Company elected to abandon its trademark application for
"Neptune."
"Notice of Allowance" for the product names, "Proteus" and
"Nereus" were received during the year. (A registration mark
cannot be issued until a "Statement of Use" of the mark in
commerce is submitted.) The Company maintained an "intent to
use" the marks and filed six-month extensions to continue
allowance. Both product names were intended for future
telemanagement products of the Company prior to the acquisition
of Soft-Com and Soft-Com's UNITY products. Said acquisition
affects the Company's intent for the marks and may cause the
Company to abandon these applications.
ENVIRONMENT. The Company does not anticipate that
compliance with federal, state or local environmental regulations
will have any material effect on its capital expenditures,
operating results or competitive position, or that it will be
required to make any material capital expenditures for
environmental protection in the current fiscal year.
COMPETITION: BILLING SECTOR. Aside from highly-capitalized
subsidiaries of major telecommunications companies, led by
Cincinnati Bell Information Systems (CBIS), and large
multi-industry information processing companies, such as
Electronic Data Systems (EDS), the third-party telecommunications
billing marketplace is fragmented with fractional market shares
distributed among many competitors. Deregulation of the
telecommunications industry and the advent of convergence, which
is the delivery of multiple telecommunications services from a
single provider, casts such new and urgent importance to
upgrading mission-critical billing systems that the sector is
attracting substantial attention and investment. As convergence
evolves, major billing companies can be expected to compete
increasingly in fewer, broader arenas with a complete portfolio
of convergent billing solutions. Deregulation is also inviting
substantial new entrepreneurial enterprise for niche providers,
which consequently can sustain a lucrative market for billing
companies with partial convergence capabilities.
There are an increasing number of competitors with billing
experience who offer or are positioning to offer convergent
billing solutions. Other competitors are attempting to enter the
market or expand from niche market positions. While projections
for growth in telecommunications billing are robust, the market
can be expected to become increasingly competitive.
COMPETITION: TELEMANAGEMENT SECTOR. Telemanagement market
opportunities are strong for Windows-based products since
telecommunications software has trailed other PC software in
migrating to true Windows platforms. Many DOS and UNIX systems
at corporations, hospitals, universities and government agencies
are ripe for replacement. Furthermore, these systems must be
upgraded for year 2000 compliancy, which should move most
organizations to replace them with state-of-art Windows
technology rather than absorb inescapable programming costs.
Of the competitive Windows-based telemanagement systems on
the market today, the Company believes most to be direct
functional translations of older DOS products and to lack many of
its product's new features and functionality. The telemanagement
market is highly competitive and competition is expected to
remain strong for the foreseeable future.
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ITEM 2. DESCRIPTION OF PROPERTIES
The Company entered into an operating lease for its office
facilities for its corporate headquarters in September 1992. The
Company leases 12,000 square feet of this 15,000 square foot facility.
The term of the agreement is for ten years commencing on January 1,
1993 and ending on December 31, 2002. Annual rent of $72,000,
payable in equal monthly installments, commenced on July 1, 1993.
Annual rent increases become effective on the anniversary of the
initial rent payment as provided for in the lease.
Additionally, the lease provides purchase options for this
facility under various conditions. If the landlord wishes to sell the
premises he must first offer it to the Company. The Company must then
comply with the provisions of the lease relevant to this option. The
Company also has an option to purchase the premises. If the landlord
does not notify the Company of its option between January 1, 1998 and
December 31, 1999, the Company must notify the landlord whether or not
it intends to purchase the premises between January 1, 2000 and April
1, 2000. This notice initiates the purchasing process which
encompasses various deposits to ensure the Company's performance as
well as the process of determining the purchase price, which in any
circumstance will not be less than $1,000,000.
The Company's subsidiary, CTI Soft-Com Inc., leases office space
at 140 West 22nd Street, New York, New York. The lease terminates on
January 31, 1998 and the monthly base rent is $4,870.
ITEM 3. LEGAL PROCEEDINGS
In September 1990 the Company, through the loss adjusting service
of its former general liability insurance carrier, was advised of five
Summons and Complaints filed in the Superior Court of Bergen County,
New Jersey. The suit was filed on behalf of the Estates of five
deceased plaintiffs who alleged that the failure of communications
equipment used by the Hackensack Fire Department, and allegedly
maintained by a subsidiary of the Company, impaired rescue operations
while fighting a fire in Hackensack, New Jersey. Currently,
plaintiffs' allegations have not supported the claim that the
Company's subsidiary, who is the named insured under the above
insurance policy, was involved in the maintenance of the communication
equipment in question.
During the fiscal year ended March 31, 1997, three of the cases
were settled. The Company's share of the settlements totaled $17,000.
The Company's former general liability insurance carrier will bear the
cost of these settlements. Further settlement discussions are to be
held with the remaining claimants. As a result of these settlements,
and after consulting with the Company's counsel and liability
insurance carrier, it is the opinion of management that the final
outcome of the above matter will not have a material effect, if any,
on the financial statements of the Company.
On August 11 1997, John Perri, the former President of the Company's
CTI Soft-Com Inc. subsidiary, and Soft-Com, Inc. ("Soft-Com"), filed
suit against the Company, CTI Data Solutions (USA), Inc., Anthony P.
Johns and Mark Daugherty in connection with the Company's termination
of Mr. Perri's employment on July 28, 1997 and the Company's
acquisition of Soft-Com in January 1997. Mr. Perri is seeking a
preliminary and permanent injunction restricting the Company from
enforcing the non-competition provisions of his employment agreement
and from selling or dissipating any of the assets of Soft-Com. Mr.
Perri is also seeking recission of the Merger Agreement pursuant to
which the Company acquired Soft-Com and certain monetary damages. The
Company intends to vigorously contest the action and believes it has
meritorious defenses to Mr. Perri's claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. The shares of the Company's Common Stock are traded on the OTC Bulletin
Board (Symbol "CTIG"). Prior to January 4, 1996, the Company's common stock had
been trading on the OTC Bulletin Board under the symbol "CMMG". The table below
sets forth for the indicated periods the bid price ranges for the common stock
as furnished by the National Daily Quotation Bureau. These prices represent
prices between dealers, do not include retail markup, markdown or commissions
and do not necessarily represent actual transactions.
Quarterly Common Stock Price Ranges
(for the fiscal year ended March 31,)
1997 1996
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HIGH LOW HIGH LOW
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1st Quarter $ 1.06 $ .50 $ .13 $ .08
2nd Quarter $ .63 $ .19 $ .08 $ .06
3rd Quarter $ .47 $ .25 $ .53 $ .06
4th Quarter $ .50 $ .19 $ .50 $ .22
B. At August 8, 1997, the bid and asked prices for such shares were $.25.
C. At August 8, 1997 the number of shareholders of record of Common Stock
approximated 410.
D. No dividends were paid in the fiscal years ended March 31, 1997 and 1996.
RIDER 9A. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains "forward-looking" statements. The Company is including
this statement for the express purpose of availing itself of protections of the
safe harbor provided by the Private Securities Litigation Reform Act of 1995
with respect to all such forward-looking statements. Examples of forward-looking
statements include, but are not limited to: (a) projections of revenues, capital
expenditures, growth, prospects, dividends, capital structure and other
financial matters; (b) statements of plans and objectives of the Company or its
management or Board of Directors; (c) statements of future economic performance;
(d) statements of assumptions underlying other statements and statements about
the Company and its business relating to the future; and (e) any statements
using the words "anticipate", "expect", "may", "project", "intend" or similar
expressions.
The Company's ability to predict projected results or the effect of certain
events on the Company's operating results is inherently uncertain. Therefore,
the Company wishes to caution each reader of this report to carefully consider
the following factors, any or all of which have in the past and could in the
future affect the ability of the Company to achieve its anticipated results and
could cause actual results to differ materially than those discussed herein:
ability to attract and retain customers to purchase its products, ability to
commercialize and market products, results of research and development,
technological advances by third parties and competition, future capital needs of
the Company, history of operating losses, dependence upon key personnel and
general economic and business conditions.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Revenues from operations decreased $911,540 (22%) for the fiscal year
ended March 31, 1997, as compared to the prior year period. Included in this
reduction was a decline in the Company's sales associated with its
telemanagement service bureau products which decreased $309,820 (17%) from
the same period in the prior year. The reduction was primarily the result of
a major customer cancellation during the fiscal year ended March 31, 1996.
This customer had sales of $239,570 (13%) of the telemanagement service
bureau sales for the fiscal year ended March 31, 1996, and none during the
fiscal year ended March 31, 1997.
Sales associated with the Company's billing products decreased $637,510
(35%) for the fiscal year ended March 31, 1997, as compared to the prior year
period. The reduction was the result of a major customer cancellation effective
as of September 1996. This customer had billing service sales of $578,880 and
$1,256,250 for the fiscal years ended March 31, 1997 and 1996 respectively.
Sales associated with the Company's telemanagement licensed software
products increased $35,790 (7%) in the fiscal year ended March 31, 1997, as
compared to the prior year period. The increase is the result of the Company's
acquisition of Soft-Com Inc., a privately-held New York based telemanagement
company on January 2, 1997. Soft-Com offers state-of-the-art windows based
telemanagement software products.
Cost of sales were 43% of sales in 1997 and 44% of sales in 1996. Cost of
sales decreased $439,970 (24%) for the fiscal year ended March 31, 1997, as
compared to the prior year period. Equipment costs decreased by approximately
$314,000 in 1997 as the result of the reduction in equipment sales. Production
costs decreased by approximately $132,000 in 1997 as a result of the loss in
service bureau revenues. Other cost reductions were partially offset by the
costs associated with the Company's new subsidiary CTI Soft-Com Inc. of
approximately $79,000. Additionally, the Company recorded approximately $31,000
in non-cash compensation as a result of the Company issuing stock options and
stock grants to certain employees.
Selling, general and administrative (SG&A) expenses were 55% of sales in
1997 and 45% of sales in 1996. This percentage increase was primarily due to the
22% decrease in revenues from 1996 to 1997. In fact SG&A expenses decreased
$105,820 (6%) in 1997 despite the additional $159,000 in costs associated with
the Company's new subsidiary, CTI Soft-Com. The overall reduction was primarily
the result of a reduction in commission expense of approximately $100,000 and a
reduction of employee compensation expenses of approximately $98,000. These
reductions are exclusive of the costs associated to CTI Soft-Com Inc. The
commission expense reduction is directly the result of lower sales volumes while
the compensation expense reduction resulted from the Company instituting a
financial model to assist in maintaining cash neutrality as a result of the loss
of a major customer in September 1996.
Other income for the fiscal year ended March 31, 1996 is the result of the
Company having satisfied a state tax assessment for which it had accrued more
than was actually paid.
The Company commenced marketing its Neptune billing software during the
fiscal year ended March 31, 1997 and has received several orders for the product
from the domestic marketplace during this period. As a result of unanticipated
delays in finalizing and stress testing the Neptune billing software, the
Company suspended operations of its UK subsidiary in the fourth quarter of its
fiscal year ended March 31, 1997. The Company incurred a loss of $165,680 in its
UK operations for the fiscal year ended March 31, 1997. The Company continued to
pursue the opportunities which were generated by the UK
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subsidiary utilizing its US based operations. The Neptune billing software
was completed as of the fiscal year ended March 31, 1997. The Company has
continued installing the smaller customers since December 1996, but was not
yet in a position to enable it to install the larger customer orders. The
Company anticipates it will begin generating revenues from the larger
customers in the second quarter of the Company's next fiscal year.
The Company completed an acquisition on January 2, 1997 of Soft-Com Inc. and
began marketing the Soft-Com windows based telemanagement software product,
UNITY. The Company began generating sales for this product in the fourth quarter
of the fiscal year ended March 31, 1997. The Company has been
marketing this product to its existing customer base with the expectation of
improving its customer retention.
LIQUIDITY AND CAPITAL RESOURCES: Working capital at March 31, 1997 was a
deficit of $377,750. Working capital at March 31, 1996 was $177,970. The
working capital ratio decreased to .70 to 1 at March 31, 1997 from 1.19 to 1
at March 31, 1996. The 1997 decrease in working capital was primarily the
result of the Company investing approximately $500,000 of its resources into
completing its new product (Neptune) for the billing services marketplace.
The Company has a line of credit with its bank in the amount of $200,000. The
maturity for this line of credit is July 31, 1997. At March 31, 1997 the
Company had borrowed $25,000 against this line. The bank has extended the
maturity for this line of credit to September 30, 1997. The bank will make a
determination to extend the maturity further upon receipt and evaluation of
the Company's audited financial statements. Management believes that actions
presently being taken to revise the Company's operating and financial
requirements provide the opportunity for the Company to continue. These actions
include selective marketing efforts, potential expansion of the product line,
potential for additional private placement financing, and negotiating with its
current lender for an increase in the Company's Line of Credit.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Auditors............................................................................ F-1
Consolidated Balance Sheets at March 31, 1997 and 1996.................................................... F-2
Consolidated Statements of Operations for each of the years ended March 31, 1997 and 1996................. F-4
Consolidated Statements of Changes in Stockholders' Equity for each of the years ended March 31, 1997 and
1996.................................................................................................... F-5
Consolidated Statements of Cash Flows for each of the years ended March 31, 1997 and 1996................. F-6
Notes to Consolidated Financial Statements................................................................ F-8
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 105,700 $ 288,870
Receivables:
Trade, less allowance for doubtful accounts of $65,000 and $60,000 at March 31, 1997
and 1996, respectively............................................................ 649,250 802,410
Inventories........................................................................... 42,360 19,450
Prepaid expenses...................................................................... 76,430 26,590
------------ ------------
Total current assets................................................................ 873,740 1,137,320
Furniture, fixtures, equipment and leasehold improvements at cost, less accumulated
depreciation and amortization of $431,830 and $371,410 at March 31, 1997 and 1996,
respectively........................................................................ 210,530 246,300
Computer software, net of accumulated amortization of $1,328,930 and $1,149,790 at
March 31, 1997 and 1996, respectively............................................... 1,579,330 694,260
Excess of cost over net assets of acquired business, net of accumulated amortization
of $2,200 at March 31, 1997......................................................... 42,360 --
Other assets.......................................................................... 49,810 29,380
------------ ------------
$ 2,755,770 $ 2,107,260
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31,
------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
<S> <C> <C>
Current liabilities:
Current portion of long-term debt...................................................... $ 57,360 $ 28,710
Accounts payable....................................................................... 519,750 450,820
Accrued commissions and other compensation............................................. 24,990 52,600
Other accrued expenses................................................................. 283,510 217,830
Deferred revenue....................................................................... 365,880 209,390
----------- -----------
Total current liabilities.......................................................... 1,251,490 959,350
----------- -----------
Long-term debt, less current portion................................................... 25,280 34,720
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01; 10,000,000 shares authorized; 6,530,564 shares issued at
March 31, 1997 and 5,522,006 shares issued at March 31, 1996........................ 65,310 55,220
Capital in excess of par value........................................................ 7,769,180 7,214,730
Deficit.............................................................................. (5,943,020) (5,745,510)
----------- -----------
1,891,470 1,524,440
Equity adjustment from foreign currency translation.................................... (6,070) (4,850)
Less--Treasury stock, 140,250 shares at March 31, 1997 and 1996, at cost............... (406,400) (406,400)
----------- -----------
Total stockholders' equity........................................................... 1,479,000 1,113,190
----------- -----------
$ 2,755,770 $ 2,107,260
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Net sales............................................................................. $ 3,223,290 $ 4,134,830
------------ ------------
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization)............................ 1,384,070 1,824,040
Selling, general and administrative expenses.......................................... 1,773,470 1,879,290
Bad debt expense...................................................................... 13,700 8,460
Depreciation and amortization......................................................... 245,800 250,600
Interest income, net of interest expense of $6,480 and $3,300, in 1997, and 1996,
respectively........................................................................ (1,040) (12,840)
Other Income.......................................................................... -- (42,230)
------------ ------------
3,416,000 3,907,320
------------ ------------
Income (loss) from operations before income taxes..................................... (192,710) 227,510
Income tax provision.................................................................. 4,800 3,660
------------ ------------
Net income (loss)..................................................................... $ (197,510) $ 223,850
------------ ------------
------------ ------------
Net income (loss) per common share.................................................... $ (0.04) $ 0.04
------------ ------------
------------ ------------
Weighted average common shares outstanding............................................ 5,641,765 5,340,089
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
FROM
COMMON STOCK TOTAL IN FOREIGN
--------------------- EXCESS OF ACCUMULATED TREASURY CURRENCY
SHARES AMOUNT PAR VALUE DEFICIT STOCK TRANSLATION TOTAL
---------- --------- ------------ ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995..... 5,272,006 $52,720 $7,173,480 $(5,969,360) $(406,400) -- $ 850,440
Issuance of stock in
connection with the
purchase of software........ 100,000 1,000 12,250 13,250
Directors stock awards........ 150,000 1,500 13,500 15,000
Issuance of stock options..... 15,500 15,500
Equity adjustment from foreign
currency translation........ (4,850) (4,850)
Net income year ended
March 31, 1996.............. 223,850 223,850
---------- --------- ------------ ------------- ----------- ----------- ------------
Balance at March 31, 1996..... 5,522,006 55,220 7,214,730 (5,745,510) (406,400) (4,850) 1,113,190
Employee stock awards......... 139,708 1,400 26,540 27,940
Exercise of stock option...... 50,000 500 9,500 10,000
Issuance of stock in
connection with
acquisition................. 795,000 7,950 389,550 397,500
Stock issued as compensation
in connection with
acquisition................. 23,850 240 6,920 7,160
Issuance of employee stock
options..................... 50,220 50,220
Issuance of director stock
options..................... 6,820 6,820
Issuance of stock options in
connection with
acquisition................. 64,900 64,900
Equity adjustment from foreign
currency translation........ (1,220) (1,220)
Net loss year ended March 31,
1997........................ (197,510) (197,510)
---------- --------- ------------ ------------- ----------- ----------- ------------
Balance at March 31, 1997..... 6,530,564 $65,310 $7,769,180 $(5,943,020) $(406,400) $(6,070) $1,479,000
---------- --------- ------------ ------------- ----------- ----------- ------------
---------- --------- ------------ ------------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
<S> <C> <C>
1997 1996
----------- ----------
Cash Provided By: Operating Activities:
Net Income (Loss)........................................................................ $(197,510) $223,850
----------- ----------
Adjustments to reconcile net income (loss) to cash provided by operations:
Depreciation and amortization........................................................... 245,800 250,600
Gain on sale of assets.................................................................. (320) --
Provision for doubtful accounts......................................................... (25,000) (10,000)
Employee stock award.................................................................... 35,100 --
Issuance of stock options............................................................... 57,040 15,500
Exercise of stock options............................................................... 10,000 --
Changes in Operating Working Capital:
Decrease (increase) in receivable, trade................................................ 372,450 (111,380)
Decrease (increase) in inventories...................................................... (18,240) 9,110
Decrease (increase) in prepaid expenses................................................. (45,080) 14,050
(Decrease) increase in accounts payable................................................. (67,030) 205,260
(Decrease) increase in accrued commissions and other compensation....................... (27,610) 17,690
(Decrease) increase in other accrued expenses........................................... 39,540 (261,300)
(Decrease) increase in deferred revenue................................................. 16,860 (71,100)
----------- ----------
Total adjustments.................................................................... 593,510 58,430
----------- ----------
Total operating activities........................................................... 396,000 282,280
----------- ----------
Investing Activities:
Decrease (increase) in other assets..................................................... (6,400) 15,960
Additions to equipment and leasehold improvements....................................... (38,270) (127,950)
Additions to computer software.......................................................... (505,160) (476,870)
Sale of fixed asset...................................................................... 12,020 --
Acquisition of Soft-Com Inc............................................................. (31,430) --
----------- ----------
Total investing activities............................................................... (569,240) (588,860)
----------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<S> <C> <C>
Financing Activities:
Repayment of debt....................................................... (33,710) (20,010)
Proceeds from borrowings................................................ 25,000 50,000
--------- ---------
Total financing activities.......................................... (8,710) 29,900
--------- ---------
Effect of exchange rate changes on cash................................. (1,220) (4,850)
(Decrease) increase in cash and cash equivalents........................ (183,170) (281,440)
Cash and cash equivalents, at beginning of year......................... 288,870 570,310
--------- ---------
Cash and cash equivalents, at end of year............................... $ 105,700 $ 288,870
--------- ---------
--------- ---------
Supplemental disclosures:
Cash paid during the year for:
Interest.............................................................. $ 6,040 $ 2,380
Taxes................................................................. 770 52,870
Non-cash transactions:
Directors stock awards................................................ $ -- $ 15,000
Purchase of computer software via stock issuance...................... -- 13,250
Acquisition of Soft-Com Inc.
Working capital other than cash....................................... $ 98,010 --
Equipment and leasehold Improvements.................................. (5,170) --
Capitalized software at appraised value............................... (556,000) --
Intangibles and other assets.......................................... (58,590) --
Long-term debt assumed................................................ 27,920 --
Stock and stock options issued........................................ 462,400 --
--------- ---------
Cash paid to acquire Soft-Com........................................... $ (31,430) --
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Business: In fiscal year 1996 the Company restructured into a holding
company. In January 1995 the Company established a Delaware corporation, CTI
Data Solutions (USA) Inc. In May 1995 the Company established a UK-based
company, CTI Data Solutions (International) Ltd. In December 1995 the Company
established a Delaware corporation, CTI Delaware Holdings, Inc. In January
1997 the Company completed an acquisition of Soft-Com Inc., a New York
corporation, which was re-established as a Delaware corporation, CTI Soft-Com
Inc. These organizations are wholly-owned subsidiaries of the Company.
CTI Data Solutions (USA) Inc. and CTI Soft-Com Inc. own all of the tangible
assets and liabilities of the Company's U.S. operations and perform all of the
necessary functions to conduct the Company's U.S. businesses. CTI Delaware
Holdings, Inc. owns all of the intangible assets of the Company. CTI Delaware
Holdings, Inc. has research and development royalty agreements between itself
and both CTI Data Solutions (USA) Inc. and CTI Soft-Com Inc. These agreements
provide CTI Delaware Holdings, Inc. with appropriate resources to develop the
Company's proprietary software products while allowing CTI Data Solutions (USA)
Inc. and CTI Soft-Com Inc. to market and use the software products to conduct
business in their respective market sectors.
CTI Data Solutions (International) Ltd. was formed to market the Company's
products and services into the UK and European marketplaces. This subsidiary's
operations were suspended indefinitely in March 1997.
The Company is engaged in the sale of telephone management software and
services designed to assist customers in the management and control of their
business telephone costs. The Company provides telephone call accounting
services on a contractual service bureau basis, as well as the licensing of
software whereby customers may perform these functions on site using personal
and mini computers. The Company also services the billing and telecommunication
needs of shared tenant service providers and telephone long distance resellers,
who provide centralized sale and service of telecommunication products and
networks to customers. This service is available on both a service bureau basis
and on the Company's licensed software for in-house applications. The Company
grants credit to its service bureau and licensed software end users, the
majority of which are located throughout the continental United States.
The following is a summary of significant accounting policies utilized by
the Company:
CONSOLIDATION POLICY: The consolidated financial statements include the
accounts of CTI Group (Holdings) Inc. and its domestic and foreign subsidiaries,
all of which are wholly-owned (collectively referred to as the "Company"). As of
March 31, 1997, the Company's subsidiaries were: CTI Data Solutions (USA) Inc.,
CTI Soft-Com Inc., CTI Data Solutions (International) Limited, CTI Delaware
Holdings, Inc., Telephone Budgeting Systems, Inc. and Plymouth Communications
Inc. All material inter-company accounts and transactions have been eliminated
in consolidation.
ISSUANCE OF SFAS STATEMENT NOS. 128, 129, 130 and 131: The Financial
Accounting Standard Board recently issued Statement of Financial Accounting
Standard ("SFAS") No. 128, "Earnings per Share," and SFAS No. 129, "Disclosure
of Information About Capital Structure." Adoption of these statements is
effective for periods ending after December 15, 1997. Earlier application is not
permitted. In addition, the Financial Accounting Standards Board recently issued
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information." Adoption of these
statements is not required until fiscal years beginning after December 15, 1997.
Management of the Company elected not to early adopt these statements.
<PAGE>
CURRENCY TRANSLATION: The financial statements of CTI Data Solutions
(International) Limited, a UK based wholly-owned subsidiary, have been included
in the consolidated financial statements and have been translated to U.S.
dollars in accordance with SFAS No. 52, "Foreign Currency Translation." Assets
and liabilities are translated at current rates in effect at the consolidated
balance sheet date and stockholders' equity is translated at historical exchange
rates. Revenue and expenses are translated at the average exchange rate for the
applicable period. Any resulting translation adjustments are made directly to a
separate component of stockholders' equity.
REVENUE RECOGNITION/DEFERRED REVENUE: The Company follows Statement of
Position 91-1 (SOP 91-1), "Software Revenue Recognition" which requires, in
part, the deferral of revenue on software licenses with significant vendor
obligations and the amortization of post-contract customer support over the life
of the contract.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments, with a maturity of three months or less when purchased, to be cash
equivalents. The Company currently maintains its U.S. cash accounts at three
separate institutions. The Company also maintains a cash account for its UK
based subsidiary in the UK. The cash balances on deposit at the individual U.S.
banks are insured by the FDIC up to $100,000 per institution.
USE OF ESTIMATES: The preparation of the financial statements in conformity
with the accounting and reporting practices prescribed by generally accepted
accounting principles, requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
INVENTORIES: Inventories consisting of equipment purchased for resale, are
stated at the lower of cost or market with cost determined on the first-in,
first-out (FIFO) method.
FURNITURE, FIXTURES, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS: Furniture,
fixtures, equipment and leasehold improvements are stated at cost. Depreciation
and amortization are calculated on a straight-line basis over the estimated
useful lives of the equipment ranging from 3 to 5 years.
COMPUTER SOFTWARE: Expenditures for producing product masters incurred
subsequent to establishing technological feasibility are capitalized and are
amortized on a product-by-product basis. The amortization is computed using the
straight-line method over the remaining estimated economic life of the product.
The Company capitalized $500,750 and $446,350 in the fiscal years ended March
31, 1997 and 1996, respectively, in additional costs related to its billing
software. The amortization expense for developed software was $168,540 in the
fiscal year ended March 31, 1997 and $170,780 in the fiscal year ended March 31,
1996.
INCOME TAXES: The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes". Under the liability method, deferred income taxes
are recognized for the tax consequences in future years of differences between
the tax bases of assets and liabilities and their financial reporting amounts at
each year-end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable for the period and the change during the period in deferred tax assets
and liabilities.
<PAGE>
EARNINGS (LOSS) PER COMMON SHARE: Earnings (loss) per common share are
computed on the basis of the weighted average number of common shares
outstanding during each period. Per share
computations do not assume the exercise of common stock options outstanding in
1997 and 1996 because such exercise would be anti-dilutive.
RECLASSIFICATION: Certain reclassifications have been made to the
comparative March 31, 1996 amounts to conform to the current year's
presentations.
NOTE 2--FURNITURE, FIXTURES, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
The Company's fixed assets consist of the following:
MARCH 31,
---------------------
1997 1996
--------- ---------
Equipment owned......................................... $ 493,690 $ 473,210
Operating lease equipment............................... 21,400 21,400
Furniture and fixtures.................................. 14,500 13,230
Leasehold improvements.................................. 112,770 109,870
--------- ---------
642,360 617,710
Less--Accumulated depreciation & amortization...........
Equipment owned....................................... 346,360 298,910
Operating lease equipment............................. 20,180 19,370
Furniture, fixtures and leaseholds.................... 65,290 53,130
--------- ---------
$ 210,530 $ 246,300
--------- ---------
--------- ---------
NOTE 3--OTHER ACCRUED EXPENSES
The Company's other accrued expenses consist of the following:
MARCH 31,
------------------
1997 1996
-------- --------
Accrued legal fees......................................... $ 37,000 $ 30,000
Accrued accounting and audit fees.......................... 37,650 38,680
Accrued rent............................................... 77,550 87,880
Accrued state income taxes and
other assessed state taxes............................... 49,080 37,660
Other accrued expenses..................................... 82,230 23,610
-------- --------
$283,510 $217,830
-------- --------
-------- --------
<PAGE>
NOTE 4--DEBT
The following table summarizes long-term debt:
MARCH 31,
---------------------
1997 1996
------- -------
Term loan, requiring monthly payments
of $600 per month commencing in
October 1995, including interest at
8.75%, maturing in September 1999 and
secured by equipment............................. $15,980 $21,440
Term loan, requiring monthly
payments of $640 per month
commencing in January 1996,
including interest at 8.25%,
maturing in December 1999 and
secured by equipment............................. 18,740 24,630
Line of Credit, requiring
monthly interest payments and
maturing on July 31, 1997,
bears interest at the bank's
prime rate, plus .5%. The effective
rate of interest at March 31, 1997
was 9.0%. The line of credit is
secured by the assets of the Company............. 25,000 --
Installment Note, requiring monthly
payments of $1,670 plus interest at
the bank's prime rate plus 2%, maturing
in May 1998. The effective rate of
interest at March 31, 1997 was 10.5%.............. 22,920 --
Non-interest bearing Promissory Note,
discounted at 8.0%, was due in May 1996........... -- 17,360
------- -------
82,640 63,430
Less--Current Portion............................. 57,360 28,710
------- -------
$25,280 $34,720
------- -------
------- -------
The following table represents debt repayment for fiscal years ending March 31:
1998 $ 57,360
1999 16,370
2000 8,910
--------
$ 82,640
--------
--------
On June 1, 1996 the Company entered into an agreement for a line of credit
with PNC Bank, National Association. This agreement provides the Company access
to a $200,000 credit facility to be used, as needed, for working capital needs
of the Company. The term of this agreement was extended through September 30,
1997 and bears interest at PNC Bank's Prime Rate plus .5%. The bank will make a
determination on extending the maturity for one year upon receipt and evaluation
of the Company's audited consolidated financial statements.
<PAGE>
NOTE 5- PROFIT PARTICIPATION
In conjunction with an employment contract effective April 1, 1995, the
Company has agreed to pay an aggregate of 5% of pre-tax profit as incentive
compensation to the President/CEO during each fiscal year ending
March 31, 1996, 1997 and 1998. The Company accrued $12,820 for fiscal year
ended March 31, 1996. No accrual was required for the fiscal year ended
March 31, 1997.
NOTE 6--COMMITMENTS AND CONTINGENCIES
A. LEASE COMMITMENTS--The Company leases its office facilities, certain
equipment and its main-frame operating software under non-cancelable long-term
operating leases which expire at various dates. Minimum aggregate annual
rentals under non-cancelable long-term operating leases are as follows:
YEARS ENDING MARCH 31,
1998 $ 187,370
1999 125,920
2000 126,650
2001 120,000
2002 120,000
Thereafter 60,000
---------
Total minimum lease payments $ 739,940
---------
---------
Rent expense for operations under all operating leases was $207,420 and
$182,230 for the fiscal years ended March 31, 1997 and 1996 respectively.
The Company entered into an operating lease for its new office facilities
for its corporate headquarters in September 1992. The term of the agreement is
for ten years commencing on January 1, 1993 and ending on December 31, 2002.
Annual rent of $72,000, payable in equal monthly installments, commenced on July
1, 1993. Annual rent increases become effective on the anniversary of the
initial rent payment as provided for in the lease. The Company is amortizing the
lease expense on the straight-line method of accounting over the lease term,
including the rent free period.
Additionally, the lease provides purchase options for this facility under
various conditions. If the landlord wishes to sell the premises he must first
offer it to the Company. The Company must then comply with the provisions of the
lease relevant to this option. The Company also has an option to purchase the
premises upon notification by the landlord between January 1, 1998 and December
31, 1999. If the landlord does not notify the Company during this period of time
the Company must notify the landlord of its intent to purchase the premises.
This notification must occur between January 1, 2000 and April 1, 2000. The
notification initiates the purchasing process which encompasses various deposits
and determination of the purchase price, which in any circumstance will not be
less than $1,000,000.
The Company's subsidiary, CTI Soft-Com Inc., leases office space at 140 West
22nd Street, New York, New York. The lease terminates on January 31, 1998 and
the monthly base rent is $4,870.
<PAGE>
B. CONTINGENCIES--In September 1990, the Company, through the loss adjusting
service of its former general liability insurance carrier, was advised of five
Summons and Complaints filed in the Superior Court of Bergen County, New Jersey.
The suit was filed on behalf of the Estates of five deceased plaintiffs who
alleged that the failure of communications equipment used by the Hackensack Fire
Department, and allegedly maintained by a subsidiary of the Company, impaired
rescue operations while fighting a fire in Hackensack, New Jersey. Currently,
plaintiffs' allegations have not supported the claim that the Company's
subsidiary, who is the named insured under the above insurance policy, was
involved in the maintenance of the communication equipment in question.
During the fiscal year ended March 31, 1997, three of the cases were
settled. The Company's share of the settlements totaled $17,000. The Company's
former general liability insurance carrier will bear the cost of these
settlements. Further settlement discussions are to be held with the remaining
claimants.
As a result of these settlements, and after consulting with the Company's
counsel and liability insurance carrier, it is the opinion of management that
the final outcome of the above matter will not have a material effect, if any,
on the consolidated financial statements of the Company.
The Company is involved in other litigation in the normal course of
business. It is the opinion of management that the final outcome of this other
litigation will not have a material effect, if any, on the consolidated
financial statements of the Company.
The Company currently has obligations under three separate employment
agreements. The agreements are with Anthony P. Johns, the Company's President &
Chief Executive Officer, Mark H. Daugherty, the Company's Chief Financial
Officer, and John J. Perri, the President of the Company's subsidiary, CTI
Soft-Com Inc. The employment agreements with Messrs. Johns and Daugherty were
effective April 1, 1995 and terminate as of March 31, 1998; the employment
agreement with Mr. Perri was effective on January 2, 1997 and terminates on
March 31, 2000. The aggregate minimum annual salary commitment under these
agreements is $355,000 per annum.
NOTE 7--INCOME TAXES
The provision for income taxes consists of the following:
1997 1996
--------- ---------
From Operations:
Federal............................................... -- $ 143,770
State................................................. $ 4,800 38,200
--------- ---------
$ 4,800 181,970
Utilization of operating loss carry-forward........... -- 178,310
--------- ---------
Income tax provision.................................. $ 4,800 3,660
--------- ---------
--------- ---------
<PAGE>
A reconciliation of income tax expense at the statutory rate to income tax
expense at the Company's effective rate is as follows:
1997 1996
-------- --------
Computed tax (benefit) at the expected statutory rate..... $(82,870) $104,750
Other..................................................... 6,570 6,500
Loss from foreign subsidiary.............................. 71,250 91,030
Increase (decrease) in valuation allowance................ 9,850 (198,620)
-------- --------
$ 4,800 $ 3,660
-------- --------
-------- --------
As of March 31, 1997, temporary differences giving rise to a net deferred
tax asset consists primarily of the excess of book over tax accounting
depreciation, stock options, allowance for doubtful accounts and the excess of
book over tax accounting for computer software.
The Company has net operating loss carry-forwards of approximately
$1,494,000 available to reduce future Federal taxable income expiring in varying
amounts from 2005 through 2011. No tax benefit has been recorded in the 1997
statements because of the uncertainty of the Company to utilize the benefits
before carry-forwards expire. Accordingly, the tax benefit of $604,900 for the
temporary differences and the loss carry-forward has been offset by a valuation
allowance of the same amount.
As of March 31, 1997 the Company has general business credit carry-forwards
available to reduce federal income taxes of approximately $32,300 expiring in
fiscal year 2001.
NOTE 8--CAPITAL STOCK TRANSACTIONS
A. ISSUANCE OF COMMON STOCK:
During the fiscal year ended March 31, 1997, the Company issued 139,708
shares of the Company's common stock to certain employees. The average bid and
ask price on the date of issue was $.20.
In connection with the acquisition of Soft-Com Inc., the company issued
795,000 shares of its common stock for all the outstanding shares of Soft-Com
Inc. As part of such acquisition, the Company also issued 23,850 shares of its
common stock, in lieu of cash, as a finder's fee.
B. OPTIONS:
At the Company's 1995 Annual Meeting of Stockholders held on November 16,
1995, the Company's stockholders voted on and approved the Company's Stock
Option and Restricted Stock Plan (the "Plan"). The Plan provides for the
issuance of 600,000 shares of common stock. Individuals eligible for
participation in the Plan include key employees (including employees who also
serve as Directors), non-employee directors, independent contractors and
consultants who perform services for the Company. The exercise price of the
stock options are determined by the higher of the fair market value or the
book value of the common stock at the time the option is granted.
<PAGE>
Effective for 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-based Compensation." Accordingly, the Company has adopted this method of
accounting for stock-based compensation by establishing a fair value-based
method of accounting for stock options.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for the grants issued in January 1995, November 1995, and March
1996, respectively; no dividend yield for all years, expected volatility of 67%,
97%, and 105%, risk-free interest rates of 6% for all options and expected lives
of 3 years for all options.
The Company issued 105,000 stock options to its employees during the year
ended March 31, 1997. The option price ranges from $.60 to $.61. Accordingly,
the Company recorded compensation expense of $50,220. The options are
exercisable upon date of grant and are for the term of ten (10) years from the
date of grant.
The Company issued 30,000 stock options to a non-employee director during
the year ended March 31, 1997. The option was issued upon his appointment to the
stock option committee. The option exercise price is $.30 and the Company
recorded an expense of $6,820 for these options. The options are exercisable 50%
on the first anniversary of the director's election to the board and 25% on each
of the second and third anniversary of the director's election, provided he is
still serving as a director. The term is for ten (10) years from the date of
grant.
The Company issued 100,000 stock options to one of Soft-Com Inc.'s
stockholders in connection with the acquisition. This individual was retained as
an employee subsequent to the acquisition. The option exercise price is $.50 and
1/3 of such options vests on each of the first, second and third annual
anniversary of their grant. The term is for ten (10) years from date of grant.
Additionally, another stockholder of Soft-Com Inc. was issued 90,000 stock
options at an exercise price of $1.50, which options are exercisable upon date
of issuance. That term is for three years from date of grant.
<PAGE>
The Company issued 90,000 stock options to its non-employee directors during
the fiscal year ended March 31, 1996. The option price ranges from $.18 to $.20.
Accordingly, the Company recorded an expense of $1,200 for these options. The
non-employee directors who serve on the stock option committee can exercise
their options one-half on the first anniversary of each such directors election
to the Board, and one -quarter on each of the second and third anniversaries of
each such Director's election to the board, provided such non-employee director
is then serving as a Director. The non-employee director who does not serve on
the stock option committee can exercise his options upon the date of grant. All
options are for a term of 10 years from the date of grant.
The Company issued 15,000 stock options to an independent consultant during
the fiscal year ended March 31, 1996. The independent consultant performs
software development for the Company. The stock options were issued in lieu of a
price increase during the next six months. The option was issued at $.375, was
exercisable on the date of grant and is for a term of 10 years. Accordingly, the
Company recorded an expense of $3,300 in the fiscal year ended March 31, 1996.
Activity in the stock option plan for the year ended March 31, 1997 and 1996
consisted of the following:
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of periods............ 355,000 0.22
Granted........................................ 235,000 0.54 355,000 0.22
Exercised...................................... (50,000) (0.20)
Terminated..................................... (45,000) (0.19)
----------- ----------- ----------- -----------
Outstanding at end of periods................... 495,000 0.37 355,000 0.22
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Exercisable at end of periods................... 357,500 0.34 325,000 0.22
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average fair value of options
granted during the years....................... 25,190 1,263
----------- -----------
----------- -----------
</TABLE>
NOTE 9--MAJOR CUSTOMERS
The Company had sales to one customer aggregating $578,880 (18% of sales)
and $1,256,250 (30% of sales) for the fiscal years ended March 31, 1997 and
1996, respectively. This customer terminated its contract with the Company
during the fiscal year ended March 31, 1997. The account receivable for this
customer was --0-- and $355,800 as of March 31, 1997 and 1996, respectively. For
the fiscal year ended March 31, 1997, the Company had sales to another customer
aggregating $300,170 (9% of sales) and an account receivable of $55,840 as of
March 31, 1997.
<PAGE>
NOTE 10--RELATED PARTY TRANSACTIONS
An individual related to the Chief Executive Officer of the Company was
employed under a consultancy agreement to market the Company's products and
services into the UK and European markets. In the first part of fiscal year
ended March 31, 1996, this individual received $10,000 under this consultancy
agreement. In July 1995, this individual was employed by the company's UK
subsidiary, CTI Data Solutions (International), Ltd. and received $45,830 in
compensation during the fiscal year ended March 31, 1996. During the fiscal year
ended March 31, 1997, this individual received $45,350 in compensation.
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
CASH, TRADE RECEIVABLE, AND TRADE PAYABLES: The carrying amounts approximate
fair value because of the short maturity of those instruments.
LONG-TERM DEBT: The carrying amounts approximate fair value because the
borrowing rates currently available to the Company are for loans with similar
terms and average maturity, given the risk, ownership and underlying collateral.
NOTE 12--PROFIT-SHARING PLAN
The Company has established a qualified 401(k) profit-sharing plan effective
July 15, 1995. Eligible employees may defer a portion of their salaries. At the
discretion of the Board of Directors, the Company can contribute to the
profit-sharing plan, and may make a matching contribution of an additional
amount of eligible employees' deferrals. There were no contributions to the
plan during the fiscal years ended March 31, 1997 and 1996.
NOTE 13--ACQUISITION OF BUSINESS
On January 2, 1997 the Company completed the acquisition of Soft-Com Inc., a
privately-held New York based telemanagement company. Subsequent to the
acquisition, the Company renamed this wholly-owned subsidiary CTI Soft-Com Inc.
through the merger of such Company into a subsidiary of the Company. In
connection with such merger, the Company paid the following consideration:
(1) 795,000 shares of the Company's common stock with an average market
value of $.50 per share on the date of acquisition.
(2) 100,000 stock options to purchase shares of the Company's common
stock. The option exercise price for these options is $.50 per share.
These options were given to one of Soft-Com Inc.'s major stockholders
who was retained as an employee by the Company.
(3) 90,000 stock options to purchase shares of the Company's common
stock at an exercise price of $1.50 per share. These options were
issued to another major stockholder of Soft-Com Inc.
Additionally, in connection with the acquisition of Soft-Com Inc., the
Company issued 23,850 shares of its common stock, in lieu of cash, as a finders
fee.
The following unaudited pro forma financial information for the Company
gives effect to the Soft-Com Inc. acquisition as if it had occurred on April 1,
1996. The pro forma results have been prepared for comparative purposes only and
do not purport to be indicative of the results of operations which actually
would have resulted had the acquisition occurred on the date indicated, or which
may result in the future.
<PAGE>
YEAR ENDED
MARCH 31, 1997
--------------
Net Sales..................................................... $ 3,771,520
-----------
Costs and Expenses:
Cost of sales (exclusive of depreciation and amortization).... 1,620,710
Selling, general and administrative expenses.................. 2,079,840
Bad debt expense.............................................. 39,570
Depreciation and amortization................................. 279,300
Interest expense, net of interest income...................... 5,180
Other income.................................................. (17,610)
-----------
4,006,990
-----------
Loss from operations before income taxes...................... (235,470)
Income tax provision.......................................... 6,450
-----------
Net loss...................................................... $ (241,920)
-----------
-----------
Net loss per common share..................................... $ (.04)
-----------
-----------
Weighted average common shares outstanding.................... 6,253,915
-----------
-----------
NOTE 14--SUBSEQUENT EVENTS
On June 1, 1996, the Company entered into an agreement for a line of credit
with PNC Bank, National Association. This agreement, which provides the Company
access to $200,000 credit facility to be used, as needed, for working capital
needs, was extended through September 30, 1997.
On August 11 1997, John Perri, the former President of the Company's CTI
Soft-Com Inc. subsidiary and Soft-Com, Inc. ("Soft-Com"), filed suit against the
Company, CTI Data Solutions (USA), Inc., Anthony P. Johns and Mark Daugherty in
connection with the Company's termination of Mr. Perri's employment on July 28,
1997 and the Company's acquisition of Soft-Com in January 1997. Mr. Perri is
seeking a preliminary and permanent injunction restricting the Company from
enforcing the non-competition provisions of his employment agreement and from
selling or dissipating any of the assets of Soft-Com. Mr. Perri is also seeking
recission of the Merger Agreement pursuant to which the Company acquired Soft-
Com and certain monetary damages. The Company intends to vigorously contest the
action and believes it has meritorious defenses to Mr. Perri's claims.
NOTE 15--EXCESS OF COST OVER NET ASSETS OF ACQUIRED BUSINESS
On January 2, 1997, the Company acquired Soft-Com through a tax-free merger
accounted for as a purchase. Soft-Com is primarily engaged in the business of
designing, developing, and marketing software for managing telecommunications
services. The results of operations of Soft-Com are included in the accompanying
consolidated financial statements since the date of acquisition. The total cost
of the acquisition was $491,510; the majority of which was in the form of the
Company's common stock and options to purchase the Company's common stock. The
total acquisition cost exceeded the fair value of the net assets of Soft-Com by
$44,560. The excess is being amortized on the straight-line method over ten (10)
years.
<PAGE>
NOTE 16--MANAGEMENT'S PLAN FOR CONTINUING OPERATIONS
The Company has a deficiency in working capital of $377,750. At March 31,
1997. In view of these matters, realization of a major portion of the assets
in the accompanying consolidated balance sheet is dependent upon continued
operations of the Company, which in turn is dependent upon the Company's
ability to meet its financing requirements, and the success of its future
operations. Management believes that actions presently being taken to revise
the Company's operating and financial requirements provide the opportunity
for the Company to continue as a going concern. These actions include
selective marketing efforts, potential expansion of the product line,
potential for additional private placement financing, and negotiating with
its current lender for an increase in the Company's Line of Credit.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT
The following Directors were elected by the Shareholders at the 1996
Annual Meeting of Shareholders held on October 15, 1996 and the following
officers were appointed by the Board of Directors. All Directors will hold
office until the next Annual Meeting of Shareholders of the Company and until
their successors shall be elected and qualify. All officers of the Company
serve at the discretion of the Board. In addition to Messrs. Johns and
Daugherty, Ms. Davis is an officer of the Company.
<TABLE>
<CAPTION>
NAME AND AGE OCCUPATION DURING PAST FIVE (5) YEARS
- - ------------ -------------------------------------
<S> <C>
Anthony P. Johns (48) President, Chief Executive Officer and Director of the
Company since March, 1990. Chief Operating Officer of
the Company from December, 1989 to March, 1990. Founding
member, Company Chairman and Managing Director of
Britannic Group Holdings Ltd., Britannic Telecom Company
Ltd., and Britannic Telecare Ltd. from August, 1985 to
November, 1989. Chairman of the Board of Directors of
Britannic Group Holdings Ltd., Britannic Telecom Company
Ltd. and Britannic Telecare Ltd. from December, 1989 to
May 1995.
Francis O. Hunnewell (58) Director, Chairman of the Board of Directors, November
1993 until August 1995. From 1975 until July 1993, Mr.
Hunnewell was Co-Founder and Director of Binladen
Telecommunications Ltd. From 1984 to 1992 he was a
General Partner of Bliss & Co., Investment Bankers in
New York. From 1986 until June 1992, he was Group
Managing Director and subsequently Vice Chairman of
Asian Oceanic Group. He was a Director of Lend Lease
Trucks from 1990 to 1992. From 1992 to 1995, Mr.
Hunnewell was Chairman of Panavision (Canada) Ltd.
located in Montreal, Toronto and Vancouver, Canada.
Currently Mr. Hunnewell is Managing Director at Aldrich
Eastman Waltch International, real estate pension fund
managers with offices in Boston, Los Angeles, Mexico
City and Moscow. He is also President of Hunnewell &
Co., investment bankers since 1938, and Vice Chairman of
Asian Capital Partners Ltd., an Asian based merchant
bank headquartered in Hong Kong with offices around the
region.
Mark H. Daugherty (39) Appointed to the Board of Directors in September 1992.
Controller of the Company from August 1985 until May
1991. He was Acting Chief Financial Officer from April,
1990 to October 1990. Mr. Daugherty has been Chief
Financial Officer of the Company since May 1991.
<PAGE>
Rupert D. Armitage (49) Director from November, 1995. Founding member, Chairman
and Managing Director of three software related
companies in the United Kingdom: Ambit Research Ltd.
formed in 1987; Information from Data Ltd. formed in
1993; and Personal and Corporate Training Systems Ltd.
formed in 1995.
John J. Perri (48) Director from December, 1996 following the merger
between CTI Group (Holdings) Inc. and Soft-Com Inc. Mr.
Perri was co-founder of Soft-Com Inc. in 1983 since
which he has served as President and Chief Executive
Officer. Mr. Perri holds a Bachelor of Science degree in
Electrical Engineering from City College of New York.
Mr. Perri resigned from the Board effective August 11, 1997.
Mary Ann Davis (57) Corporate Secretary since May 1989. Prior to that, Ms.
Davis was an Administrative Assistant from May 1982 to a
Judge of the Common Pleas Court of Montgomery County,
Pennsylvania.
</TABLE>
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons who own more than ten percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Officers,
directors and greater than ten-percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms filed.
Based solely on review of the copies of such forms furnished to the Company,
or written representation that no Forms 3, 4 or 5 were required, the Company
believes that during the last fiscal year, all applicable Section 16(a) filing
requirements have been complied with by its officers, directors and greater than
ten-percent beneficial owners.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
A. MANAGEMENT REMUNERATION
The following table sets forth the compensation paid or accrued for the five
highest paid officers of the Company and its subsidiaries. The Company had only
one officer for the year ended March 31, 1997 who received in excess of
$100,000.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OTHER ANNUAL
POSITION YEAR SALARY BONUS COMPENSATION
- - ------------------ ---- ---------- ------- ------------
<S> <C> <C> <C> <C>
Anthony P. Johns, President 1997 $140,000(1) -- $29,700 (2)
& Chief Executive Officer 1996 $175,000 $12,820 $22,210(3)
1995 $150,000 -- $19,810
</TABLE>
(1) Mr. Johns agreed to a 40% salary reduction for the period from October 1,
1996 to March 31, 1997 as part of the Company implementing a six-month plan
to assist in maintaining a neutral cash position. The plan was required due
to the loss of a major customer in the quarter ended September 30, 1996.
(2) Includes $11,100 annual automobile allowance and $15,600 of living expense
payments.
(3) Includes $11,100 annual automobile allowance, approximately $3,600 for the
non-exclusive use by Mr. Johns of an apartment for which the Company made
lease payments of approximately $10,800 and $3,900 of living expense
payments in lieu of the lease payments which terminated in December 1995.
On February 1, 1995, the Company entered into an employment agreement with
Anthony P. Johns. Pursuant to this agreement, Mr. Johns is employed as President
and Chief Executive Officer of the Company for a three-year term at an annual
base salary of $175,000. Should the Company regain its listing on NASDAQ, Mr.
Johns' salary will be increased to $200,000 for the remaining term of the
Employment Agreement. In addition to such annual base salary, Mr. Johns is
entitled to receive as additional compensation in the form of an annual bonus,
an amount equal to five percent (5%) of the Company's pretax profit. The Company
has also agreed to (i) provide Mr. Johns with a monthly automobile allowance,
(ii) provide Mr. Johns with the non-exclusive use of and access to a Company
leased apartment and (iii) pay the premiums on life insurance and health
insurance policies for the benefit of Mr. Johns. Mr. Johns will also be
reimbursed by the Company for all expenses reasonably incurred by him in the
performance of his duties.
The members of the Board of Directors, who are not employees of the Company,
are paid fees of $1,000 per quarter and $500 per Board of Director meeting
attended, plus reasonable travel expenses. Effective as of the Board of
Directors meeting held on May 31, 1995, the Chairman of the Board, if he is not
an employee of the Company, will receive an additional $2,000 per annum as
compensation for his duties as Chairman. Mr. Armitage receives an additional
$1,000 per board meeting attended due to the two additional days needed for
travel to and from the UK pursuant to an agreement upon his election to the
Board in November 1995. During the fiscal year ended March 31, 1997, Messrs.
Hunnewell, Mazzuto and Armitage earned fees for their services on the Board of
Directors in the amount of $6,000, $3,500 and $10,000 respectively, plus
expenses. During the fiscal year ended March 31, 1997, Mr. Armitage received
30,000 stock options pursuant to the Company's stock option and restricted stock
plan upon his appointment to the Stock Option Committee.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of shares of Common Stock held by officers, directors, or
affiliates, individually or as a group, and each person or entity known to the
Company to own beneficially more than 5% of the Company's Common Stock at
June 27, 1997:
<TABLE>
<CAPTION>
PERCENT
SHARES OF COMMON STOCK OF VOTING
NAME AND BUSINESS ADDRESS BENEFICIALLY OWNED (1) SECURITIES
- - ------------------------- ---------------------- ---------
<S> <C> <C>
Anthony P. Johns 1,590,574(2) 24.9%
CTI Data Solutions (USA), Inc.
901 S. Trooper Road
Valley Forge, PA 19482
Rupert D. Armitage 270,000(3) 4.2%
Ambit Research
100 New Kings Road
London SW64LX
Francis O. Hunnewell 151,667(4) 2.4%
Hunnewell & Co.
10 Tremont Street, Suite 500
Boston, MA 02108
North American Venture Capital 383,073(6) 6.0%
Fund Limited Partnership
Village Road
P.O. Box 714
New Vernon, NJ 07976
Mark H. Daugherty 69,864(3) 1.1%
CTI Data Solutions (USA), Inc.
901 S. Trooper Road
Valley Forge, PA 19482
John Perri 379,147(5) 5.9%
CTI Soft-Com, Inc.
140 W. 22nd Street
New York, NY 10011
All executive officers and directors 2,494,864(7) 39.0%
as a group (6 persons, including
those named above, owning stock)
</TABLE>
<PAGE>
NOTES:
(1) All shares are beneficially owned and the sole investment and voting
power is held by the person named, except as set forth below. Each share of
common stock has one vote.
(2) Excludes options exercisable into 50,000 shares of the Company's common
stock.
(3) Excludes options exercisable into 60,000 shares of the Company's common
stock.
(4) Excludes options exercisable into 30,000 shares of the Company's common
stock.
(5) Excludes options exercisable into 100,000 shares of the Company's common
stock.
(6) Excludes options exercisable into 90,000 shares of the Company's common
stock.
(7) Excludes options exercisable into 320,000 shares of the Company's common
stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NOT APPLICABLE
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a) (1) and (2) The consolidated financial statements filed as part of
this annual report on Form 10-KSB are included in Part II, Item 7.
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS PAGE
----------------------------- ----
<S> <C>
Report of Independent Auditors................................... F-1
Consolidated Balance Sheets at March 31, 1997 and 1996........... F-2
Consolidated Statements of Operations for each of the
years ended March 31, 1997 and 1996.............................. F-4
Consolidated Statements of Changes in Stockholders'
Equity for each of the years ended March 31, 1997 and 1996....... F-5
Consolidated Statements of Cash Flows for each of the
years ended March 31, 1997 and 1996.............................. F-6
Notes to Consolidated Financial Statements....................... F-8
</TABLE>
(b) Reports on Form 8-K.
The Company filed a Form 8-K with the Securities and Exchange Commission on
January 16, 1997 in connection with the merger of Soft-Com Inc.
<PAGE>
(c) Exhibits
2.1 Agreement and Plan of Merger dated as of December 16, 1996, by and
among CTI Group (Holdings) Inc., CGI Acquisition Corp., Soft-Com Inc. and
John Perri incorporated by reference from Exhibit #2.1 to Form 8-K filed with
the Securities and Exchange Commission on January 16, 1997.
3.1 The Company's Certificate of Incorporation and the By-laws
incorporated by reference from the Proxy Statement filed with the Securities
and Exchange Commission for Special Meeting of Stockholders held on February
19, 1988.
3.2 Amendment to the Company's Certificate of Incorporation for the
increase in the authorized capital of the Company to 10,000,000 shares, $.01
par value incorporated by reference from the Form 10-Q, for the period ended
December 31, 1990, filed with the Securities and Exchange Commission on
February 15, 1991.
10.1 Lease dated September 2, 1992 between Daniel S. Berman and Robert J.
Berman, co-partners, and the Company incorporated by reference from Exhibit
#10.5 to the Form 10-KSB filed with the Securities and Exchange Commission on
June 29, 1993.
10.2 Employment Agreement dated February 1, 1995 between Anthony P. Johns
and the Company incorporated by reference from Exhibit #10.5 to the Form
10-KSB filed with the Securities and Exchange Commission on June 29, 1995.
10.3 Employment Agreement dated February 1, 1995 between Mark H. Daugherty
and the Company incorporated by reference from Exhibit #10.6 to the Form
10-KSB filed with the Securities and Exchange Commission on June 29, 1995.
10.4 Commercial Security Agreement dated June 1, 1995 between PNC Bank,
National Association and the Company incorporated by reference from Exhibit
#10.9 to the Form 10-KSB filed with the Securities and Exchange Commission on
June 29, 1995.
10.5 The Company's Stock Option and Restricted Stock Plan incorporated by
reference from Exhibit #1 to the 1995 Proxy filed with the Securities and
Exchange Commission on October 6, 1995.
10.6 Promissory Note dated September 29, 1995 between PNC Bank, NA and
the Company incorporated by reference from Exhibit #10.10 to the Form 10-KSB
filed with the Securities and Exchange Commission on July 1, 1996.
10.7 Promissory Note dated December 28, 1995 between PNC Bank, NA and the
Company incorporated by reference from Exhibit #10.11 to the Form 10-KSB
filed with the Securities and Exchange Commission on July 1, 1996.
10.8 Commercial Security Agreement dated June 1, 1996 between PNC Bank,
NA and the Company incorporated by reference from Exhibit #10.12 to the Form
10-KSB filed with the Securities and Exchange Commission on July 1, 1996.
10.9 Promissory Note dated June 1, 1996 between PNC Bank, NA and the
Company incorporated by reference from Exhibit #10.13 to the Form 10-KSB
filed with the Securities and Exchange Commission on July 1, 1996.
<PAGE>
10.10 Form of Registration Rights Agreement dated as of January 2, 1997
by and between CTI Group (Holdings) Inc. and each of the holders of the
capital stock of Soft-Com Inc. incorporated by reference from Exhibit #10.1
to Form 8-K filed with the Securities and Exchange Commission on January 16,
1997.
10.11 Employment Agreement dated as of December 13, 1996, by and between
CTI Group (Holdings) Inc. and John Perri incorporated by reference from
Exhibit #10.2 to Form 8-K filed with the Securities and Exchange Commission
on January 16, 1997.
10.12 Copy of Lease Agreement dated April 10, 1992 between Hexagon
Associates and Soft-Com Inc.
10.13 Copy of Installment Note dated May 16, 1995 between First Fidelity
and Soft-Com Inc.
21.1 List of Subsidiaries of CTI Group (Holdings) Inc. as of March 31,
1997.
27.1 Financial Data Schedule.
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
/s/ Anthony P. Johns
--------------------
Date: July 1997 Anthony P. Johns,
President & Chief Executive Officer,
Chairman, Board of Directors
<PAGE>
CTI GROUP (HOLDINGS) INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
/s/ Anthony P. Johns
- - ---------------------- -----------------------------------
Date Anthony P. Johns,
President & Chief Executive Officer,
Chairman, Board of Directors
/s/ Francis O. Hunnewell
- - ---------------------- -----------------------------------
Date Francis O. Hunnewell,
Member, Board of Directors
/s/ Mark H. Daughtery
- - ---------------------- -----------------------------------
Date Mark H. Daugherty,
Chief Financial Officer,
Member, Board of Directors
/s/ Rupert D. Armitage
- - ---------------------- -----------------------------------
Date Rupert D. Armitage,
Member, Board of Directors
</TABLE>
<PAGE>
Exhibit 10.12
<PAGE>
STANDARD FORM OF LOFT LEASE
The Real Estate Board of New York, Inc.
Copyright 1982. All rights Reserved.
Reproduction in whole or in part prohibited
Agreement of Lease, made as of this 10th day of April 1992, between HEXAGON
ASSOCIATES, a New York Partnership with offices at 101 Fifth Avenue, New
York, New York 10003, party of the first part, hereinafter referred to as
OWNER, and SOFT-COM INC., a New York Corporation with offices at 140 West
22nd Street (Unit 7A), New York, New York 10011, party of the second part,
hereinafter referred to as TENANT,
Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner
Front Portion of the Seventh (7th) Floor, designated Unit 7A, in the building
known as 140-144 West 22nd Street, in the Borough of Manhattan, City of New
York, for the term of Five (5) Years (or until such term shall sooner cease
and expire as hereinafter provided) to commence on the First day of February
nineteen hundred and Ninety-Two, and to end on the Thirty-First day of
January nineteen hundred and Ninety-Seven both dates inclusive, at an annual
rental rate of see rider attached; 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 Tenant shall pay the first see
rider monthly installment(s) on the execution hereof (unless this lease be a
renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner
pursuant to the terms of another lease with Owner or with Owner's predecessor
in interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder
and the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby
covenant as follows:
Occupancy: 1. Tenant shall pay the rent as above and as herein-
after provided.
Use: 2. Tenant shall use and occupy demised premises for
Executive, Sales & Marketing offices and Support Staff only
provided such use is in accordance with the Certificate
of Occupancy for the building, if any, and for no other
purpose.
Alterations: 3. Tenant shall make no changes in or to the demised premises of
any nature without Owner's prior written consent. Subject to
the prior written consent of Owner, and to the provisions of
this article, Tenant at Tenant's expense, may make alterations,
installations, 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 using contractors or mechanics first
approved by Owner. Tenant shall, at its expense, before making any
alterations, additions, installations or improvements obtain all permits,
approval and certificates required by any governmental or quasi-governmental
bodies and (upon completion) certificates of final approval thereof and shall
deliver promptly duplicates of all such permits, approvals and certificates
to Owner. 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 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 or otherwise. All
fixtures and all paneling, partitions, railings and like installations,
installed in the premises at any time, either by Tenant or by Owner on
Tenant's behalf, shall, upon installation, become the property of Owner and
shall remain upon and be surrendered with the demised premises unless Owner,
by notice to Tenant no later than twenty days prior to the date fixed as the
termination of this lease, elects to relinquish Owner's right thereto and to
have them removed by Tenant, in which event the same shall be removed from the
demised premises by Tenant prior to the expiration of the lease, at Tenant's
expense. 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 condition existing
prior to installation 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 removed from the premises by Owner,
at Tenant's expense.
Repairs: 4. Owner shall maintain and repair the exterior of and the
public portions of the building. Tenant shall, throughout the
term of this lease, take good care of the demised premises
including the bathrooms and lavatory facilities (if the demised premises
encompass the entire floor of the building) and the windows and window frames
and, the fixtures and appurtenances therein and at Tenant's sole cost and
expense promptly make all repairs thereto and to the building, whether
structural or non-structural in nature, caused by or resulting from the
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
servants, employees, invitees, or licensees, and whether or not arising from
such Tenant conduct or omission, when required by other provisions of this
lease, including Article 6. Tenant shall also repair all damage to the building
and the demised premises caused by the moving of Tenant's fixtures, furniture
or equipment. All the aforesaid repairs shall be of quality or class equal to
the original work or construction. If Tenant fails, after ten days notice, to
proceed with due diligence to make repairs required to be made by Tenant, the
same may be made by the Owner at the expense of Tenant, and the expenses
thereof incurred by Owner shall be collectible, as additional rent, after
rendition of a bill or statement therefor. If the demised premises be or
become infested with vermin, Tenant shall, at its expense, cause the same to
be exterminated. Tenant shall give Owner prompt notice of any defective
condition in any plumbing, heating system or electrical lines located in the
demised premises and following such notice. Owner shall remedy the condition
with due diligence, but at the expense of Tenant, if repairs are necessitated
by damage or injury attributable to Tenant, Tenant's servants, agents,
employees, invitees or licensees as aforesaid. Except as specifically
provided in Article 9 or elsewhere in this lease, there shall be no allowance
to the Tenant for a diminution of rental value and no liability on the part
of Owner by reason of inconvenience, annoyance or injury to business arising
from Owner, Tenants or others making or failing to make any 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. The provisions of this Article 4 with respect to the making of
repairs shall not apply in the case of fire or other casualty with regard to
which Article 9 hereof shall apply.
Window 5. Tenant will not clean nor require, permit, suffer or allow any
Cleanings window in the demised premises to be cleaned from the outside in
violation of Section 202 of the New York State 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 6. Prior to the commencement of the lease term, if Tenant is
of Law, Fire then in possession, and at all times thereafter, Tenant shall,
Insurance, at Tenant's sole cost and expense, promptly comply with all
Floor Loads: 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, or the 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, or, with respect to the building, if arising out of Tenant's
use or manner of use of the demised premises or the building (including the
use permitted under the
<PAGE>
lease). Except as provided in Article 30 hereof, nothing herein shall require
Tenant to make structural repairs or alterations unless Ternant 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 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.
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 and 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 in effect prior to the commencement of Tenant's
occupancy. If by reason of failure to comply with the foregoing 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 "make-up" or rate for the building or demised
premises issued by a 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 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 or subordination shall be
required by any ground or underlying lessor or by any mortgagee, 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 damage to
Loss, Damage, property of Tenant or of others entrusted to employees of
Reimburse- the building, nor for loss of or damage to any property
ment, Indemni- of Tenant by theft or otherwise, nor for any injury or damage
ty: to persons or property resulting from any cause of whatsoever
nature, unless caused by or due to the negligence of Owner,
its agents, servants or employees; Owner or its agents shall not be liable for
any damage caused by other tenants or persons in, upon or about said building
or caused by operations in connection 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 not be reimbursed
by insurance, including reasonable attorney's 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, or 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 shall be
Fire and Other damaged by fire or other casualty, Tenant shall give
Casualty: 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 or 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) if the building shall be so damaged
that Owner shall decide to demolish it or to rebuild it, 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 Owner's
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 adjustment 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. Tenant's liability for rent
shall resume five (5) days after written notice from Owner that the premises
are substantially ready for Tenant's occupancy. (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 other 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 removable by
Tenant and agrees that Owner will not be obligated to repair any damage
thereto or replace the same. (1) 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.
Eminant 10. If the whole or any part of the demised premises shall be
Domain: 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 unexpected
term of said lease.
Assignment, 11. Tenant, for itself, its heirs, distributees, executors,
Mortgage, administrators, legal representatives, successors and assigns,
Etc.: expressly covenants that it shall not assign, mortgage or
encumber this agreement, nor 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. Rates and conditions in respect to submetering or rent
Current: inclusion, as the case may be, to be added in RIDER attached
hereto. Tenant covenants and agrees that at all times its use of
electric current shall not exceed the capacity of existing leeders 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 installations 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 shall not
Premises: be obligated) to enter the demised premises in any emergency at
any time, and, at other reasonable times, to examine the same and
to make such repairs, replacements and improvements as Owner may deem
necessary and reasonably desirable to any portion of the building or which
Owner may elect to perform in the premises after Tenant's failure to make
repairs or perform any work which Tenant is obligated to perform under this
lease, or for the purpose of complying with laws, regulations and other
directions of governmental authorities. 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, wherever possible, they
are within walls or otherwise concealed. 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 interruption 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 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
and may, during said six months period, place upon the premises the usual
notices "To Let" and "For Sale" which notices Tenant shall permit to remain
thereon without molestation. If Tenant is not present to open and permit an
entry into the premises, Owner or Owner's agents may 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, renovate 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.
- - --------------------------
Rider to be added if necessary.
<PAGE>
VAULT, VAULT SPACE, AREA:
14. No Vaults, vault space or area, whether or not enclosed or covered, not
within the property line of 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
public 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. Any tax, fee or charge of municipal authorities for
such vault or area shall be paid by Tenant, if used by Tenant, whether or
not specifically leased hereunder.
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. If any governmental license or permit shall be required for the
proper and lawful conduct of Tenant's business, Tenant shall be responsible for
and shall procure and maintain such license or permit.
BANKRUPTCY:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding, this
lease may be cancelled by Owner by 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; 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 rental 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 four percent (4%) per annum. If such premises or
any part thereof be relet 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.
DEFAULT:
17 (1) If Tenant defaults in fulfilling any of the covenants of this lease
other than the covenants for the payment of rent or additional rent; or if
the demised premises becomes vacant or deserted "or if this lease be rejected
under section 235 of Title 11 of the U.S. Code (bankruptcy code);" 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 Tenant shall make default with respect to any other
lease between Owner and Tenant; or if Tenant shall have failed, after five
(5) days written notice, to redeposit with Owner any portion of the security
deposited hereunder which Owner has applied to the payment of any rent and
additional rent due and payable hereunder or failed to move into or take
possession of the premises within fifteen (15) days after the commencement of
the term of this lease, of which fact Owner shall be the sole judge; then in
any one or more of such events, upon Owner serving a written five (5) days
notice upon Tenant specifying the nature of said default and upon the
expiration of said five (5) days, 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 five (5) day period, and if Tenant shall not have diligently
commenced during such default within such five (5) day 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; or if Tenant shall make default in the
payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein
required; 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, and Tenant hereby waives the
service of notice of intention to re-enter or to institute legal proceedings
to that end. If Tenant shall make defaults 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 OWNER AND WAIVER OF REDEMPTION:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (a) the rent, and additional 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 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,
(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 convenants herein contained, any deficiency between the rent hereby
reserved and or covenanted to be paid and the net amount, if any, of the
rents collected on account of the subsequent 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 the 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
any 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, as Owner's
option, make such alterations, repairs, replacements, and/or decorations in
the demised premises as Owner, in Owner's sole judgment, 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 be entitled to receive 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. Mention 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.
FEES AND EXPENSES:
19. If Tenant shall default in the observance or 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 obligations 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 proceedings, 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 five (5) 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 ALTERATIONS AND MANAGEMENT:
20. Owner shall have the right at any time without the same constituting an
eviction and without incurring 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
building 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.
Furthermore, Tenant shall not have any claim against Owner by reason of
Owner's imposition of any controls of 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 BY OWNER:
21. Neither Owner nor Owner's agents have made any representations or
promises with respect to the physical condition of the building, the land
upon which it is erected or the demised premises, the rents, leases, expenses
of operation or any other matter or thing affecting or related to the demised
premises or the building 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" on the date
possession is tendered and acknowledges that the taking of possession of the
demised premises by Tenant shall be conclusive evidence that the said
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
<PAGE>
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 TERM:
22. Upon the expiration or other termination of the 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 from the demised premises. 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 ENJOYMENT:
23. Owner covenants and agrees with Tenant that upon 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 34 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
FAILURE TO GIVE POSSESSION:
24. If Owner is unable to give possession of the demised premises on the date
of the commencement of the term hereof, because of the holding-over or
retention of possession of any tenant, undertenant or occupants or if the
demised premises are located in a building being constructed, because such
building has not been sufficiently completed to make the premises ready for
occupancy or because of the fact that a certificate of occupancy has not been
procured or if Owner has not completed any work required to be performed by
Owner, or for any other reason, 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 of this lease, but the rent payable
hereunder shall be abated (provided Tenant is not responsible for Owner's
inability to obtain possession or complete any work required) until after
Owner shall have given Tenant 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. Tenant covenants and agrees that such occupancy shall be
deemed to be under all the terms, covenants, conditions and provisions 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 forth 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 not be deemed a waiver of such breach and no provision 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. All checks tendered
to Owner as and for the rent of the demised premises shall be deemed payments
for the account of Tenant. Acceptance by Owner of rent from anyone other than
Tenant shall not be deemed to operate as an attornment to Owner by the payor
of such rent or as a consent by Owner to an assignment or subletting by
Tenant of the demised premises to such payor, or as a modification of the
provisions of this lease. 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 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.
WAIVER OF TRIAL BY JURY:
26. It is mutually agreed by and between Owner and 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.
INABILITY TO PERFORM:
27. This Lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in no wise be affected, impaired or excused because Owner is
unable 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 whatsoever beyond Owner's sole control
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 NOTICES:
28. Except as otherwise in this lease provided, a bill, statement, notice or
communication which Owner may desire or be required to give to Tenant, shall
be deemed sufficiently given or rendered it, 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 of 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.
WATER CHARGES:
29. If Tenant requires, uses or consumes water for any purpose in addition to
ordinary lavatory purposes (of which fact Tenant constitutes Owner to be the
sole judge) Owner may install a water meter and thereby measure Tenant's
water consumption for all purposes. Tenant shall pay Owner for the cost of
the meter and the cost of the installation, thereof and throughout the
duration of Tenant's occupancy Tenant shall keep said meter and installation
equipment in good working order and repair at Tenant's own cost and expense
in default of which Owner may cause such meter and equipment to be replaced
or repaired and collect the cost thereof from Tenant, as additional rent.
Tenant agrees to pay for water consumed, as shown on said meter as and when
bills are rendered, and on default in making such payment Owner may pay such
charges and collect the same from Tenant, as additional rent. Tenant
covenants and agrees to pay, as additional rent, the sewer rent, charge or
any other tax, rent, levy or charge which now or hereafter is assessed,
imposed or a lien upon the demised premises or the realty of which they are
part pursuant to law, order or regulation made or issued in connection with
the use, consumption, maintenance or supply of water, water system or sewage
or sewage connection or system. If the building or the demised premises or
any part thereof is supplied with water through a meter through which water is
also supplied to, other premises Tenant shall pay to Owner, as additional
rent, on the first day of each month, ________% ($25.00) of the total meter
charges as Tenant's portion. Independently of and in addition to any of the
remedies reserved to Owner hereinabove or elsewhere in this lease, Owner may
sue for and collect any monies to be paid by Tenant or paid by Owner for any
of the reasons or purposes hereinabove set forth.
SPRINKLERS:
30. Anything elsewhere in this lease to the contrary notwithstanding, if the
New York Board of Fire Underwriters or the New York Fire Insurance Exchange
or any bureau, department or official of the federal, state or city
government recommend or require the installation of a sprinkler system or
that any changes, modifications, alterations, or additional sprinkler heads
or other equipment be made or supplied in an existing sprinkler system by
reason of Tenant's business, or the location of partitions, trade fixtures,
or other contents of the demised premises, or for any other reason, or if any
such sprinkler system installations, modifications, alterations, additional
sprinkler heads or other such equipment, become necessary to prevent the
imposition of a penalty or charge against the full allowance for a sprinkler
system in the fire insurance rate set by any said Exchange or by any fire
insurance company, Tenant shall, at Tenant's expense, promptly make such
sprinkler system installations, changes, modifications, alterations, and
supply additional sprinkler heads or other equipment as required whether the
work involved shall be structural or non-structural in nature. Tenant shall
pay to Owner as additional rent the sum of $25.00, on the first day of each
month during the term of this lease, as Tenant's portion of the contract
price for sprinkler supervisory service.
ELEVATORS, HEAT, CLEANING:
31. As long as Tenant is not in default under any of the covenants of this
lease Owner shall: (a) provide necessary passenger elevator facilities on
business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.;
(b) if freight elevator service is provided, same shall be provided only on
regular business days Monday through Friday inclusive, and on those days only
between the hours of 9 a.m. and 12 noon and between 1 p.m. and 5 p.m.; (c)
furnish heat, water and other services supplied by Owner to the demised
premises, when and as required by law, on business days from 8 a.m. to 6 p.m.
and on Saturdays from 8 a.m. to 1 p.m.; (d) clean the public halls and public
portions of the building which are used in common by all tenants. Tenant
shall, at Tenant's expense, keep the demised premises, including the windows,
clean and in order, to the satisfaction of Owner, and for that purpose shall
employ the person or persons, or corporation approved by Owner. Tenant shall
pay to Owner the cost of removal of any of Tenant's refuse and rubbish from
the building. Bills for the same shall be rendered by Owner to Tenant at such
time as Owner may elect and shall be due and payable hereunder, and the amount
of such bills shall be deemed to be, and be paid as, additional rent. Tenant
shall, however, have the option of independently contracting for the removal
of such rubbish and refuse in the event that Tenant does not wish to have
same done by employees of Owner. Under such circumstances, however, the
removal of such refuse and rubbish by others shall be subject to such rules
and regulations as, in the judgment of Owner, are necessary for the proper
operation of the building. Owner reserves the right to stop service of the
heating, elevator, plumbing and electric systems, when necessary, by reason
of accident, or emergency, or for repairs, alterations, replacements or
improvements, in the judgment of Owner desirable or necessary to be made,
until said repairs, alterations, replacements or improvements shall have been
completed. If the building of which the demised premises are a part supplies
manually operated elevator service, Owner may proceed with alterations
necessary to substitute automatic control elevator service upon ten (10) day
written notice to Tenant without in any way affecting the obligations of
Tenant hereunder, provided that the same shall be done with the minimum
amount of inconvenience to Tenant, and Owner pursues with due diligence the
completion of the alterations.
<PAGE>
Security: 32. Tenant has deposited with Owner the sum of $8,000 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 reletting 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 fully and faithfully comply with all
of the terms, provisions, covenants and conditions of this lease, the
security shall be returned to Tenant after the date fixed as the end of the
Lease and after delivery of entire possession of the demised premises to
Owner. In the event of a sale of the land and building or leasing of the
building, of which the demised premises form a part, Owner shall have the
right to transfer the security to the vendee or lessee and 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
its successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.
Captions: 33. 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 provision thereof.
Definitions: 34. The term "Owner" as used in this lease means only the owner
of the fee or of the leasehold of the building, 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 "rent" includes the
annual rental rate whether so-expressed or expressed in monthly installments,
and "additional rent." "Additional rent" means all sums which shall be due to
new Owner from Tenant under this lease, in addition to the annual rental
rate. The term "business days" as used in this lease, shall exclude Saturdays
(except such portion thereof as is covered by specific hours in Article 31
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.
Adjacent 35. If an excavation shall be made upon land adjacent to the
Excavation- demised premises, or shall be authorized to be made, Tenant
Shoring: 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 premises 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 36. Tenant and Tenant's servants, employees, agents, visitors,
Regulations and licensees shall observe faithfully, and comply strictly
with, the Rules and Regulations annexed hereto 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 the same shall be asserted by service of a notice, in
writing upon Owner within ten (10) 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 any other tenant and Owner shall
not be liable to Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors or licensees.
Glass: 37. Owner shall replace, at the expense of the Tenant, any and
all plate and other glass damaged or broken from any cause
whatsoever in and about the demised premises. Owner may insure, and keep
insured, at Tenant's expense, all plate and other glass in the demised
premises for and in the name of Owner. Bills for the premiums
therefor shall be rendered by Owner to Tenant at such times as Owner may
elect, and shall be due from, and payable by, Tenant when rendered, and the
amount thereof shall be deemed to be, and be paid, as additional rent.
Estoppel 38. Tenant, at any time, and from time to time, upon at least
Certificate: 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 in full force and effect as modified and stating the modifications),
starting the dates to which the rent and additional rent have been paid, and
stating whether or not there exists any default by Owner under this Lease, and,
if so, specifying each such default.
Directory 39. If, at the request of and as accommodation to Tenant, Owner
Board Listing shall place upon the directory board in the lobby of the
building, one or more names of persons other than Tenant, such
directory board listing shall not be construed as the consent by Owner to
an assignment or subletting by Tenant to such person or persons.
Successors 40. The covenants, conditions and agreements contained in this
and Assigns: 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.
If the rear part of the 7th floor (Unit 7R) shall have been rented out by
Landlord, upon the expiration of such Lease Agreement for the rear part of
the 7th floor (Unit 7R), Soft-Com, Inc. shall have the right of first refusal
for the rear part of the 7th floor (Unit 7R).
In Witness Whereof, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
Witness for Owner: BY:
----------------------------------- {seal}
HEXAGON ASSOCIATES
(Landlord)
- - ----------------------------- ----------------------------------- {L.S.}
Witness for Tenant: BY:
----------------------------------- {seal}
SOFT-COM, INC. (Tenant)
- - ----------------------------- ----------------------------------- {L.S.}
<PAGE>
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 of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation, and that he signed his
name thereto by like order.
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 in and who, as
TENANT, executed the foregoing instrument and acknowledged to me that he
executed the same.
- - --------------------------------------------------------------------------------
IMPORTANT--PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND
MADE PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 36.
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 buildings 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 the 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 or 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 or 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 entrance 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. No Tenant shall obtain for use upon the demised premises ice, drinking
water, towel and other similar services, or accept barbering or bookblacking
services in the demised premises, except from persons authorized by Owner,
and at hours and under regulations fixed by Owner. 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., on business days, after 1 p.m. on Saturdays, 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. Notwithstanding the foregoing. Owner shall not
be required to allow Tenant or any person. Notwithstanding the foregoing,
Owner shall not be required to allow Tenant or any person to enter or remain
in the building, except on business days from 8:00 a.m. to 6:00 p.m. and on
Saturdays from 8:00 a.m. to 1:00 p.m.
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 loft building, 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 substances, or cause or permit any odors of cooking or other
process, or any unusual or other objectionable odors to permeate in or
emanate from the demised premises.
13. Tenant shall not use the demised premises in a manner which disturbs or
interferes with other Tenants in the beneficial use of their premises.
Address: 140-144 West 22nd Street
Premises Front Portion of 7th Floor
HEXAGON ASSOCIATES
TO
SOFT COM, INC.
STANDARD FORM OF
LOFT LEASE
The Real Estate Board of New York, Inc.
Copyright 1982. All rights Reserved
Reproduction in whole or in part prohibited.
Dated April 10, 1992
Rent per Year
see rider attached;
Rent per Month
Term Five (5) Years
From February 1, 1992
To January 31, 1997
Drawn by lb Checked by
--------------------- --------------------
Entered by Approved by
--------------------- --------------------
<PAGE>
Rider to Lease Agreement
Between
HEXAGON ASSOCIATES, LANDLORD
And
SOFT-COM, INC., TENANT
Dated: April 10, 1992
Floor: Front Portion of the 7th Floor (Unit 7F)
140-144 West 22nd Street
New York, New York 10011
41. a. Tenant shall pay base rent as follows:
<TABLE>
<CAPTION>
Lease Year Annual Rent Monthly Rent
---------- ----------- ------------
<S> <C> <C>
1 $48,000.00 $ 4,000.00
2 $49,920.00 $ 4,160.00
3 $51,916.00 $ 4,326.40
4 $53,992.64 $ 4,499.39
5 $56,152.35 $ 4,679.36
</TABLE>
b. The monthly rent shall be paid by Tenant to Landlord on the first
day of each month during the term of this Lease.
c. The first lease year is defined as the twelve (12) calendar months
beginning February 1, 1992 and ending January 31, 1993.
1
<PAGE>
42. 1. For the purpose of this Article '42', the parties have agreed that:
a. The term "Real Property" shall mean collectively the real
property known as 140-144 West 22nd Street, New York City and
the building erected thereon.
b. The term "Taxes" shall mean the total amount of Real Estate
Taxes levied, assessed and imposed against the real property
on an annual basis by the Taxing Authorities having
jurisdiction thereover (or if due to a future change in the
method of taxation, any franchise income, profit or other tax
assessment, levy or governmental charge of any kind or nature
whatsoever, however designated, substituted for or replacing,
in full or in part, Real Estate Taxes.
c. The term "Tax Year" shall mean each period of twelve (12)
consecutive months commencing on July 1 of each such period in
which occurs any part of the term of this Lease, or such other
period as may hereafter be duly adopted as the fiscal year for
Real Estate Tax purposes by the City of New York.
d. The term "Base Year" shall mean Real Estate Taxes for the Tax
Year 1992/1993.
e. The term "Base Year Premiums" shall mean the cost of all
Insurance Coverages for the real property payable by Landlord
for the Year 1992.
2. If Taxes for any Tax Year shall be increased above the Base Year
Taxes, then Tenant shall pay to Landlord, as additional rent, 5.56%
of such increase. The amount due hereunder shall be paid by Tenant in
twelve (12) equal monthly installments beginning one (1) month after
Landlord receives Notice of Tax Assessment from the City of New York.
Landlord shall submit a statement to Tenant showing in reasonable
detail the computation of the amount, if any, due hereunder to
Landlord. Any such tax increase for the Tax Year in which this Lease
shall end shall be apportioned. In no event shall decrease in Taxes
in any way reduce the rent or additional rent payable by Tenant under
this Lease.
3. If Insurance Premiums shall be increased above the Base Year
premiums for 1992, Tenant shall pay to Landlord, as additional
rent 5.56% of such increase. Copies of Premium Statement furnished by
the Insurance Company to Landlord shall be conclusive evidence of
total monies paid on premium for such year by Landlord.
4. A Tax bill and/or Notice of Tax Assessment from the City of New
York for any relevant Tax Year shall be full and conclusive evidence
of the amount of Taxes imposed for such year, unless the assessment
for such year be protested and, in such later event, all computations
and payments hereunder, pending final determination of the
proceeding, shall be based upon such original tax bill or Notice of
Assessment, with retroactive adjustments to be made upon demand by
either party following such final determination.
5. If Landlord shall receive any tax refund in respect of any Tax
Year with respect to which Tenant shall have paid any monies pursuant
to this numbered Article, the Landlord may retain, out of such tax,
refund, any
2
<PAGE>
reasonable expenses incurred by it in obtaining such
tax refund and out of any then remaining balance of
such tax fund, Landlord shall pay to Tenant, provided
Tenant is not then in default under any of the
covenants or provisions of this Lease, 5.56% of such
remaining balance of tax refund. If Landlord shall
obtain a reduction in assessed valuation in respect
of any Tax Year with respect to which Tenant shall
not have paid any monies pursuant to this numbered
Article, the amount of Taxes for such Tax Year plus
the amount of any reasonable expenses incurred by
Landlord in obtaining such reduction shall be deemed
to be the Taxes finally determined to be payable by
Landlord for such Tax Year.
43. Tenant shall also pay to the Landlord as additional rent, adjustments for
increases in Landlord's cost of fuel for the building in which the
demised premises are located. The "Base Year" for calculating increases in
fuel shall be the period commencing Feb. 01, 1992 thru January 31, 1993.
Tenant shall pay to Landlord 5.56% of the increase in fuel costs over the
Base Year. Every statement furnished by Landlord pursuant to this Article
shall be conclusive and binding upon the Tenant unless (i) within ten
(10) days after the receipt of such statement, Tenant shall notify
Landlord that it disputes the correctness thereof, specifying the
particular respects in which the statement is claimed to be incorrect,
(ii) if such dispute shall not have been settled by agreement, the
dispute shall have been submitted to arbitration within ninety (90)
days after receipt of the statement. Pending the determination of
such dispute by agreement or arbitration as aforesaid, Tenant shall pay
additional rent to Landlord in accordance with statement and such
payment shall be without prejudice to Tenant's position and to Tenant's
right to a refund of any overpayment. If the dispute shall be
determined in Tenant's favor, Landlord shall forthwith pay to Tenant
the amount of Tenant's overpayment of additional rent resulting from
compliance with the statement.
44. a. If any of the provisions of this Rider conflicts or are otherwise
inconsistent with any of the printed provisions of the Lease, or
of the Rules and Regulations appended to this Lease, the
provisions of this Rider shall prevail.
b. For the purpose of this Lease, unless the context otherwise
requires:
1. The term "Fixed Rent" shall mean rent at the annual rental
rate provided for in Article 41 of this Rider.
2. The term "Additional Rent" shall mean all sums of money other
than fixed rent, and shall become due and payable from Tenant
to Landlord hereunder, and Landlord shall have the same
remedies thereof as for a default in payment of fixed rent.
3. The term "Rents" shall mean fixed and additional rents
hereunder. Any proration of rents or credits provided for in
this Lease shall be deemed to include prepaid rents and
credits and shall be made in the ratio of the periods of time
involved and refund (or credit against rents then or
thereafter due) for overpayment or payment of net rents
accrued shall be made accordingly upon Landlord's demand.
3
<PAGE>
4. The term "Mortgage" shall include an indenture of Mortgage and Deed
of Trust to a trustee to secure an issue of bonds, and the term
"Mortgage" shall include such a trustee.
5. The term "Obligations of this Lease" and words of like import shall
mean the covenants to pay rent and additional rent under this Lease
and all of the other covenants and conditions contained in this
Lease. Any provisions in this Lease that one party or the other or
both shall do or not do or shall cause or permit or not cause or
permit a particular act, condition or circumstance shall be deemed
to mean that such party so covenant, as the case may be.
6. The term "Tenant's Obligations" hereunder and words of like import,
and the term "Landlord's Obligations" hereunder, and words of like
import shall mean obligations of this Lease which are to be
performed or observed by Tenant or by Landlord, as the case may be.
Reference to "performance" of either party's obligations under this
Lease shall be construed as "performance and observance". "Tenant's
Obligations" hereunder shall be construed in each and every instance
as conditions as well as covenants.
7. Reference to Tenant being or not being "in default hereunder", or
words of like import, shall mean that Tenant is in default in the
performance of one or more of Tenant's obligations hereunder, or
that a condition of the character described in Article 17 has
occurred and continues or has not occurred or does not continue, as
the case may be.
8. The term "Tenant" shall mean Tenant herein named or any assignee or
other successor in interest (immediate or remote) or Tenant herein
named, when Tenant herein named or such assignee or other successor
in interest, as the case may be, is in possession of the demised
premises as owner of Tenant's estate and interest granted by this
Lease, and also, if Tenant is not an individual or corporation, all
of the individuals, firms and/or corporations or other entities
comprising Tenant.
9. The term "repair" shall be deemed to include replacement of parts as
may be necessary to achieve and/or maintain good working order and
condition.
10. The term "Untenantable" shall be deemed to include being
inaccessible.
11. The words "include", "including" and "such as" shall each be
construed as if followed by the phrase "without being limited to".
12. The words "herein", "hereof", "hereunder" and words of similar
import shall be construed to refer to this Lease as a whole and not
to any particular Article, subdivision thereof unless expressly so
stated.
c. 1. Nothing contained in Article 4, 6 and 15 shall obligate Tenant to
make any structural or extraordinary repair or alteration in the
demised premises unless the same is required by reason of a
condition created by or at the instance of Tenant,
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<PAGE>
or its agents, employees or visitors, including the manner in which
the demised premises is used by Tenant, its agents, employees or
visitors, or the making or existence of Tenant's alterations,
decorations, installations, additions or improvements in the
demised premises.
2. Supplementing Article 6, Tenant, at its expense, shall procure
and comply with all licenses, permits and certificates which may be
required for the lawful operation of Tenant's business in the
demised premises. Tenant, at its expense, shall provide, install
and maintain fire extinguishers and appurtenances thereto required
by the Government Authorities having jurisdiction of the building
in which the demised premises are located which may be required by
the use of the demised premises.
3. Further supplementing Article 6, Tenant shall conduct its
business and shall install Tenant's property in the demised
premises in such manner as to enable Landlord obtain the lowest
possible rate of insurance upon the building in which the demised
premises are located and Landlord's property therein, as is
available to a building in similar condition, and, anything herein
to the contrary notwithstanding, Tenant shall reimburse Landlord,
upon demand, for any increase in the rate of insurance which
Landlord may be required to pay because of the manner in which
Tenant operates in the demised premises.
4. Supplementing Article 12, Tenant shall directly pay for all
electric current used in the demised premises for light and power
or any other purpose (other than heat) for its exclusive use, and
the operation of the ventilation equipment which may exclusively
serve the demised premises.
5. If separate access is not available, then Landlord's right of
access provided for in the first two (2) sentences of Article 13
shall be deemed to include (i) access to any equipment or fixtures
in or accessible through the demised premises which are used in
the general service of the building in which the demised premises
are located or for the maintenance or repair of which Landlord may
be responsible; (ii) egress and ingress through the demised
premises for the purpose of removing waste, refuse, debris and
garbage resulting from the operation of the building.
6. Supplementing Article 27, whenever either party shall consist
of more than one person or entity, any notice, statement, demand
and/or other communication required or permitted to be given,
rendered or made to or by, and any payment to be made to such party
shall be deemed duly given, rendered or made or paid if addressed
to or by (or in the case of payment by check, to the order of) one
of such persons or entities who shall be designated from time to
time by all persons or entities then comprising such party. Such
party shall promptly notify the other of the identity of such
person and entity who is so to act on behalf of all persons and
entities comprising such party and of all changes in such entity.
7. Supplementing Article 30, Landlord shall not be required to
supply, to he demised premises, any
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<PAGE>
utilities or services of any kind (except heat, water and elevator)
including without limitation, such items as may be necessary for
Tenant to conduct its business at the demised premises. Without
limiting the foregoing, Tenant agrees to make its own arrangements
for the furnishing of any other utilities consumed by Tenant in
the demised premises for any purpose whatsoever. In no event shall
Landlord be responsible for charges of electricity unless by
special arrangement.
8. Supplementing Article 31, Tenant shall be solely responsible for
the cleaning of the bathrooms and hallways adjacent to the demised
premises, however, where there are more than one Tenant per floor,
Tenant shall be jointly responsible with the other Tenant(s) for
the cleaning of the bathrooms and hallways on the floor in which
the demised premises are located.
45. Tenant acknowledges that it has inspected the demised premises and has
agreed to accept possession in its "AS IS" condition. Landlord shall not
be obligated to make any changes, improvements, restorations or
alterations to the demised premises except as set forth in Article 59 of
this Rider.
46. a. In the event of any act or omission of Landlord which would give
Tenant the right, immediately or after lapse of a period of time, to
cancel or terminate this Lease, or 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 the holder of each superior mortgage
whose name and address shall previously have been furnished to Tenant
in writing, and (ii) unless such act or omission shall be one which is
not capable of being remedied by Landlord or such mortgage holder
within a reasonable period of time, until a reasonable period for
remedying such act or omission shall have elapsed following the giving
of such notice and following the time when such holder shall have
become entitled under such superior mortgage to remedy the same (which
reasonable period shall, in no event, be less than the period to which
Landlord would be entitled under this Lease or otherwise, after
similar notice, to effect such remedy), provided such holder shall,
with due diligence, give to Tenant, a written notice of intention to,
and commence and continue to remedy such act or omission.
b. If the holder of a superior mortgage shall succeed to Landlord's
estate in the building in which the demised premises are located or
the rights of Landlord under this Lease, whether through possession or
foreclosure action or delivery of a new Lease or a deed or otherwise,
then at the election of such party so succeeding to Landlord's rights
(herein sometimes called "Successor Landlord"). 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.
Tenant hereby irrevocably appoints such successor landlord Tenant's
attorney-in-fact to execute and deliver such instrument for and on
behalf of Tenant.
47. Each party shall, at any time and from time to time, at the request of
the other party, upon not less than ten (10) days notice, execute and
deliver to the other a statement certifying that this Lease is unmodified
and in full force and effect (or if there have been modifications.
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<PAGE>
that the same is in full force and effect as modified and stating the
modifications), certifying the dates to which the fixed rent and
additional rent have been paid, and stating whether or not, to the
best knowledge of the signer, the other party is in default in the
performance of any of its obligations under this Lease, and if so,
specifying each such default of which the signer may have knowledge of,
it being intended that any such statement delivered pursuant hereto may
be relied upon by others with whom the party requesting such certification
may be dealing.
48. Tenant agrees to use its best efforts to include in each of its
insurance policies insuring Tenant's property and Tenant's business
interests in the demised premises against loss, damage, or destruction by
fire or other casualty:
a. a waiver of the insurer's right of subrogation against Landlord and
Landlord's Landlord;
b. an express agreement that such policy shall not be invalidated if
the assured waives the right of recovery against any party responsible
for a casualty covered by the policy before the casualty, and
c. any other form of permission for the release of the other party.
If such waiver or permission shall not be, or shall cease to
be, obtainable without additional charge or at all, the insured
party shall so notify the other party promptly after learning
thereof. In such case, if the other party shall so elect and shall
pay the Insurer's additional charge therefor, such waiver or
permission shall be included in the policy, or the other party
shall be named as an additional assured in the policy. Tenant's
policy shall name Landlord as an additional assured and shall
contain agreement by Insurer that the policy will not be canceled
without, at least, ten (10) days prior written notice to Landlord.
Tenant shall not be required to obtain a waiver of subrogation if
such waiver would cause Tenant to pay any additional charges.
49. a. Tenant shall indemnify and save harmless, Landlord and its
agents against and from (1) any and all claims (a) arising from (1)
the conduct of business in or management of the demised premises or
(2) work or thing whatsoever done, or any condition created (other
than by Landlord for Landlord's or Tenant's account) in or about
the demised premises during the term of this Lease or (b) arising
from any negligence or wrongful act or omission of Tenant or any of
its sub-tenants or licensees or its and/or their employees or
agents or contractors, and (ii) all costs, expenses and liabilities
incurred in or in connection with each such claim or action or
proceeding brought against Landlord by reason of any such claim,
Tenant, upon notice from Landlord, shall resist and defend such
action or proceeding by counsel chosen by Tenant who shall be
reasonably satisfactory to Landlord.
b. Tenant shall be relieved of obligations and liabilities to
Landlord under the provisions of part (a) of this Article if and to
the extent that, and so long as, Tenant provides and maintains in
force, insurance for the benefit of Landlord and enforceable by
Landlord as named insured, with a carrier reasonably satisfactory
to landlord, against the claims, liabilities, costs and expenses
referred to in said part (a).
c. Landlord and its partners shall be under no special
liability with respect to any of the provisions of
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<PAGE>
this Lease and if Landlord is in breach or in default with
respect to his obligations or otherwise under this Lease,
Tenant shall look solely to the interest of such Landlord in
the building in which the demised premises are located for the
satisfaction of Tenant's remedies. It is expressly agreed that
Landlord is not obligated to provide or render any services
whatsoever other than those services enumerated in this Lease
to the Tenant and Landlord shall not be liable for damages, or
otherwise in the event that this Lease becomes invalid as a
result of any foreclosure or other proceedings, or in the event
that Tenant suffers any damages as a result of any act omitted
or committed to be done by Landlord.
50. a. Without limiting Tenant's liability under the indemnity
provided for in Article 49, except as provided in part (b)
thereof, Tenant shall provide on or before the Commencement
Date, and shall keep in force through out the term of this
Lease, for the benefit of Landlord and Tenant, Insurance of the
kinds and in the limits hereafter specified against any
liability whatsoever occasioned by any occurrence in, on or
about, or resulting from the use, operation and/or maintenance
of the demised premises or the fixtures or equipment therein,
passageways and other areas which are immediately adjacent to
the demised premises, and shall cause Landlord and its agents
to be named as co-assureds in all policies of such insurance.
Such kinds and limits of Insurance as follows:
Comprehensive General Public Liability Insurance in limits
of $1,000,000 for bodily injury or death to any one
person; $2,000,000 for injuries to and/or deaths of more
than one person in respect of any one occurrence and
$50,000 for property damage in respect of any one
occurrence.
b. The policies of Insurance provided for in part (a) of this
Article shall be issued by Insurance Companies reasonably
satisfactory to Landlord and shall be non-cancelable except on,
at least, ten (10) days prior written notice to Landlord, and
to the extent obtainable, shall not be invalidated against one
assured. Any of the Insurance coverages provided for in said
part (a) may be incorporated in a blanket policy covering the
demised premises and other locations provided that the limits
of coverage with respect to the demised premises shall not be
less than the limits in said part (a). Not later than the
Commencement Date, Tenant shall furnish Landlord with a
duplicate original policy or Certificate evidencing each such
insurance together with satisfactory evidence of payment of the
premium therefor. Similar documentary evidence of renewal and
payment for each renewal or new policy for such insurance shall
be furnished to Landlord on or before each date of expiration
of the current policy. Should Tenant fail to procure or
maintain any such Insurance and pay the premium therefor,
Landlord may, at its option, procure a policy of such
insurance and pay the premium therefor and Tenant shall
reimburse Landlord for the cost of such premium upon demand.
51. Tenant and Landlord warrant and represent that no broker
exceptxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
were instrumental in consummating this Lease, and that no
conversations or prior negotiations were had with any other
broker concerning the renting of the demised premises. Tenant
and Landlord agree to hold the other harmless against
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<PAGE>
any claims for brokerage commissions arising out of any conversations
or negotiations had by Tenant or Landlord, as the case may be, with any
brokers except those specifically named in this paragraph 51.
52. Submission by Landlord of the within Lease for execution by Tenant
shall confer no rights nor impose any obligations on either party unless
and until both Landlord and Tenant shall have executed this Lease and
duplicate originals thereof shall have been delivered to the respective
parties.
53. Notwithstanding anything to the contrary herein, Tenant shall have no
right to assign this Lease nor sublet the demised premises or any part
thereof nor sell this Lease.
54. Tenant agrees and acknowledges that time is of the essence as to the
payment of rent and additional rent hereunder to Landlord. Tenant agrees
that in the event it fails to pay Landlord rent and additional rent within
fifteen (15) days of the dates herein provided, Tenant's SECURITY DEPOSIT
shall be increased by an amount equal to one (1) month's rent during the
Lease Year of such default. If Tenant fails to remit such sums to Landlord
within ten (10) days after written notice, Tenant shall be in default
hereunder. Tenant agrees that in the event Tenant is late in full payment
of more than two (2) monthly installments of rent or additional rent
during any consecutive twelve (12) month-period during the term hereof,
Landlord shall have the right but not the obligation to cancel this Lease
on a fifteen (15) days written notice to Tenant and upon mailing of such
notice this Lease shall be canceled and of no further force and effect as
of the date and time set forth in such notice.
55. Upon the expiration and/or termination of this Lease, Tenant and
occupants of the demised premises shall vacate the demised premises.
Tenant shall pay the sum of $312.00 per day for each and every day that
it holds over after said Lease term expires or is terminated as the case
may be.
56. Tenant agrees that the value of the demised premises and the reputation
of the Landlord will be seriously injured if the premises is used for any
obscene or pornographic purposes or any sort of commercial sex
establishment. Tenant agrees that Tenant will not permit any obscene or
pornographic material or semi-nude life performance on the premises, nor
permit use of the premises for nude modeling, rap sessions or as a sex
club of any sort or as a "MASSAGE PALOR". Tenant further agrees that
Tenant will not permit any of these uses by any sub-lessee or assignee of
the demised premises. This Article shall directly bind any successors in
interest to the Tenant. Tenant agrees that if, at any time, Tenant
violates any of the provisions of this Article, such violation shall be
deemed a breach of a substantial obligation of the terms of this Lease
and objectionable conduct. Pornographic material is defined, for purposes
of this Article, as any written or pictorial matter with prurient appeal
or any objects or instruments that are primarily concerned with lewd or
prurient sexual activity. Obscene material is defined here as it is in
Penal Law, section 235.
57. Supplementing Article 15, Landlord represents that although the
building does not have a certificate of occupancy, the demised premises
may be legally used as described in paragraph 2 of the printed section
of this Lease.
58. Supplementing Article 32 of the Printed Lease, Landlord shall deposit
the SECURITY DEPOSIT in the interest-bearing Tenants' Lease Security
Account currently maintained with Chemical Bank.
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<PAGE>
59. Landlord agrees to perform the following work at Landlord's sole cost
and expense;
60. During the term of this Lease, Tenant shall pay to Landlord, as
additional rent, the sum of $80.00 per month representing Guard Service
Charge.
61. Notwithstanding any provisions herein to the contrary, any time after
the end of the first lease year, Tenant may, at Tenant's option,
terminate this Lease, upon at least, six months prior written notice to
Landlord, which notice shall be delivered to Landlord together with six
(6) months current rent at the time of such notice, to compensate
Landlord for the termination of the Lease Agreement before the
expiration date by Tenant.
The six (6) months rent delivered to Landlord with said notice, shall be
in addition to the monthly rent and additional rent paid by Tenant to
Landlord which shall continue to be paid monthly by Tenant to Landlord
until Tenant vacates the demised premises and delivers some to Landlord
in a broom-clean condition.
62. During the terms of this Lease, Tenant shall be responsible for the
payment of all electric power consumed on the 7th floor premises.
However, should the rear part of the 7th floor space (Unite 7R) be
rented by Landlord, Tenant (Soft-Com, Inc.) shall become responsible for
66.67% of the electrical power consumed on the 7th floor, and Landlord
shall be responsible for 33.33% of the cost of electrical power on the
7th Floor.
63. Supplementing paragraph 3 of this Lease. Landlord's consent shall not be
unreasonably withheld or delayed.
64. Supplementing Article 13, Landlord and/or his agents may enter the
demised premises when necessary in cases of emergencies only.
65. Further supplementing paragraph 13, during the last month of the term of
this Lease. Landlord agrees to alter, renovate or redecorate the demised
premises in such a manner as to minimize interference with Tenant's
operation.
66. Tenant shall have access to the demised premises seven (7) days a week,
twenty-four (24) hours per day through the stairways after business
hours.
BY:
-------------------------------
HEXAGON ASSOCIATES ("LANDLORD")
BY:
-------------------------------
SOFT-COM, INC. ("TENANT")
Print Name: John Perril
----------------------
Title: President
---------------------------
10
<PAGE>
Extension of Lease Agreement made this 3 day of December 1996 between
BROADWAY--41ST STREET REALTY CORP. ("Landlord") and SOFT-COM, INC. ("Tenant").
Reference is hereby made to the Lease Agreement ("The Lease") dated
April 10, 1992 between Landlord and Tenant.
Now, therefore, both parties agree as follows:
1. The Lease Agreement shall be extended for an additional period of one
(1) year effective February 1, 1997 through and including January 31, 1998.
2. Tenant shall pay base rent to Landlord as follows:
2/1/97 - 1/31/98 $4,866.53 per month.
3. Tenant shall receive a one time $3,000.00 paint allowance.
4. Except as specified in this Extension of Lease Agreement, all other
provisions, terms and conditions of the Lease Agreement dated
April 10, 1992 shall remain valid and in full force during the
term hereof.
BY:________________________________
BROADWAY--41ST ST. REALTY CORP.
(Landlord)
BY:________________________________
SOFT-COM, INC.
(Tenant)
<PAGE>
Exhibit 10.13
<PAGE>
LONG TERM INSTALLMENT NOTE
(NEW JERSEY)
Obligor # 8467416508
------------------
Obligation #
--------------
Newark, New Jersey
May 16, 1995
--------------------------
$59,583.26
- - -----------------------------
FOR VALUE RECEIVED, and intending to be legally bound hereby, the Borrower,
jointly and severally and unconditionally promises(s) to pay to the order of
First Fidelity Bank, N.A., New Jersey (the "Bank") the principal sum of
fifty-nine thousand five hundred eighty three & 26/100 dollars ($59,583.26)
in accordance with the payment provisions hereinafter set forth.
A. TERMS OF NOTE.
1. PRINCIPAL PAYMENTS. The outstanding principal balance hereunder
shall be paid in thirty-six (36) consecutive /x/ monthly / /
quarterly installments in the amount of one thousand six hundred
sixty-six & 67/100 Dollars ($1,666.67) each, commencing on June 15,
1995, and continuing on the same day of each consecutive period
thereafter, with a final installment in the amount of the remaining
unpaid principal balance outstanding hereunder due and payable on
May 15, 1998. If the foregoing blank spaces are not completed, the
outstanding principal balance hereunder shall be paid on __________,
19__.
2. INTEREST PAYMENTS. The Borrower agrees to pay to the Bank,
interest, in arrears, on the outstanding balance hereunder monthly
(unless principal payments are due quarterly, in which case
interest is due quarterly) until the entire principal balance
hereunder, together with accrued, unpaid interest thereon is paid
in full. Interest on the principal balance outstanding hereunder
shall accrue at (i) the Bank's Base Rate (hereinafter defined)
plus two percent (2%) per annum or (ii) a per annum rate of ________
percent (_____%).
3. COMPUTATION OF INTEREST. Interest charged hereunder shall be
computed daily on the basis of a 360 day year for the actual number
of days elapsed.
4. PAYMENT TERMS. All payments made hereunder shall be made on the due
date thereof, in immediately available funds and in lawful currency
of the United States of America. All payments made hereunder shall
be made to the Bank at its offices set forth in this Note or at
such other address as the Bank shall notify the Borrower of in
writing.
5. DEBITING OF ACCOUNT. The Borrower agrees to maintain an account at
the Bank continuously until the Liabilities due hereunder are paid
in full (the "Account"). The Bank may, and the Borrower authorizes
the Bank to, debit the Account for the amount of any payment as and
when such payment becomes due hereunder. If there are insufficient
funds in the Account at the time the Account is debited, and the
debiting creates an overdraft, the Bank may charge the Borrower an
administrative fee in an amount established from time to time by
the Bank. The foregoing rights of the Bank to debit the Borrower's
accounts shall be in addition to, and not in limitation of, any
rights of set-off which the Bank may have hereunder or under any
Loan Document.
6. LATE CHARGE. If any payment is not paid in full when the same is
due, the Borrower shall pay the Bank a fee on such unpaid amount
equal to five percent (5%) of such amount.
7. DEFAULT RATE. At the Bank's option, interest will be assessed on
any principal which remains unpaid at the maturity of this Note,
whether by acceleration or otherwise, at a rate which is four
percent (4%) higher than the rate otherwise charged hereunder (the
"Default Rate") provided that at no time shall the Default Rate
exceed the highest rate of interest allowed by law. Such Default
Rate of Interest shall also be charged on the amounts owed by the
Borrower to the Bank pursuant to any judgment entered in favor of
Bank with respect to this Note.
8. PREPAYMENT. If interest hereunder accrues at a floating rate, this
Note may be prepaid in whole or in part without prepayment penalty
or premium. If interest hereunder accrues at a fixed rate, the Loan
may be prepaid, in whole or in part, at any time, provided, that
any prepayment (whether in whole or in part and whether made
voluntarily or because of accelerations) will also be accompanied
by an amount equal to the amount described in Schedule I (the "Make
Whole Premium") provided however that if no such schedule is
attached hereto then the Make Whole Premium shall equal N/A percent
(____%) of the amount of the prepayment if the prepayment occurs
during the first twelve months of the Loan, N/A percent (_____%) of
the amount of the prepayment if the prepayment occurs during the
second twelve months of the Loan (if applicable), N/A percent
(_____%) of the amount of the prepayment if the prepayment occurs
during the third twelve months of the Loan (if applicable) N/A
percent (_____%) of the amount of the prepayment if the prepayment
occurs during the fourth twelve months of the Loan (if applicable)
and N/A percent (_____%) of the amount of the prepayment if the
prepayment occurs during the fifth twelve months of the Loan (if
applicable). If the percentages herein are left blank and no
schedule is attached hereto, then the Make Whole Premium shall be
determined by the Bank in its sole discretion. The Bank's
determination of the Make Whole Premium shall be conclusive and
binding, absent manifest error. All payments received on this Note
may be applied in such order as the Bank in its sole discretion
shall determine.
B. DEFINITIONS. As used herein, the following terms shall have the following
meanings:
1. AFFILIATE. The term "Affiliate" means First Fidelity Bancorporation
and any of its direct and indirect affiliates and subsidiaries.
2. BASE RATE. The term "Base Rate" means the rate of interest
established by the Bank as its reference rate in making loans, and
is not tied to any external rate of interest or index. The rate of
interest charged hereunder shall change automatically and
immediately as of the date of any change in the Base Rate without
notice to the Borrower.
1 of 5
<PAGE>
3. BORROWER. The term "Borrower" means every person or entity that is a
signatory to this Note other than the Bank.
4. LIABILITES. The term "Liabilities" means any and all obligations and
indebtedness of every kind and description of the Borrower owing to the
Bank or to any Affiliate, whether or not under the Loan Documents, and
whether such debts or obligations are primary or secondary, direct or
indirect, absolute or contingent, sole, joint or several, secured or
unsecured, due or to become due, contractual or tortious, arising by
operation of law, by overdraft, or otherwise, or now or hereafter
existing, including, without limitation, principal, interest, fees, late
fees, expenses, attorneys' fees and costs and/or allocated fees and
costs of Bank's in-house legal counsel, that have been or may hereafter
be contracted or incurred.
5. LOAN. The term "Loan" shall mean the principal balance outstanding
hereunder together with any accrued, unpaid interest hereon and any fees
and/or expenses of the Bank payable hereunder.
6. LOAN DOCUMENTS. The term "Loan Documents" means this Note and any and
all credit accommodations, notes, loan agreements, and any other
agreements and documents, now or hereafter existing, creating,
evidencing, guarantying, securing or relating to any or all of the
Liabilities, together with all amendments, modifications, renewals, or
extensions thereof.
7. NOTE. The term "Note" shall mean this installment Note together with
all attachments hereto and all amendments and modifications hereto in
effect from time to time.
8. OBLIGOR. The term "Obligor" means the Borrower and each and every
maker, endorser, guarantor or surety of or for the Liabilities.
C. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to
the Bank that:
1. USE OF PROCEEDS. The proceeds of the Loan will be used only for
business purposes;
2. FINANCIAL STATEMENTS. All financial statements heretofore delivered
by the Borrower to the Bank are true, correct, and complete in all
material respects, fairly represent the Borrower's financial condition
as of the date hereof, disclose all outstanding indebtedness and
obligations of the Borrower and liens and encumbrances against its
properties and assets, and no information has been omitted which would
make the information previously furnished misleading or incorrect in any
material respect. There have been no adverse changes in the Borrower's
financial condition or business since the date of such statements;
3. SUITS AND DEFAULTS. There are no actions, suits, proceedings, or
claims pending or threatened against the Borrower or any of its
property; and the Borrower's business is in compliance with all
applicable orders, laws, rules and regulations. The Borrower is not in
default under any agreement to which the Borrower is a party or by which
the Borrower or any of its property is bound, or under any instrument
evidencing any indebtedness of the Borrower, and neither the Borrower's
execution of nor performance under the Loan Documents will create a
default or any lien or encumbrance under any such agreement or
instrument other than a lien or encumbrance in favor of the Bank; and
4. TAX RETURNS AND TAXES. The Borrower has filed all federal, state,
and local tax returns required to be filed and has paid all taxes,
assessments, and governmental charges and levies thereon, including
interest and penalties, except where the same are being contested in
good faith by appropriate proceedings.
D. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees that so long as
there are any outstanding Liabilities, the Borrower shall;
1. FINANCIAL STATEMENTS. Keep and maintain complete and accurate books
and records; permit representatives and/or agents of the Bank full and
complete access to any or all of the Borrower's properties and financial
records, to make extracts from and/or audit the Borrower's books,
records and financial information and to inspect the Borrower's
facilities and properties. The Borrower shall provide to the Bank not
later than ninety (90) days after the end of each fiscal year of the
Borrower, financial information, in form and substance acceptable to the
Bank, for the immediately preceding fiscal year and such other
information respecting the operations, financial or otherwise, of the
Borrower, as the Bank may from time to time reasonably request. The
Borrower shall prepare and timely file all federal, state and local tax
returns required to be filed by the Borrower and shall submit to the
Bank a copy of its federal tax return immediately after filing same with
the Internal Revenue Service;
2. NOTICE OF CERTAIN EVENTS. Promptly give written notice to the Bank of
(i) the occurrence of any event which alone or with notice, the passage
of time, or both, would constitute an Event of Default; (ii) the
commencement of any proceeding or litigation which, if adversely
determined, would adversely affect its financial condition or ability to
conduct its business; and (iii) the formation of any subsidiary of the
Borrower after the date of this Note, which notice shall be accompanied
by the resolution of the Board of Directors of such subsidiary
authorizing such subsidiary to execute a guaranty of the Liabilities,
satisfactory in form and substance to the Bank, together with such
guaranty duly executed by such subsidiary;
3. PRESERVATION OF PROPERTY; INSURANCE. Keep and maintain, and require
its subsidiaries to keep and maintain, all of its and their property and
assets in good order and repair, maintain extended coverge, general
liability, business interruption, hazard, property and other insurance
in amounts deemed sufficient by the Bank and as is customary for
businesses similar to the Borrower's business, and deliver to the Bank
certificates of all such insurance in effect; and cause all such
policies covering any collateral for the Liabilities and business
interruption to contain loss payee endorsements in favor of the Bank and
to be subject to cancellation or reduction in coverage only upon 30 days
prior written notice thereof to the Bank at its address set forth in
this Note;
4. TAXES. Pay and discharge, and require its subsidiaries to pay and
discharge, when due, all taxes, assessments or other governmental
charges imposed on them or any of their respective properties, unless
the same are currently being contested in good faith by appropriate
proceedings and adequate reserves are maintained therefor;
5. ENVIRONMENTAL LIENS; REMOVAL OF HAZARDOUS SUBSTANCE. In the event
that there shall be filed a lien against any property of the Borrower by
any jurisdiction, political subdivision, agency, or instrumentality
thereof, arising from an act or omission of the Borrower, resulting in
the discharging of hazardous substances or wastes into the atmosphere or
waters, or onto lands, then, within thirty (30) days from the date that
the Borrower is given notice that the lien has been placed against such
property, or within such shorter period of time in the event that such
jurisdiction, political subdivision, agency, or instrumentality thereof
has commenced steps to cause such property to be sold pursuant to the
lien, the Borrower shall either (i) pay the claim and remove the lien
from the applicable property or (ii) furnish to such jurisdiction,
political subdivision, agency, or instrumentality thereof that imposed
the lien, a bond satisfactory to such jurisdiction, political
subdivision, agency, or instrumentality thereof in the amount of the
claim out of which the lien arises. Should the Borrower cause or permit
any act or omission resulting in damage to the natural resources without
having obtained a permit issued by the appropriate governmental
authorities, the Borrower shall promptly clean up same in accordance
with all applicable federal, state, and local statutes, laws,
ordinances, rules and regulations; and
2 of 5
<PAGE>
6. ADDITIONAL AFFIRMATIVE COVENANTS. The Borrower further affirmatively
covenants and agrees that it shall perform any other affirmative
covenants set forth in the Loan Documents to which the Borrower is a
party.
E. NEGATIVE COVENANTS. So long as any Liabilities are outstanding, the
Borrower shall not, without the prior written consent of the Bank;
1. PAYMENT OF DIVIDENDS; REDEMPTION OF STOCK. Pay any dividends, make
any withdrawal from its capital, make any other distributions and/or
repurchase, redeem, or otherwise acquire or set aside reserves to
acquire, any of its outstanding stock, partnership or other equity
interests, except for such actions by any subsidiary in favor of the
Borrower;
2. GUARANTY OBLIGATIONS. Become a guarantor, surety, obligor or
otherwise become directly, indirectly or contingently liable
for the debts or obligations of others, except for the benefit of the
Bank or its Affiliates, and except as an endorser of checks or drafts
negotiated in the ordinary course of the Borrower's business;
3. TANGIBLE NET WORTH. Permit its Tangible Net Worth at any time to be
less than ninety percent (90%) of its Tangible Net Worth for the
immediately preceding fiscal year. "Tangible Net Worth" is defined,
at any date, as (i) the aggregate amount at which all assets of the
Borrower would be shown on a balance sheet at such date after
deducting capitalized research and development costs, capitalized
interest, debt discount and expense, goodwill, patents, trademarks,
copyrights, franchises, licenses, amounts owing from officers,
directors, shareholders, principals, partners or affiliates of the
Borrower and any Investments in any entities owned or controlled by
any of the foregoing, and such other assets as are properly
classified as "Intangible assets" less (ii) the aggregate amount of
indebtedness, liabilities (including tax and other proper accruals)
and reserves of the Borrower (excluding Approved Subordinated Debt);
"Approved Subordinated Debt" means any indebtedness for borrowed
money that is permitted by this Note and that is owing on the date
hereof or is subordinated to the Liabilities on terms approved in
writing by the Bank; and
4. ADDITIONAL NEGATIVE COVENANTS. The Borrower and its subsidiaries
shall not undertake any activities prohibited by any negative
covenant set forth in the Loan Documents to which the Borrower is a
party.
F. EVENTS OF DEFAULT. The occurrence of any one of the following shall
constitute an event of default ("Event of Default") under this Note:
1. BREACH. A breach by any Obligor of any term, obligation, provision,
covenant, representation or warranty, arising under (i) this Note,
including, without limitation, failure to make any payment when due
hereunder or under any other Loan Document; (ii) any present or
future agreement with or in favor of the Bank and/or any Affiliate,
including the failure to make any payment when due; or (iii) any
present or future agreement or instrument for borrowed money or other
financial accommodations with any person or entity;
2. BANKRUPTCY; INSOLVENCY. (i) Any Obligor commences any bankruptcy,
reorganization, debt arrangement, or other case or proceeding under
the United States Bankruptcy Code or under any similar foreign,
federal, state, or local statute, or any dissolution or liquidation
proceeding, or makes a general assignment for the benefit of
creditors, or takes any action for the purpose of effecting any of
the foregoing; (ii) any bankruptcy, reorganization, debt arrangement,
or other case or proceeding under the United States Bankruptcy Code or
under any similar foreign, federal, state or local statute, or any
dissolution or liquidation proceeding, is involuntarily commenced
against or in respect of any Obligor or an order for relief is
entered in any such proceeding; (iii) the appointment, or the filing
of a petition seeking the appointment, of a custodian, receiver,
trustee, or liquidator for any Obligor or any of its property, or the
taking of possession of any part of the property of any Obligor at
the instance of any governmental authority; or (iv) any Obligor
becomes insolvent (however defined), is generally not paying its
debts as they become due, or has suspended transaction of its usual
business;
3. DEATH; REORGANIZATION. The death, dissolution, merger, consolidation,
or reorganization of any Obligor;
4. MATERIAL MISSTATEMENT. Any statement, representation or warranty made
in or pursuant to this Note or any other Loan Document or to induce
the Bank to enter into this Note shall prove to be untrue or
misleading in any material respect;
5. DEBT, LIENS, LOANS, LEASE PAYMENTS. Any Obligor (i) incurs or assumes
additional debt other than debt to the Bank and/or an Affiliate
and/or trade debt in the ordinary course of its business; (ii) makes
any loans or advances to officers, directors, shareholders, principals,
partners or affiliates of the Borrower or any Obligor; (iii) creates,
permits or grants any lien or security interest in any of its property
on which the Bank has a lien and/or security interest or (iv) incurs,
creates or assumes any commitment, either directly or indirectly, for
rent, service fees or charges or finance charges under any lease,
rental, sale-lease back or other agreement for use of the property of
any person and/or entity other than the Borrower;
6. ENTRY OF JUDGMENT. The filing, entry, or issuance of any judgment,
execution, garnishment, attachment, distraint, or lien against any
Obligor or its property; the entry of any order enjoining or
restraining any Obligor and/or restraining or seizing any property of
any Obligor; or
7. TRANSFER OF ASSETS. Any Obligor transfers or sells all or
substantially all of its assets, without the prior written consent of
the Bank.
G. REMEDIES.
1. ACCELERATION OF LIABILITIES; RIGHTS OF BANK. Upon the occurrence of
an Event of Default described in Section F hereof (other than any
Event of Default described in Paragraph F.2.), at the Bank's sole
option, the Bank's commitment, if any, to make any further advances
or loans to the Borrower under any Loan Document shall terminate and
the Loan and all other Liabilities shall immediately become due and
payable in full, all without protest, presentment, demand or further
notice of any kind to the Borrower or any other Obligor, all of which
are expressly waived. Upon the occurrence of an Event of Default
described in Paragraph F.2. hereof, immediately and automatically,
the Bank's commitment, if any, to make any further advances or loans
to the Borrower under any Loan Document, shall terminate, and the
Loan and all other Liabilities shall immediately become due and
payable in full, all without protest, presentment, demand or further
notice of any kind to the Borrower or any other Obligor, all of which
are expressly waived. Upon and following an Event of Default, the
Bank, at its option, may exercise any and all rights and remedies it
has under this Note, the other Loan Documents and under applicable
law, including, without limitation, the right to charge and collect
interest on the principal portion of the Liabilities at the Default
Rate, which rate shall, at the Bank's option, apply upon and after an
Event of Default, maturity, whether by acceleration or otherwise, and
the entry of judgment with respect to any or all of the Liabilities.
Upon and following an Event of Default hereunder, the Bank may proceed
to protect and enforce the Bank's rights under any Loan Document
and/or under applicable law by action at law, in equity, or other
appropriate proceeding, including, without limitation, an action for
specific performance to enforce or aid in the enforcement of any
provision contained herein or in any other Loan Document.
3 of 5
<PAGE>
2. RIGHT OF SET-OFF. If any of the Liabilities shall be due and
payable or any one or more Events of Default shall have occurred,
whether or not the Bank shall have made any demand under this Note
and regardless of the adequacy of any collateral for the
Liabilities or other means of obtaining repayment of the
Liabilities, the Bank shall have the right, without notice to the
Borrower or to any other Obligor, and is specifically authorized
hereby to set-off against and apply to the then unpaid balance of
the Liabilities any items or funds of the Borrower and/or any
Obligor held by the Bank or any Affiliate, any and all deposits
(whether general or special, time or demand, matured or unmatured)
or any other property of the Borrower and/or any Obligor,
including, without limitation, securities and/or certificates of
deposit, now or hereafter maintained by the Borrower and/or any
Obligor for its or their own account with the Bank or any Affiliate,
and any other indebtedness at any time held or owing by the Bank or
any Affiliate to or for the credit or the account of the Borrower
and/or any Obligor, even if effecting such set-off results in a
loss or reduction of Interest or the Imposition of a penalty
applicable to the early withdrawal of time deposits. For such
purpose, the Bank shall have, and the Borrower hereby grants to the
Bank, a first lien on and security interest in such deposits,
property, funds, and accounts, and the proceeds thereof. The
Borrower further authorizes any Affiliate, upon and following the
occurrence of an Event of Default, at the request of the Bank, and
without notice to the Borrower, to turn over to the Bank any
property of the Borrower, including, without limitation, funds and
securities held by the Affiliate for the Borrower's account, and to
debit any deposit account maintained by the Borrower with such
Affiliate (even if such deposit account is not then due or there
results a loss or reduction of interest or the Imposition of a
penalty in accordance with law applicable to the early withdrawal
of time deposits), in the amount requested by the Bank up to the
amount of the Liabilities, and to pay or transfer such amount or
property to the Bank for application to the Liabilities.
3. REMEDIES CUMULATIVE; NO WAIVER. The rights, powers and remedies
hereunder and under the other Loan Documents are cumulative and
concurrent, and are not exclusive of any other rights, powers or
remedies available to the Bank. No failure or delay on the part of the
Bank in the exercise of any right, power or remedy shall operate as a
waiver thereof, nor shall any single or partial exercise of any right,
power or remedy preclude any other or further exercise thereof, or the
exercise of any other right, power or remedy.
4. CONTINUING ENFORCEMENT OF THE LOAN DOCUMENTS. If, after receipt of
any payment of all or any part of the Note or the Liabilities, the Bank
is compelled or agrees, for settlement purposes, to surrender such
payment to any person or entity for any reason, then this Note and the
other Loan Documents shall continue in full force and effect or be
reinstated, as the case may be. The provisions of this Paragraph shall
survive the termination of this Note and the other Loan Documents and
shall be and remain effective notwithstanding the payment of the
Liabilities, the cancellation of the Note, the release of any security
interest, lien or encumbrance securing the Liabilities or any other
action which the Bank may have taken in reliance upon its receipt of
such payment.
H. MISCELLANEOUS.
1. WAIVER OF DEMAND. The Borrower (i) waives demand,
presentment; protest, notice of protest, and notice of dishonor of
this Note; (ii) consents to any and all extensions of time,
renewals, waivers, modifications that may be granted by the Bank
with respect to the payment or other provisions of this Note; and
(iii) agrees that makers, endorsers, guarantors, and sureties for
the Indebtedness evidenced hereby may be added or released without
notice to the Borrower and without affecting the Borrower's
liability hereunder. The liability of the Borrower hereunder shall
be absolute and unconditional.
2. NOTICES. Notices and communications under this Note shall be
in writing and shall be given by (i) hand-delivery, (ii) first
class mail (postage prepaid), or (ii) reliable overnight commercial
courier (charges prepaid) to the addresses listed in this Note.
Notice by overnight courier shall be deemed to have been given and
received on the date scheduled for delivery. Notice by mail shall
be deemed to have been given and received three (3) calendar days
after the date first deposited in the United States Mail. Notice by
hand-delivery shall be deemed to have been given and received upon
delivery. A party may change its address by giving written notice
to the other party as specified herein.
3. COSTS AND EXPENSES. Whether or not the transactions
contemplated by the Loan Documents are fully consummated, the
Borrower shall promptly pay (or reimburse, as the Bank may elect)
all costs and expenses which the Bank has incurred or may hereafter
incur in connection with the negotiation, preparation,
reproduction, interpretation, perfection, protection of collateral,
administration and enforcement of this Note and the other Loan
Documents, the collection of all amounts due under this Note and
the other Loan Documents, and all amendments, modifications,
consents or waivers, if any, to the Loan Documents. The Borrower's
reimbursement obligations under this Paragraph shall survive any
termination of this Note or any other Loan Document.
4. PAYMENT DUE ON A DAY OTHER THAN A BUSINESS DAY. If any
payment due or action to be taken under this Note or any other Loan
Document falls due or is required to be taken on a day that the
Bank is not open for business, such payment or action shall be made
or taken on the next succeeding day when the Bank is open for
business and such extended time shall be included in the
computation of interest.
5. GOVERNING LAW. This Note shall be construed in accordance
with and governed by the substantive laws of the State of New
Jersey without reference to conflict of laws principles.
6. INTEGRATION; AMENDMENT. This Note and other Loan Documents constitute
the sole agreement of the parties with respect to the subject matter
hereof and thereof and supersede all oral negotiations and prior
writings with respect to the subject matter hereof and thereof. No
amendment of this Note, and no waiver of any one or more of the
provisions hereof shall be effective unless set forth in writing and
signed by the parties hereto.
7. SUCCESSORS AND ASSIGNS. This Note (i) shall be binding upon
the Borrower and the Bank and, where applicable, their respective
heirs, executors, administrators, successors and permitted assigns,
and (ii) shall inure to the benefit of the Borrower and the Bank
and, where applicable, their respective heirs, executors,
administrators, successors and permitted assigns; provided,
however, that the Borrower may not assign its rights or obligations
hereunder or any interest herein without the prior written consent
of the Bank, and any such assignment or attempted assignment by the
Borrower shall be void and of no effect with respect to the Bank.
The Bank may from time to time sell or assign, in whole or in part,
or grant participations in the Loan and/or the Note and/or the
obligations evidenced thereby. The Borrower authorizes the Bank to
provide information concerning the Borrower to any prospective
purchaser, assignee or participant.
8. SEVERABILITY AND CONSISTENCY. The illegality, unenforceability or
inconsistency of any provision of this Note or any instrument or
agreement required hereunder shall not in any way affect or impair the
legality, enforceability or consistency of the remaining provisions of
this Note or any instrument or agreement required hereunder. The Loan
Documents are intended to be consistent. However, in the event of any
inconsistencies among any of the Loan Documents, such inconsistency
shall not affect the validity or enforceability of any Loan Document.
The Borrower agrees that in the event of any inconsistency or ambiguity
in any of the Loan Documents, the Loan Documents shall not be construed
against any one party but shall be interpreted consistent with the
Bank's policies and procedures.
4 of 5
<PAGE>
9. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. The Borrower irrevocably
appoints each and every owner, partner and/or officer of the Borrower as
its attorneys upon whom may be served, by regular or certified mail at
the address set forth in this Note, any notice, process or pleading in any
action or proceeding against it arising out of or in connection with this
Note or any of the other Loan Documents. The Borrower hereby consents and
agrees that (i) any action or proceeding against it may be commenced and
maintained in any court within the State of New Jersey or in the United
States District Court for the District of New Jersey by service of
process on any such owner, partner and/or officer and (ii) the courts of
the State of New Jersey and the United States District Court for the
District of New Jersey shall have jurisdiction with respect to the
subject matter hereof and the person of the Borrower and all collateral
for the Liabilities. The Borrower agrees that any action brought by the
Borrower shall be commenced and maintained only in a court in the federal
judicial district or county in which the Bank has its principal place of
business in New Jersey.
10. JOINT AND SEVERAL LIABILITY. In the event that the Borrower consists of
more than one person or entity, the Liabilities of each such person or
entity shall be joint and several and the word "Borrower" means each of
them, any of them and/or all of them.
11. JUDICIAL PROCEEDINGS; WAIVERS.
THE BORROWER AND THE BANK ACKNOWLEDGE AND AGREE THAT (i) ANY SUIT,
ACTION OR PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM, BROUGHT OR INSTITUTED
BY THE BANK OR THE BORROWER OR ANY SUCCESSOR OR ASSIGN OF THE BANK OR THE
BORROWER, ON OR WITH RESPECT TO THIS NOTE OR ANY OTHER LOAN DOCUMENT OR
THE DEALINGS OF THE PARTIES WITH RESPECT HERETO, OR THERETO, SHALL BE
TRIED ONLY BY A COURT AND NOT BY A JURY AND EACH PARTY WAIVES THE RIGHT
TO TRIAL BY JURY; (ii) EACH WAIVES ANY RIGHT IT MAY HAVE TO CLAIM
OR RECOVER, IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN,
OR IN ADDITION TO, ACTUAL DAMAGES; AND (iii) THIS SECTION IS A
SPECIFIC AND MATERIAL ASPECT OF THIS NOTE AND THE BANK WOULD NOT EXTEND
CREDIT TO THE BORROWER IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT
A PART OF THIS NOTE.
IN WITNESS WHEREOF, the Borrower has executed and delivered to the Bank this
Note, as of the day and year first above written.
- - ------------------------------------ ------------------------------------
Name: Name:
Address: --------------------------- Address: ---------------------------
--------------------------- ---------------------------
Soft-Com, Inc.
-----------------------------------
Corporation or Partnership Name
By: /s/ John Perri
------------------------------
Name: John Perri
Title: President
Address: 140 West 22nd Street
--------------------------
New York, New York 10011
--------------------------
First Fidelity Bank, N.A., New Jersey
Address: 550 Broad Street 5th fl.
----------------------------
Newark, NJ 07102
----------------------------
5 of 5
<PAGE>
Exhibit 21.1
CTI GROUP (HOLDINGS) INC.
List of Subsidiaries
as of March 31, 1997
Name State of Incorporation
- - -------- ------------------------------
CTI Delaware Holdings Inc. Delaware
CTI Data Solutions (USA) Inc. Delaware
CTI Soft-Com Inc. Delaware
Telephone Budgeting Systems Inc. New York
Plymouth Communications Inc. Delaware
Name Country
- - --------- ---------------
CTI Data Solutions (International) Inc. United Kingdom
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
CTI Group (Holdings), Inc.
Valley Forge, Pennsylvania
We have audited the accompanying consolidated balance sheets of CTI GROUP
(HOLDINGS), INC. AND SUBSIDIARIES as of March 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of CTI GROUP (HOLDINGS), INC. AND SUBSIDIARIES at March 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
ZELENKOFSKE AXELROD AND CO., CPA'S, INC.
Jenkintown, Pennsylvania
July 25, 1997, except for
Note 14 as to which the
date is August 11, 1997)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 105700
<SECURITIES> 0
<RECEIVABLES> 714250
<ALLOWANCES> 65000
<INVENTORY> 42360
<CURRENT-ASSETS> 873740
<PP&E> 642360
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0
0
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