As filed with the Securities and Exchange Commission on October 2, 1996
Registration No. 333-11045
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
International Telecommunication Data Systems, Inc.
(Exact Name Of Registrant As Specified In Its Charter)
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Delaware 7371 06-12959
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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969 High Ridge Road, Suite 205, Stamford, Connecticut 06905 (203) 329-3300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
CHARLES L. BAKES
President and Chief Executive Officer
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
969 High Ridge Road, Suite 205
Stamford, Connecticut 06905 (203) 329-3300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
JOHN A. BURGESS, ESQ.
JOHN H. CHORY, ESQ. BARBARA L. BECKER, ESQ.
Hale and Dorr Chadbourne & Parke LLP
60 State Street 30 Rockefeller Plaza
Boston, Massachusetts 02109 New York, NY 10112
(617) 526-6000 (212) 408-5100
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such
State.
Subject to Completion, dated October 2, 1996
PROSPECTUS
2,666,667 Shares
[ITDS LOGO]
Common Stock
Of the 2,666,667 shares of Common Stock, par value $.01 per share, of
International Telecommunication Data Systems, Inc. ("ITDS" or the "Company"),
2,000,000 are being offered by the Company and 666,667 are being offered by the
Selling Stockholders. See "Principal and Selling Stockholders". The Company will
not receive any of the proceeds from the sale of shares of Common Stock by the
Selling Stockholders. Prior to this offering, there has been no public market
for the Common Stock. It is currently estimated that the initial public offering
price will be between $14.00 and $16.00 per share. For factors to be considered
in determining the initial public offering price, see "Underwriting". The Common
Stock has been approved for quotation on the Nasdaq National Market under the
symbol "ITDS".
See "Risk Factors" beginning on page 6 for a discussion of factors that
should be considered by prospective purchasers of the Common Stock offered
hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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====================================================================================
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions (1) Company (2) Stockholders
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Per Share $ $ $ $
Total (3) $ $ $ $
====================================================================================
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933. See "Underwriting".
(2) Before deducting estimated expenses of $750,000 payable by the
Company.
(3) The Company and the Selling Stockholders have granted the Underwriters
30-day options to purchase up to an aggregate of 400,000 additional
shares of Common Stock on the same terms and conditions as set forth
above solely to cover over-allotments, if any. If such options are
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholders
will be $ , $ , $ and $ , respectively. See "Underwriting".
The shares of Common Stock offered by this Prospectus are offered severally
by the Underwriters subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
delivery of certificates for the shares will be made at the offices of Lehman
Brothers Inc., New York, New York, on or about , 1996.
Lehman Brothers
Cowen & Company
, 1996.
<PAGE>
[Picture of Globe in night sky
Perspective of flat plane disappearing in distance]
[ITDS logo]
INTERNATIONAL
TELECOMMUNICATION
DATA SYSTEMS
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
[Photograph depicting use of ITDS Point of Sale product at remote location]
Provided to users as a complete package, the ITDS Point Of Sale product can
be installed at a carrier's home office, a mall kiosk, or on a remote laptop
computer -- virtually anywhere that subscribers demand sales, service and
activations.
[Text Representation of Chart]
(Home & Roam
Switch Call Billing Records) ITDS 10X(R) Subscriber
MTSO ----> Collector -------------------> Data Base
|
|
|
|
- ---------------------------------------------------------------------------
| | | | | | | | | |
SwitchLink | | CreditLink | | Payment | | 10XArchive
Provisioning | | | | | Options | | CD/ROM
| | | | | | | |
| | | Point | | | |
Debit/Threshold | | Of | |InventoryScan |
Billing* | | Sale | | |
| | | | | | |
| | | | | | |
General Ledger | | | Collections | 10XWrite
Interface | | | Module | Report Writer
| | | | |
| ------ -------------------------------------
| | | | | |
| | | | | |
| | | | | |
Client Credit Credit ITDS | ACH Bank
Accounting Bureau Cards PayScan | Draft
System |
Direct
Invoice
* Under Development
[Photograph depicting use of ITDS Point of Sale product at Kiosk location]
Designed to reduce the amount of keystrokes by sales clerks, ITDS' fully
integrated Point Of Sale system is an intelligent sales processing system.
[Photo of Globe] INNOVATION, QUALITY, AND SERVICE EXCEEDING EXPECTATIONS
Innovation, Quality, and Service Exceeding Expectations is ITDS' corporate
mission statement. These components form the foundation upon which ITDS' staff
relies in order to meet the challenges of a diverse world-wide telecommunication
revolution.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. Except as otherwise noted herein, all information contained
in this Prospectus (i) reflects the reincorporation of the Company from a
Connecticut corporation to a Delaware corporation in September 1996, the
associated changes in the Company's charter and by-laws and the related
restatement of the Company's capital stock, which relate to the retirement of
the Company's Class A and Class B Preferred Stock and have the effect of an
800-for-1 stock split, (ii) reflects the conversion of all outstanding shares of
the Company's Series C Convertible Preferred Stock (the "Series C Convertible
Preferred Stock") to Common Stock upon the closing of this offering, (iii)
reflects the exercise of all of the outstanding warrants of the Company (the
"Warrants") into shares of Common Stock prior to the closing of this offering
(collectively, with items (i) and (ii), the "Recapitalization"), and (iv)
assumes no exercise of the Underwriters' over-allotment options.
The Company
ITDS provides comprehensive transactional billing and management information
solutions to providers of wireless, long distance and satellite
telecommunications services. The Company uses its robust and flexible
proprietary software technology to develop billing solutions which address
customer requirements as they evolve, regardless of market segment, geographic
area or mix of network features or billing options. The Company typically
provides its services to customers under exclusive contracts with terms ranging
from three to four years, and customers are billed monthly on a per-subscriber
basis. As a result, substantially all of the Company's revenue is recurring in
nature, and increases as a provider's subscriber base grows.
In recent years, the telecommunications services industry has experienced
rapid growth and dramatic change. Over the past decade, the number of cellular
subscribers has increased 58% on a compound annual basis. Deregulation and the
introduction of new technologies, such as personal communication services (PCS)
and satellite communications, have spurred the introduction of new entrants and
increased competitive pressures across the telecommunications services market.
Markets that were once rigidly segmented by service within defined geographic
areas are converging into a single telecommunications market, which includes
both traditional service providers and a variety of new participants. Because of
these competitive pressures and the proliferation of service features and
pricing options within the telecommunications services industry, the billing
function is continuing to evolve from primarily a service support function to a
marketing and revenue enhancement device used to differentiate the increasingly
fungible services offered by providers. Service providers need billing and
management information solutions which (i) enable them to differentiate
themselves quickly and efficiently in a crowded market; (ii) integrate
seamlessly with their corporate management information services; and (iii) offer
flexibility and reliability as critical components of subscriber relations,
communication and retention.
Driven by the requirements of the telecommunications services market, the
Company's revenues have increased rapidly in recent years from approximately
$3.1 million in 1993 to $6.3 million and $10.8 million in 1994 and 1995,
respectively. For the 12-month period ended June 30, 1996, recurring revenues
accounted for over 93.8% of total revenues, and 80.5% of the Company's revenue
was generated by companies which have been customers for at least one year.
The Company's advanced ITDS 10X system forms the foundation for its
integrated suite of applications that provide not only subscriber billing and
service support, but also the means to automate subscriber activation,
remittance processing, collections, data retrieval and reporting, electronic
funds transfer, credit management, inventory management and data archiving. The
Company's software and services allow its customers to develop and support
innovative rate and feature offerings without the delay and cost associated with
reconfiguring their billing and information system; to identify and respond to
subscriber demands through analysis of billing and subscriber databases; to
reduce costs with accurate and timely receivables information; and to manage the
subscriber relationship in a comprehensive and cost-effective manner.
The Company's solutions are implemented for its customers by highly
experienced teams with expertise in meeting the transactional billing
requirements of telecommunications services providers. The Company's software is
installed at a customer site to interface directly with the customer's systems
and generate relevant billing and other data, as well as to support a wide range
of transactional billing and subscriber management functions. The
3
<PAGE>
Company processes billing information generated through the use of its software
systems, eliminating the need for customers to maintain their own "back-office"
data processing operations.
The Company intends to leverage its established technology and customer base
(i) to expand sales to wireless telecommunications providers, including larger
service providers and providers of such emerging services as PCS and satellite;
(ii) to offer a complete transactional billing solution to providers in other
segments of the telecommunications services market, such as wireline and data,
Internet and other enhanced services, as well as new entrants, such as utilities
and cable companies; and (iii) to expand internationally, where providers face
the same need for comprehensive solutions as those in the U.S. The Company
intends to meet these objectives by drawing on the expertise of its existing
organization, as well as by building a dedicated direct sales organization and
developing strategic relationships with equipment vendors and other key industry
participants. The Company believes that these efforts, coupled with the
capabilities of its existing software and the introduction of new system
enhancements, will permit significant continued growth in its target
marketplaces.
The Company was incorporated as a Connecticut corporation in June 1990 and
was reincorporated in Delaware in September 1996. The Company's principal
executive office is located at 969 High Ridge Road, Suite 205, Stamford,
Connecticut 06905, and its telephone number is (203) 329-3300.
ITDS 10X, SwitchLink, CreditLink and PayScan are trademarks of ITDS. All
other trademarks or trade names referred to in this Prospectus are the property
of their respective owners.
Risk Factors
For a discussion of considerations relevant to an investment in the Common
Stock, see "Risk Factors."
The Offering
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Common Stock offered by the Company. 2,000,000 shares
Common Stock offered by the Selling Stockholders 666,667 shares
Common Stock to be outstanding after the offering 8,212,504 shares (1)
Use of proceeds by the Company For general corporate purposes, including the funding
of working capital and growth, repayment of certain
indebtedness and potential acquisitions. See "Use of
Proceeds."
Nasdaq National Market symbol ITDS
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(1) Includes the number of shares outstanding as of September 30, 1996 and
18,333 shares of Common Stock to be issued to an executive officer of the
Company upon completion of this offering. See "Management--Employment
Agreement." Excludes 400,000 shares of Common Stock issuable upon the
exercise of outstanding options as of September 30, 1996 with a weighted
average exercise price of $13.75 per share, and an additional 553,232 and
200,000 shares of Common Stock reserved for issuance under the Company's
1996 Stock Incentive Plan and 1996 Employee Stock Purchase Plan,
respectively.
4
<PAGE>
Summary Financial Information
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Six Months
Year Ended December 31, Ended June 30,
------------------------ -----------------
1993 1994 1995 1995 1996
----- ----- ------ ------ -------
(in thousands, except per share data)
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Statements of Operations Data:
Revenue $3,146 $6,324 $10,821 $4,886 $7,865
Operating income 197 1,106 1,608 894 1,932
Income before extraordinary item (1) (82) 708 826 467 994
Per common share data (2):
Pro forma income before extraordinary item .13 .07 .16
Extraordinary loss (.03) (.03) --
Pro forma net income .10 .04 .16
Shares used in determining pro forma net
income per share 6,166 6,166 6,166
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As of June 30, 1996
-------------------------
As of December 31, 1995 Actual As Adjusted (3)
------------------------ ----- ----------------
(in thousands)
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Balance Sheet Data:
Cash, cash equivalents and short term
investments $1,468 $1,372 $26,108
Working capital 1,210 2,256 27,213
Total assets 5,434 6,500 31,236
Long-term debt and capital lease obligations 2,437 2,482 491
Preferred Stock--Class C 640 640 --
Stockholders' equity 379 1,312 28,900
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(1) In 1995, the Company experienced an extraordinary loss of $224,000 (net of
$158,000 tax benefit) in connection with the refinancing of long-term debt.
(2) Computed on the basis described in Note 10 of the Notes to Financial
Statements.
(3) Adjusted to give effect to the sale by the Company of 2,000,000 shares of
Common Stock offered hereby (at an assumed initial public offering price
of $15.00 per share and after deducting the estimated underwriting
discount and offering expenses) and the application of the net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating an investment in the Common
Stock offered by this Prospectus.
Rapidly Changing Telecommunications Market
Over the last decade, the market for telecommunications services has been
characterized by rapid technological developments, evolving industry standards,
dramatic changes in the regulatory environment and frequent new product
introductions. The Company's success will depend, in large part, upon its
ability to enhance its existing products and services, and to introduce new
products and services, which will respond to these market requirements as they
evolve. To date, substantially all of the Company's revenues are attributable to
wireless customers. While the Company believes that systems and services which
it offers to address the needs of the wireless market will also permit it to
attract customers in other segments of the telecommunications services industry,
there can be no assurance that it will be able to do so. In addition,
technologies, services or standards may be developed which could require
significant changes in the Company's business model, development of new
products, or provision of additional services, at substantial cost to the
Company and which may also result in the introduction of additional competitors
into the marketplace. Furthermore, if the overall market for telecommunications
services fails to evolve and converge in the manner contemplated by the Company
or grows more slowly than anticipated, or if the Company's products and services
fail in any respect to achieve market acceptance, there could be a material
adverse effect on the Company's business, financial condition and results of
operations. The telecommunications industry is also characterized by significant
and rapid strategic alignments. Merger or consolidation of one or more
telecommunications services providers could result in the loss to the Company of
customers or sales opportunities, and there can be no assurance that new
entrants to the market will become customers of the Company.
Management of Growth
The Company has experienced rapid growth and intends to continue to
aggressively expand its operations. The Company's total revenues have increased
from $3.1 million in 1993 to $10.8 million in 1995, and the growth in the size
and complexity of its business, as well as its customer base, has placed and is
expected to continue to place significant demands on the Company's
administrative, operational and financial personnel and systems. Additional
expansion by the Company may further strain the Company's management, financial
and other resources. There can be no assurance that the Company's systems,
procedures, controls and existing space will be adequate to support expansion of
its operations. The Company's future operating results will depend on the
ability of its officers and key employees to manage changing business conditions
and to implement and improve its operational, financial control and reporting
functions. If the Company is unable to respond to and manage expansion of its
operations, the quality of the Company's services, its ability to retain key
personnel and its business, financial condition and results of operations could
be materially adversely affected.
In addition, the number of the Company's employees has increased from 26 as
of January 1993 to 169 as of July 1996. The Company anticipates that continued
growth will require it to recruit and hire a substantial number of new
development, managerial, finance, sales and marketing support personnel. The
Company is currently in the process of establishing and hiring personnel for its
marketing and sales operations. There can be no assurance that the Company will
be successful in hiring or retaining any of the foregoing personnel. The
Company's ability to compete effectively and to manage future growth, if any,
will depend on its ability to improve operational systems and to expand, train,
motivate and manage its workforce.
New Products and Rapid Technological Change
The market for the Company's products and services is characterized by rapid
technological change. The Company believes that its future success depends in
part upon its ability to enhance its current products and services and develop
new products and services that address the increasingly complex needs of its
customers. In addition, the introduction by third parties of new products or
services could render the Company's existing products and services obsolete or
unmarketable. The Company's ability to anticipate changes in technology and
successfully develop and introduce new or enhanced products incorporating such
technology on a timely basis will be significant factors in its ability to
remain competitive. There can be no assurance that the Company will complete on
a timely or successful basis the development of new or enhanced products or
services or successfully manage transitions from one product release to the
next, that the Company will not encounter difficulties or delays in the
introduction
6
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of new or enhanced products, or that defects will not be found in such new or
enhanced products after installation, resulting in a loss of, or delay in,
market acceptance. In particular, the Company is currently developing a series
of enhancements to its existing software system, including incorporation of a
Windows 95 compatible user interface, incorporation of an Oracle relational
database management system, and support of Unix based file servers. The Company
believes that these enhancements will permit the Company to compete effectively
as technology evolves and facilitate its ability to address the requirements of
larger telecommunications services providers. If the Company is unable to
introduce these new enhancements on a timely basis, or such enhancements result
in the introduction of "bugs" or other performance impairments in the Company's
systems, the Company's business, financial condition and results of operations
could be materially adversely affected, and its ability to expand its sales
activities could be significantly limited.
Dependence on Cellular Telephone Industry
Although the Company's products have been designed to adapt to a variety of
current and future technologies, a significant majority of its revenues to date
have been generated by sales of its systems and services to service providers in
the cellular telephone industry. A decrease in the number of cellular service
subscribers served by the Company's customers could result in lower revenues for
the Company. Although the cellular market has experienced substantial growth in
the number of subscribers in the past, there can be no assurance that such
growth will be sustained. In addition, industry reports have indicated that the
average monthly bill per subscriber has decreased in recent years. Such
decreases could result in increased price competition among billing service
providers. Furthermore, any adverse development in the cellular telephone
industry could have a material adverse effect on the business, financial
condition and results of operations of the Company. See "Business--Customers."
Reliance On Significant Customers
During the years ended December 31, 1994 and 1995, and the six months ended
June 30, 1996 revenues from The Lincoln Telephone and Telegraph Company and its
affiliated companies represented approximately 13.2%, 11.8% and 17.2% (reflects
the acquisition of Nebraska Cellular by Lincoln Telephone) of the Company's
total revenue, respectively, and the Company's three largest customers
represented 24.0% of its total revenue for the six months ended June 30, 1996.
The Company has long-term contracts with all of its significant customers,
however there can be no assurance that any such customer will renew its contract
with the Company at the end of the contract term or may not seek to terminate
its contract on the basis of alleged contractual defaults or other grounds. Loss
of all or a significant part of the business of any of the Company's substantial
customers would have a material adverse effect on the Company's business,
financial condition and results of operations. Additionally, the acquisition by
a third party of one of the Company's substantial customers could result in the
loss of that customer and have a material adverse effect on the business,
financial condition and results of operations of the Company. See
"Business--Customers" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Expansion of Sales Activities
To date, the Company has sold its products and services primarily through the
efforts of its senior management. The Company's current customers, while
significant to the Company, are relatively small in comparison with many of the
national and multinational telecommunication services providers. In order to
achieve significant long-term growth in revenues and its overall strategic
goals, the Company intends to attract as customers a number of larger
telecommunications services providers. In order to do so, and to expand its
business generally, the Company believes that it must establish a dedicated
sales and marketing organization. While the Company has begun these efforts, the
Company's dedicated sales staff currently includes three persons, and it is
still in the process of hiring sales and marketing personnel. There can be no
assurance that the Company will be able to achieve anticipated expansion of its
business, attract larger telecommunications services providers as customers or
build an efficient and effective sales and marketing organization. In the event
the Company is unable to achieve any one or more of the foregoing goals, the
Company's business, financial condition and results of operations could be
materially adversely affected. See "--Management of Growth."
Dependence on Key Personnel
The Company's performance depends substantially on the performance of its
executive officers and key employees and its long-term success will depend upon
its ability to recruit, retain and motivate highly skilled personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able
7
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to attract, assimilate or retain highly skilled personnel in the future. The
inability to attract and retain the necessary personnel could have a material
adverse effect upon the Company's business, financial condition and results
of operations. Charles L. Bakes, the Company's President and Chief Executive
Officer, Mark D. Spitzer, the Company's Executive Vice President and Chief
Financial Officer, Lewis D. Bakes, the Company's Executive Vice President and
Chief Operating Officer, and David L. Wells, the Company's Executive Vice
President and Chief Information Officer, and certain other executive officers
have been primarily responsible for the development and expansion of the
Company's business. The Company will not maintain any key person insurance
following this offering. The loss of the services of one or more of these
individuals could have a material adverse affect on the Company's business,
financial condition and results of operations. None of Messrs. C. Bakes,
Spitzer, L. Bakes or Wells is subject to employment agreements with the
Company. See "Business--Employees" and "Management."
Competition
The market for billing and management information systems for the
telecommunications services industry is highly competitive and the Company
expects that the high level of growth within the telecommunications services
industry will encourage new entrants, both domestically and internationally, in
the future. The Company competes with independent providers of transactional
systems and services, with the billing services of management consulting
companies and with internal billing departments of telecommunications services
providers. The Company anticipates continued growth in competition in the
telecommunications services industry and consequently the entrance of new
competitors into its market in the future. In addition, merger or consolidation
of telecommunications services providers could result in the loss to the Company
of customers or sales opportunities to competitors.
Many of the Company's current and potential future competitors have
significantly greater financial, technical and marketing resources, generate
higher revenues and have greater name recognition than does the Company. In
addition, many of the Company's competitors have established commercial
relationships or joint ventures with major cellular and other telecommunications
services providers. As a result, the Company's competitors may be able to adapt
more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the promotion and sale of
products than the Company.
Dependence on Proprietary Technology
The Company's success is dependent in part upon its proprietary software
technology. The Company relies on trademark, copyright and trade secret laws,
employee and third-party non-disclosure agreements and other methods to protect
its proprietary rights. There can be no assurance that its agreements with
employees, consultants and others who participate in the development of its
software will not be breached, that the Company will have adequate remedies for
any breach, or that the Company's trade secrets will not otherwise become known
to or independently developed by competitors. Furthermore, there can be no
assurance that the Company's efforts to protect its rights through trademark and
copyright laws will prevent the development and design by others of products or
technology similar to or competitive with those developed by the Company. The
computer technology industry is characterized by frequent and substantial
intellectual property litigation. The Company is not aware of any patent
infringement or any violation of other proprietary rights claimed by any third
party relating to the Company or the Company's products.
The Company's success will depend in part on its continued ability to
obtain and use licensed technology that is important to certain
functionalities of its products. The inability to continue to procure or use
such technology could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Proprietary Technology."
Fluctuations in Quarterly Performance
The Company's revenues and operating results may fluctuate from quarter to
quarter due to a number of factors, including the timing, size and nature of the
Company's contracts; the hiring of additional staff; seasonal variations in
cellular telephone subscriptions; the timing of the introduction and the market
acceptance of new products or product enhancements by the Company or its
competitors; changes in the Company's operating expenses; and fluctuations in
economic and financial market conditions. Fluctuations in quarterly operating
results may result in volatility in the price of the Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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Government Regulation
Currently, the Company's business is not subject to direct government
regulation; however, the Company's existing and potential customers are subject
to extensive regulation. Changes in regulation which adversely affect the
Company's existing and potential customers could have a material adverse effect
on the business, financial condition and results of operations of the Company.
See "Business--Overview of the Communications Industry Background."
Concentration of Stock Ownership
Upon completion of this offering, the present directors, executive officers
and their respective affiliates will beneficially own approximately 52.1% of the
outstanding Common Stock, assuming no exercise of the Underwriters' over
allotment options and approximately 48.5% of the outstanding Common Stock
assuming full exercise of the Underwriters' over allotment options. As a result,
these stockholders will be able to exercise significant influence over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. Such concentration of ownership
may also have the effect of delaying or preventing a change in control of the
Company. See "Description of Capital Stock--Delaware Law and Certain Charter and
By-Law Provisions" and "Principal and Selling Stockholders."
No Prior Public Market; Determination of Offering Price; Possible Volatility
of Stock Price
Prior to this offering, there has been no public market for the Common Stock,
and there can be no assurance that an active public market for the Common Stock
will develop or be sustained after this offering. The initial offering price
will be determined by negotiation between the Company and representatives of the
Underwriters based upon several factors. See "Underwriting" for a discussion of
such factors. The market price of the Common Stock is likely to be highly
volatile and could be subject to wide fluctuations in response to quarterly
variations in operating results, announcements of technological innovations or
new products by the Company or its competitors, changes in financial estimates
by securities analysts, or other events or factors. In addition, the stock
market has experienced significant price and volume fluctuations that have
particularly affected the market price of equity securities of many high
technology companies and that often have been unrelated to the operating
performance of such companies. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
has often been instituted against such a company. Such litigation could result
in substantial costs and a diversion of management's attention and resources,
which would have a material adverse effect on the Company's business, financial
condition and results of operations. These broad market fluctuations may
adversely affect the market price of the Common Stock. See "Underwriting."
Discretionary Use of Unallocated Net Proceeds
The principal purposes of this offering are to increase the Company's equity
capital, to create a public market for the Common Stock, to facilitate future
access by the Company to public equity markets and to provide liquidity for the
Company's existing stockholders. As of the date of this Prospectus, the Company
has no specific plans for the use of a substantial portion of the net proceeds
of this offering. The Company expects to use such unallocated proceeds for
working capital and other general corporate purposes, including potential
acquisitions. Consequently, the Board of Directors and management of the Company
will have significant flexibility in applying the unallocated net proceeds of
this offering. See "Use of Proceeds."
Dilution
Investors participating in this offering will incur an immediate and
substantial dilution in the net tangible book value of the Common Stock from
the initial public offering price. See "Dilution."
Shares Eligible for Future Sale
Sales of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price for
the Common Stock. See "Shares Eligible for Future Sale" and "Description of
Capital Stock."
9
<PAGE>
Certain Anti-Takeover Effect Provisions Affecting Stockholders
The Company's Certificate of Incorporation (the "Certificate of
Incorporation") and By-laws (the "By-laws") provide that any action required or
permitted to be taken by stockholders of the Company must be effected at a duly
called annual or special meeting of stockholders and may not be effected by any
consent in writing, and require reasonable advance notice by a stockholder of a
proposal or director nomination which such stockholder desires to present at any
annual or special meeting of stockholders. Special meetings of stockholders may
be called only by the Chairman of the Board, the Chief Executive Officer or, if
none, the President of the Company or by the Board of Directors. The Certificate
of Incorporation and By-laws provide for a classified Board of Directors, and
members of the Board of Directors may be removed only for cause upon the
affirmative vote of holders of at least two-thirds of the shares of capital
stock of the Company entitled to vote. The Board of Directors will have the
authority, without further action by the stockholders, to fix the rights and
preferences of, and issue shares of, the Company's authorized Preferred Stock.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of any holders of Preferred Stock that may be
issued in the future. The Company has no present plans to issue any shares of
the Company's Preferred Stock. In addition, the Company is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law,
which prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which such stockholder became an "Interested Stockholder" unless
the business combination is approved in a prescribed manner. The application of
Section 203 could have the effect of delaying or preventing a change of control
of the Company. These provisions, and the provisions of the Certificate of
Incorporation and By-laws, may have the effect of deterring hostile takeovers or
delaying or preventing changes in control or management of the Company,
including transactions in which stockholders might otherwise receive a premium
for their shares over then current market prices. In addition, these provisions
may limit the ability of stockholders to approve transactions that they may deem
to be in their best interests. See "Description of Capital Stock--Preferred
Stock" and "--Delaware Law and Certain Charter and By-law Provisions."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,000,000 shares of Common
Stock offered by the Company hereby are estimated to be $27,150,000 ($29,940,000
if the Underwriters' over-allotment options are exercised in full) assuming an
initial public offering price of $15.00 per share, after deducting the estimated
underwriting discount and commission and estimated offering expenses payable by
the Company. The Company will not receive any proceeds from the sale of shares
of Common Stock by the Selling Stockholders. The principal purposes of this
offering are to increase the Company's equity capital, create a public market
for the Common Stock, increase the visibility of the Company in the marketplace,
and facilitate future access by the Company to public equity markets.
The Company expects to use the net proceeds to the Company from this offering
to repay certain outstanding indebtedness and for general corporate purposes,
including funding of working capital and growth. The Company anticipates
applying approximately $1,760,000 to repay in full two outstanding promissory
notes to Connecticut Innovations, Incorporated ("CII"), one dated December 1994,
in the principal amount of $286,394 with an annual interest rate of 10% payable
in 53 monthly installments and the other dated June 1995 in the principal amount
of $1,485,000 with an annual interest rate of 14.5% with interest only payable
through July 1997 and principal and interest payable in 60 monthly installments
beginning August 1997. In addition, pursuant to a Royalty Agreement dated August
16, 1991, as amended, between the Company and CII (the "CII Agreement"), the
Company will make an additional one time payment to CII of $200,000 from the net
proceeds of this offering. The Company will also apply $825,000 of the proceeds
of this offering to repay promissory notes payable to former holders of Class A
and Class B Preferred Stock issued in connection with the Recapitalization.
These notes were issued in September 1996 as merger consideration in connection
with the reincorporation by merger of the Company from a Connecticut corporation
to a Delaware corporation, are interest free and due upon the earlier of
completion of this offering and September 27, 1998. The balance of the proceeds
of this offering will be applied by the Company for general corporate purposes,
including funding of working capital and growth. See "Certain Transactions."
The Company may seek acquisitions of businesses, products and technologies
that are complementary to those of the Company, and a portion of the net
proceeds may be used for such acquisitions. While the Company engages from time
to time in discussions with respect to potential acquisitions, the Company has
no plans, commitments or agreements with respect to any such acquisitions as of
the date of this Prospectus, and there can be no assurances that any such
acquisitions will be made. Pending such uses, the Company intends to invest the
net proceeds from this offering in short-term, investment grade,
interest-bearing instruments. See "Risk Factors--Discretionary Use of
Unallocated Net Proceeds."
DIVIDEND POLICY
In 1994, 1995 and 1996, the Company paid cash dividends to the holders of
Class A Preferred Stock in the aggregate amounts of $22,500, $33,750 and
$36,000, respectively. During 1996, the Company will have paid cash dividends in
the aggregate amount of approximately $45,511 to the Class C Convertible
Preferred Stock prior to its conversion upon completion of this offering. Other
than as described above, the Company currently intends to retain earnings, if
any, to support the development of its business and does not anticipate paying
cash dividends for the foreseeable future. Payment of future dividends, if any,
will be at the discretion of the Company's Board of Directors after taking into
account various factors, including the Company's earnings, financial condition,
operating results and current and anticipated cash needs as well as such
economic conditions as the Board of Directors may deem relevant.
11
<PAGE>
CAPITALIZATION
The following table sets forth (i) the unaudited capitalization of the
Company at June 30, 1996, (ii) the unaudited pro forma capitalization which
gives effect to the Recapitalization and (iii) the unaudited pro forma as
adjusted capitalization which gives effect to the sale of 2,000,000 shares of
Common Stock offered hereby by the Company at an assumed initial public offering
price of $15.00 per share and the application of the estimated net proceeds
therefrom. This table should be read in conjunction with the Company's Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1996
-----------------------------------
Pro Forma
Pro as
Actual Forma (1) Adjusted (2)
------ --------- ------------
(in thousands)
<S> <C> <C> <C>
Long-term debt and capital lease obligations $2,482 $3,307 $ 491
Class C Convertible Preferred Stock, $4,961.24
par value; 250 shares authorized, 129 issued
and outstanding, actual; none issued and
outstanding, pro forma and pro forma as
adjusted (Series C Convertible Preferred Stock) 640 -- --
Stockholders' equity (deficit):
Class A Preferred Stock, $25,000 par value;
50 shares authorized, 18 shares issued and
outstanding, actual; none authorized or issued
and outstanding, pro forma and pro forma as
adjusted 400 -- --
Class B Preferred Stock, $250 par value; 2,000
shares authorized, 1,500 shares issued and
outstanding, actual; none authorized or issued
and outstanding, pro forma and pro forma as
adjusted 328 -- --
Preferred Stock, $.01 par value; none authorized or
issued and outstanding, actual; 2,000,000 shares
authorized, none issued and outstanding, pro
forma and pro forma as adjusted -- -- --
Common Stock, $.01 par value; 40,000,000 shares
authorized, 5,124,800 shares issued and 4,875,200
outstanding, actual (3); 6,165,736 shares issued and
outstanding, pro forma; 8,165,736 shares issued
and outstanding, pro forma as adjusted 51 62 82
Additional paid-in capital 0 11,181 38,111
Retained earnings 933 (9,293) (9,293)
Treasury stock (400) -- --
------ ------ -------
Total stockholders' equity 1,312 1,950 28,900
------ ------ -------
Total capitalization $4,434 $5,257 $29,391
====== ====== =======
</TABLE>
- ----------
(1) Includes a one-time, non-cash charge of $10,233,744 to retained earnings
and a corresponding increase to additional paid-in capital, $822,959
received by the Company upon exercise of the Warrants and the retirement
of 249,600 shares held in treasury. See Note 10 of Notes to Financial
Statements.
(2) Excludes 28,435 shares of Common Stock issued on September 30, 1996 to an
employee of the Company, 18,333 shares of Common Stock to be issued to an
executive officer of the Company upon completion of this offering, 400,000
shares of Common Stock issuable upon the exercise of outstanding options as
of September 30, 1996 with a weighted average exercise price of $13.75 per
share, and an additional 553,232 and 200,000 shares of Common Stock reserved
for issuance pursuant to the Company's 1996 Stock Incentive Plan and 1996
Employee Stock Purchase Plan, respectively.
(3) After giving effect to the 800-for-1 stock split effected by the
Recapitalization.
12
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996 was
$1,950,000 or $.32 per share, after giving effect to the Recapitalization. Pro
forma net tangible book value per share represents the amount of total tangible
assets of the Company reduced by the Company's total liabilities, divided by the
pro forma number of shares of Common Stock outstanding. After giving effect to
the sale by the Company of 2,000,000 shares of Common Stock offered by the
Company at an assumed initial public offering price of $15.00 per share (after
deducting the estimated underwriting discount and commission and estimated
offering expenses), the pro forma net tangible book value of the Company as of
June 30, 1996 would have been $28,900,000, or $3.54 per share. This represents
an immediate increase in pro forma net tangible book value of $3.22 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $11.46 per share to new investors purchasing Common Stock in this
offering. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share $15.00
Pro forma net tangible book value per share as of June 30,
1996 $ .32
Increase per share attributable to this offering 3.22
-----
Pro forma net tangible book value per share after this
offering 3.54
-------
Dilution per share to new investors $11.46
=======
</TABLE>
The following table sets forth on a pro forma basis as of June 30, 1996,
after giving effect to the Recapitalization, the number of shares of Common
Stock purchased from the Company, the total consideration paid to the
Company and the average price paid per share by the existing stockholders and by
the investors purchasing shares of Common Stock offered hereby (at an assumed
initial public offering price of $15.00 per share):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
--------------------------- -------------------- Price
Number Percent Amount Percent Per Share
----------------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders 6,212,504 (1) 75.6% $ 2,290,027 7.1% $ .37
New investors 2,000,000 24.4 30,000,000 92.9 15.00
--------- ----- ----------- ----- ------
Total 8,212,504 100.0% $32,290,027 100.0%
========= ===== =========== =====
</TABLE>
- ---------
(1) Includes 28,435 shares of Common Stock issued to an employee of the
Company on September 30, 1996 and 18,333 shares of Common Stock to be
issued to an executive officer of the Company upon completion of this
offering. See "Certain Transactions."
The foregoing tables assume no exercise of the Underwriters' over-allotment
options. See "Underwriting." To the extent that any stock is purchased or
stock options granted in the future are exercised pursuant to the Company's
1996 Employee Stock Purchase Plan and 1996 Stock Incentive Plan, there will
be further dilution to new investors. See "Management--Executive
Compensation."
13
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The following selected financial information with respect to the Company's
statements of operations for the years ended December 31, 1993, 1994 and 1995
and with respect to the Company's balance sheets as of December 31, 1993, 1994
and 1995 have been derived from the Company's Financial Statements, which have
been audited by Ernst & Young LLP, independent auditors, and, except for the
balance sheet as of December 31, 1993, appear elsewhere in this Prospectus. The
selected financial information with respect to the Company's statements of
operations for the years ended December 31, 1991 and 1992 and with respect to
the Company's balance sheet as of December 31, 1991 and 1992 has been derived
from the Company's unaudited financial statements. The selected financial
information with respect to the Company's statements of operations for the six
months ended June 30, 1995 and 1996, and with respect to the Company's balance
sheet as of June 30, 1996 has been derived from the Company's unaudited
financial statements included elsewhere in this Prospectus and include all
adjustments, consisting only of normal recurring adjustments, which management
considers necessary for a fair presentation of the results of such periods.
Results of operations for the six months ended June 30, 1996 are not necessarily
indicative of results to be expected for the full year. This information should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Financial Statements and
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
------------------------------------------ ----------------
1991 1992 1993 1994 1995 1995 1996
----- ----- ----- ----- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenue $ 299 $1,646 $3,146 $6,324 $10,821 $4,886 $7,865
Costs and expenses:
Operating expenses 233 568 834 1,647 2,788 1,194 1,848
General, administrative and
selling expenses 551 1,218 1,575 2,410 4,601 2,070 2,683
Depreciation and amortization 10 114 242 406 641 275 438
Systems development and
programming costs 13 6 298 755 1,183 453 964
----- ------ ------ ------ ------- ------ ------
Total cost and expenses 807 1,906 2,949 5,218 9,213 3,992 5,933
----- ------ ------ ------ ------- ------ ------
Operating income (loss) (508) (260) 197 1,106 1,608 894 1,932
Other income 12 5 50 29 49 23 12
Interest expense (55) (210) (329) (390) (453) (236) (218)
----- ------ ------ ------ ------- ------ ------
Income (loss) before income tax
expense (551) (465) (82) 745 1,204 681 1,726
Income tax expense -- -- -- 37 378 214 732
----- ------ ------ ------ ------- ------ ------
Income (loss) before extraordinary
item (551) (465) (82) 708 826 467 994
Extraordinary loss (net of $158
tax benefit) -- -- -- -- (224) (224) --
----- ------ ------ ------ ------- ------ ------
Net income (loss) $(551) $ (465) $ (82) $ 708 $ 602 $ 243 $ 994
===== ====== ====== ====== ======= ====== ======
Per common share data (1):
Pro forma income before
extraordinary item $ .13 $ .07 $ .16
Extraordinary loss (.03) (.03) --
------- ------ ------
Pro forma net income $ .10 $ .04 $ .16
Shares used in determining pro ======= ====== ======
forma income per common share 6,166 6,166 6,166
======= ====== ======
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30, 1996
------------------------------------- ----------------------
As
1991 1992 1993 1994 1995 Actual Adjusted (2)
---- ---- ---- ---- ---- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short term
investments $ 251 $ 308 $ 457 $ 512 $1,468 $1,372 $26,108
Working capital 288 243 164 157 1,210 2,256 27,213
Current assets 321 671 971 1,457 3,117 4,029 28,764
Current liabilities 33 429 807 1,300 1,907 1,773 1,551
Total assets 430 1,193 1,917 2,651 5,434 6,500 31,236
Total long-term debt and capital
lease obligations 636 1,055 1,501 1,353 2,437 2,482 491
Preferred Stock--Class C -- -- -- -- 640 640 --
Total stockholders' equity (deficit) (239) (310) (503) (186) 379 1,312 28,900
</TABLE>
- -----------
(1) Computed on the basis described in Note 10 of Notes to Financial
Statements.
(2) Adjusted to give effect to the Recapitalization, the sale by the Company of
Common Stock offered hereby assuming an initial public offering price of
$15.00 per share of Common Stock and the application of the net proceeds
therefrom.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company provides comprehensive transactional billing and management
information solutions to providers of wireless, long distance and satellite
telecommunications services. The Company uses its robust and flexible
proprietary software technology to develop transactional billing and management
information solutions for its customers under exclusive contracts with terms
ranging from three to four years.
The Company derives services revenue (i) primarily from service contracts,
whereby a customer contracts with the Company to operate and maintain its
transactional billing system and (ii) to a lesser extent, from the development
of new software and enhancement of existing installed systems together with the
provision of related customer maintenance and training, which is largely billed
on a time and materials basis. Service revenue related to the operation of
customers billing systems accounted for 100%, 93.5%, 97.4% and 99.0% of total
revenue for 1993, 1994 and 1995 and the six months ended June 30, 1996,
respectively. Services are generally billed monthly and service revenue is
recognized in the period in which the services are provided.
License fees comprise the remainder of the Company's revenue and are largely
recognized upon execution of the licensing agreement at the time of delivery of
the software to the customer, provided that the Company has no significant
related obligations or collection uncertainties remaining. Where there are
significant obligations related to the development and enhancement of the
software, license fees are recorded over the expected installation period or the
term of the respective contract. As a result, the amount of revenue realized by
the Company from license fees in a particular period depends largely on the
number of product installations during that period, and the extent to which any
significant obligations are outstanding.
Driven by the requirements of the telecommunications services market, the
Company's revenue have grown rapidly in recent years, increasing from
approximately $3.1 million in 1993 to $6.3 million and $10.8 million in 1994 and
1995, respectively. For the 12-month period ended June 30, 1996, recurring
revenue accounted for over 93.8% of total revenue and 80.5% of the Company's
revenue was generated by companies which have been customers for at least one
year.
Operating expenses are comprised primarily of the salaries and benefits of
technical service representatives, operations personnel and quality assurance
representatives and costs to produce and distribute invoices for customers.
General, administrative and selling expenses consist mainly of the salaries
and benefits of management and administrative personnel and general office
administration expenses (rent and occupancy, telephone and other office supply
costs) of the Company.
Systems development and programming costs are comprised of the salaries and
benefits of the employees involved in internal software development. Prior to
1993, Company software was under development and all related costs were
expensed. In 1993, the Company began to capitalize certain software developments
costs in accordance with the Statement of Financial Accounting Standards (SFAS)
No. 86. Amounts capitalized are amortized over five years.
16
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, certain financial
data as a percentage of revenue for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1995 and 1996:
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
----------------------- ---------------
1993 1994 1995 1995 1996
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Operating expenses 26.5 26.0 25.8 24.4 23.4
General, administrative and
selling expenses 50.1 38.1 42.5 42.4 34.1
Depreciation and amortization 7.7 6.4 5.9 5.6 5.6
Systems development and
programming costs 9.4 12.0 10.9 9.3 12.3
----- ----- ----- ----- -----
Total costs and expenses 93.7 82.5 85.1 81.7 75.4
----- ----- ----- ----- -----
Operating income 6.3 17.5 14.9 18.3 24.6
Other income 1.6 0.5 0.4 0.4 0.1
Interest expense (10.5) (6.2) (4.2) (4.8) (2.8)
----- ----- ----- ----- -----
Income (loss) before income tax
expense (2.6) 11.8 11.1 13.9 21.9
Income tax expense -- 0.6 3.5 4.4 9.3
----- ----- ----- ----- -----
Income (loss) before
extraordinary item (2.6) 11.2 7.6 9.5 12.6
Extraordinary loss -- -- (2.0) (4.5) --
----- ----- ----- ----- -----
Net income (loss) (2.6)% 11.2% 5.6% 5.0% 12.6%
===== ===== ===== ===== =====
</TABLE>
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Revenue
Revenue increased 61.0% from $4,885,770 for the six months ended June 30,
1995, to $7,864,641 for the same period in 1996, due primarily to the addition
of new customers and the growth of revenue from existing customers.
Operating expenses
Operating expenses increased 54.8% from $1,193,880 for the six months ended
June 30, 1995, to $1,847,718 for the same period in 1996, due primarily to the
addition of personnel hired during the period to support the growth of the
Company's business. As a percentage of sales, operating expenses decreased from
24.4% for the first six months of 1995 to 23.4% for the same period in 1996.
General, administrative and selling expenses
General, administrative and selling expenses increased 29.6% from $2,070,218
for the six months ended June 30, 1995, to $2,683,019 for the same period in
1996. This increase was due primarily to increases in employee compensation and
benefits, including employment agency fees and relocation costs, of $368,000,
rent expense of $80,500, executive officers salaries, bonuses and other benefits
of $65,700 and other administrative expenses as a result of the growth of the
Company. As a percentage of revenue, general, administrative and selling
expenses decreased from 42.4.% for the six months ended June 30, 1995, to 34.1%
for the same period in 1996, due primarily to economies of scale and the growth
of the Company's revenue. The Company expects that its general, administrative
and selling expenses will increase as it continues to expand its direct sales
force and its marketing activities, but that such increases will be offset in
part by decreases in salaries and bonuses paid to senior management after this
offering.
Depreciation and amortization
Depreciation and amortization increased 59.1% from $275,108 for the six
months ended June 30, 1995, to $437,708 for the same period in 1996. The
increase was due primarily to both the purchase of new equipment to
17
<PAGE>
support the Company's growth and the investment in the development of the
Company's integrated system. As a percentage of revenue, depreciation and
amortization remained consistent at 5.6%.
Systems development and programming costs
Systems development and programming costs increased 113.0% from $452,761 for
the six months ended June 30, 1995, to $964,390 for the same period in 1996, due
primarily to increased programming support required by customers and additional
software features offered on the Company's integrated system. As a percentage of
revenue, systems development and programming costs increased from 9.3% for the
six months ended June 30, 1995, to 12.3% for the same period in 1996, due to
additional software features offered and under development by the Company.
Interest expense
Interest expense decreased 7.4% from $235,906 for the six months ended June
30, 1995, to $218,416 for the same period in 1996, due primarily to interest
cost reductions resulting from the restructuring of debt to CII.
Income tax expense
Income tax expense increased 241.9% from $214,086 for the six months ended
June 30, 1995, to $732,000 for the same period in 1996, due primarily to the
$751,285 increase in net income for the six months ended June 30, 1996 as
compared to the comparable period in 1995. The effective tax rate increased to
42.4% for the six months ended June 30, 1996 from 31.5% for the comparable
period in 1995 due primarily to debt consolidation expense benefits occurring in
1995 which did not recur in 1996.
Extraordinary loss
On June 30, 1995, the Company refinanced existing debt with CII and recorded
an extraordinary loss of $223,696, net of $158,038 in tax benefits. Such
extraordinary loss was due to negotiated acceleration of payments in connection
with the early termination of a debt agreement.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenue
Revenue increased 71.1% from $6,324,041 in 1994, to $10,820,815 in 1995, due
primarily to the addition of new customers and the growth of continued revenue
from existing customers.
Operating expenses
Operating expenses increased 69.3% from $1,646,852 in 1994, to $2,787,687 in
1995, due primarily to the addition of new personnel required to support the
growth of the Company's business. As a percentage of revenue, such expenses
decreased slightly from 26.0% in 1994, to 25.8% in 1995.
General, administrative and selling expenses
General, administrative and selling expenses increased 91.0% from $2,409,683
in 1994, to $4,601,242 in 1995. As a percentage of revenue, general,
administrative and selling expenses increased from 38.1% in 1994 to 42.5% in
1995. This increase was due primarily to increases in executive officers
salaries, bonuses and other benefits of $1,263,600, general office expenses of
$368,300, employee compensation and benefits, including employment agency fees
and relocation costs, of $324,600, advertising expenses of $65,000 and other
administrative expenses as a result of the growth of the Company. The Company
expects that its general, administrative and selling expenses will increase as
it continues to expand its direct sales force and its marketing activities, but
that such increases will be offset in part by decreases in salaries and bonuses
paid to senior management after this offering.
Depreciation and amortization
Depreciation and amortization increased 57.9% from $405,873 in 1994, to
$640,917 in 1995 primarily due to the purchase of computer equipment and the
increased spending on research and development related to the enhancement of the
Company's ITDS 10X system to support Unix based file servers and further
development of its integrated billing and management information system.
Depreciation and amortization expenses decreased as a percentage of revenue from
6.4% in 1994 to 5.9% in 1995 primarily due to the growth in revenue.
18
<PAGE>
Systems development and programming costs
Systems development and programming costs increased 56.6% from $755,387 in
1994, to $1,183,141 in 1995, primarily due to increased programming support
required by a larger customer base and additional software features offered on
the Company's system. As a percentage of revenue, system development and
programming costs decreased from 12.0% in 1994, to 10.9% in 1995 primarily due
to the growth in revenue. In addition, in 1995 the Company capitalized $479,316
in software development costs.
Interest expense
Interest expense increased 16.2% from $389,793 in 1994, to $452,925 in 1995,
primarily due to the increase in capital leases for computer equipment required
by the Company.
Income tax expense
Income tax expense increased 933.1% from $36,666 in 1994, to $378,786 in
1995, primarily due to the fact that the Company fully utilized its net
operating loss carryforward credits in 1994. The Company's effective tax rate
was 31.5% in 1995 and 4.9% in 1994. The increase in the rate was primarily the
result of the reduction in net operating loss carryforwards.
Extraordinary loss
On June 30, 1995, the Company refinanced existing debt with CII and recorded
an extraordinary loss of $223,696, net of $158,038 in tax benefits. Such
extraordinary loss was due to negotiated acceleration of payments in connection
with early termination of the debt agreement.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenue
Revenue increased 101.0% from $3,145,934 in 1993, to $6,324,041 in 1994, due
primarily to the addition of new customers and the growth of continued revenue
from existing customers.
Operating expenses
Operating expenses increased 97.4% from $834,337 in 1993, to $1,646,852 in
1994, primarily due to the addition of personnel hired during the period to
support the growth of the Company's business. As a percentage of revenue,
operating expenses decreased from 26.5% in 1993, to 26.0% in 1994, primarily due
to the growth in revenue.
General, administrative and selling expenses
General, administrative and selling expenses increased 53.0% from $1,575,407
in 1993, to $2,409,683 in 1994. This increase was due primarily to increases in
employee compensation and benefits, including employment agency fees and
relocation costs, of $199,600, general office expenses of $162,900, legal
expenses of $153,700, and other administrative expenses as a result of the
growth of the Company. As a percentage of revenue, general, administrative and
selling expenses decreased from 50.1% in 1993 to 38.1% in 1994, reflecting
economies of scale and the growth in the Company's revenue.
Depreciation and amortization
Depreciation and amortization increased 67.7% from $241,953 in 1993, to
$405,873 in 1994, primarily due to both the purchase of equipment to support the
Company's growth and the investment in the development of the Company's
integrated system. As a percentage of revenue, depreciation and amortization
decreased from 7.7% in 1993 to 6.4% in 1994, primarily due to the growth in
revenue.
Systems development and programming costs
Systems development and programming costs increased 154.0% from $297,344 in
1993, to $755,387 in 1994, As a percentage of revenue, systems development and
programming costs increased from 9.4% in 1993, to 12.0% in 1994. These increases
were primarily due to increased programming support required by customers and
additional software features offered on the Company's integrated system.
19
<PAGE>
Interest expense
Interest expense increased 18.4% from $329,326 in 1993, to $389,793 in 1994.
The increase was due primarily to the increase of capital leases for computer
equipment and an additional working capital note provided to the Company by CII
in November 1993.
Income tax expense
Income tax expense increased to $36,666 in 1994 and the effective tax rate
increased to 4.9% as a result of the Company being in a net loss position as of
December 31, 1993.
Liquidity and Capital Resources
The Company has financed its operations to date primarily through private
placements of debt and equity securities, cash generated from operations and
equipment financing.
As of June 30, 1996, the Company had $1,031,990 of cash and cash equivalents,
$340,200 in United States Treasury Notes, $2,333,856 in net trade accounts
receivable, and $2,256,059 of working capital.
In the twelve months ended December 31, 1995, the Company generated
$1,301,954 in net cash flow from operating activities and $87,445 in net cash
flow from financing activities including the sale of shares of the Class C
Convertible Preferred Stock for $640,000. The cash generated from operations and
the proceeds from such Class C Convertible Preferred Stock enabled the Company
to fund its operations, apply $479,316 to product development costs, purchase
$245,069 of investments, and make $442,804 in principal payments on long-term
debt and capital lease obligations.
At December 31, 1994, the Company had outstanding an aggregate of $1,316,575
payable to CII under certain debt agreements dated August 16, 1991 and July 21,
1992 with face amounts of $600,000 and $350,000, respectively. These loans
required payment of principal and interest in the form of quarterly payments
which were calculated based on the Company's revenue for the period multiplied
by a specified percentage rate. These loans were structured such that they would
be considered paid in full based upon the aggregate payments (principal and
interest) at specified dates. Based on the estimated payments, the imputed
interest rate approximated 25% at December 31, 1994. On June 30, 1995, the
Company refinanced these loans with CII into one loan with a principal amount of
$1,485,000 at a 14.5% interest rate. Under the terms of this loan agreement, the
Company will pay interest of $17,944 monthly for two years and $34,940 monthly
subsequent to that for principal and interest through July 2002. Also, under the
CII Agreement, the Company will make a one-time payment to CII of $200,000 upon
the completion of this offering.
The Company also has a loan payable to CII, which was originally issued in
1993 and refinanced in December 1994. The Company intends to pay the entire
amount outstanding under the note ($286,394 as of July 31, 1996) with the
proceeds from this offering. This new note includes principal plus accrued
interest on the original loan and is payable in equal monthly installments over
60 months and had a balance of $326,273 at December 31, 1995. In connection with
the CII loans, the Company issued two warrants to CII to purchase an aggregate
of 5.4% of the outstanding capital stock of the Company. CII has agreed to
exercise the Warrants immediately prior to this offering, for an aggregate of
334,524 shares of Common Stock at an aggregate purchase price of $822,959.
Substantially all assets of the Company are pledged under the various debt
agreements with CII.
The Company believes that its existing capital resources as well as the
letter of credit and credit facility described in Note 10 to the Financial
Statements are adequate to meet its cash requirements for the foreseeable
future. There can be no assurance, however, that changes in the Company's plans
or other events affecting the Company's operations will not result in
accelerated or unexpected expenditures.
The Company may seek additional funding through public or private financing.
There can be no assurance, however, that additional financing will be available
from any of these sources or will be available on terms acceptable to the
Company.
To date, inflation has not had a significant impact on the Company's
operations.
20
<PAGE>
Recent Accounting Pronouncements
In November 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 addresses the financial accounting and reporting
standards for stock-based employee compensation plans. SFAS No. 123 permits an
entity to either record the effects of stock-based employee compensation plans
in the financial statements or present pro-forma disclosures in the notes to the
financial statements. In connection with the adoption of SFAS No. 123 during
1996, the Company will elect to provide the appropriate disclosures in the Notes
to the Company's Financial Statements.
Quarterly Results
The following table sets forth certain unaudited quarterly financial data for
each of the four quarters in the year ended December 31, 1995 and the first two
quarters of 1996. In the opinion of the Company's management, unaudited
quarterly information has been prepared on the same basis as the audited
financial statements and includes all adjustments, consisting only of normal
recurring adjustments considered necessary for the fair presentation of the
information for the periods presented. The quarterly information should be read
in conjunction with the audited Financial Statements and Notes thereto included
elsewhere in this Prospectus. The quarterly operating results are not
necessarily indicative of results of operations for any future period.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1995 1995 1995 1995 1996 1996
-------- -------- --------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations:
Revenue $2,179 $2,707 $2,958 $2,977 $3,934 $3,931
Operating expenses 584 609 809 786 921 927
General, administrative and
selling expenses 902 1,169 1,246 1,284 1,326 1,357
Depreciation and amortization 131 144 175 191 278 160
Systems development and
programming costs 226 227 328 402 427 538
------ ------ ------ ------ ------ ------
1,843 2,149 2,558 2,663 2,952 2,982
------ ------ ------ ------ ------ ------
Operating income 336 558 400 314 982 949
Other income 8 15 14 13 8 5
Interest expense (126) (110) (77) (140) (109) (109)
------ ------ ------ ------ ------ ------
Income before income tax expense 218 463 337 187 881 845
Income tax expense 68 146 106 59 322 410
------ ------ ------ ------ ------ ------
Income before extraordinary item 150 317 231 128 559 435
Extraordinary loss -- (224) -- -- -- --
------ ------ ------ ------ ------ ------
Net income $ 150 $ 93 $ 231 $ 128 $ 559 $ 435
====== ====== ======= ====== ====== ======
</TABLE>
Quarterly Information
The Company's quarterly operating results have fluctuated and will
continue to fluctuate from period to period. See "Risk Factors--Potential
Fluctuations in Quarterly Results."
21
<PAGE>
BUSINESS
ITDS provides comprehensive transactional billing and management information
solutions to providers of wireless, long distance and satellite
telecommunications services. The Company uses its robust and flexible
proprietary software technology to develop billing solutions which address
customer requirements as they evolve, regardless of the market segment,
geographic area or mix of network features and billing options. The Company
provides its services to customers under exclusive contracts with terms
typically ranging from three to four years, and bills customers monthly,
typically on a per-subscriber basis. As a result, substantially all of the
Company's revenue is recurring in nature, and increases as a provider's
subscriber base grows.
In recent years, the telecommunications services industry has experienced
rapid growth and dramatic change, ranging from the introduction of such new
technologies as cellular, PCS and satellite communications, to new features and
services, in a wide variety of combinations and at a great diversity of prices.
The Company's systems are designed to respond to the dynamic requirements of
this market for cost-effective transactional billing solutions by drawing on the
Company's core technology, which does not require significant reconfiguration or
customization to be applied across market segments, geographic areas and
customer types. The Company's software currently supports both of the two
predominant cellular telecommunications protocols, Advanced Mobil Phone Systems
("AMPS"), an analog service predominant in the U.S., and the Global System for
Mobile Communication ("GSM"), an international digital service, as well as other
emerging digital standards.
The Company's advanced billing and management information system, ITDS 10X,
forms the foundation for its integrated suite of applications that provide not
only subscriber billing and service support, but also the means to automate
subscriber activation, remittance processing, collections, data retrieval and
reporting, electronic funds transfer, credit management, inventory management
and data archiving. Its modular system architecture permits providers to draw on
those features and functions most appropriate to their specific requirements in
a fully-integrated software solution. The Company's software and services allow
its customers to address the demands of a rapidly evolving marketplace by
enabling them to develop and support innovative rate and feature offerings
without the delay and cost associated with reconfiguring their billing and
information systems; to identify and respond to subscriber demands through
analysis of billing and subscriber databases; to reduce costs with accurate and
timely receivables information; and to manage the subscriber relationship in a
comprehensive and cost-effective manner.
Industry Background
General
The U.S. telecommunications industry currently generates approximately $200
billion in annual revenue and has experienced rapid change and greatly increased
competition in recent years. Deregulation and rapid technological advances are
resulting in convergence of previously separate segments of the
telecommunications market. Markets that were once rigidly segmented by service
within geographical areas are converging into a single, world-wide
communications market, which includes both traditional service providers and a
variety of new participants. Each segment of these converging markets is
experiencing significant growth, increased complexity in service offerings and
greater competition.
The telecommunications industry historically has been subject to significant
regulatory barriers to entry, but regulatory changes in recent years have
dramatically lowered the barriers to competition. In February 1996, the
Telecommunications Act of 1996 (the "Telecommunications Act") was enacted into
law. The stated purposes of the Telecommunications Act are to reduce
regulations, promote competition and encourage the rapid employment of new
telecommunications technologies. The Telecommunications Act is expected to
increase competition in the telecommunications services market in the United
States by allowing local, long distance and cable companies to offer competing
services provided they meet specified regulatory benchmarks. Many service
providers are expected to compete by offering multiple services, including
combinations of local exchange, long distance, wireless and data communications
services to customers in single or multiple geographic markets without the delay
or limitations historically imposed by regulatory approvals. Increasingly, each
market will have a range of vendors offering similar services, requiring
innovative differentiation in services and rates.
At the same time, rapidly evolving technical changes have dramatically
increased the features and services available to subscribers. These changes have
ranged from the evolution of entirely new communications media, such as
satellite transmission, to innovative services, such as PCS, to a rapidly
evolving and growing range of
22
<PAGE>
services and features. For example, many cellular providers are now offering
such innovative features as group ringing, which initiates a call on all of an
individual's lines (whether business, personal or mobile) and connects the call
as soon as one line is answered, and cell site sensitive billing, which, for
example, enables carriers to apply local wireline rates for calls to or from a
cellular telephone within the vicinity of the subscriber's home or business and
apply cellular rates elsewhere. Improved switching technology is permitting
local exchange telecommunications services providers to offer a variety of new
features and services to their subscribers such as call delivery beyond the
subscriber's home area, call waiting, voice mail and others.
Internationally, privatization and deregulation are resulting in similar
increases in competition, the emergence of newly authorized telecommunications
providers, and the provision of additional features over a variety of media. As
the new markets are opened to competition, local and emerging service providers
typically compete for market share through alliances with more established
carriers, such as the local telephone company, initially by providing access to
service and then by providing competitive prices and introducing new features
and services. In addition, technological advances and global expansion by
multi-national service carriers, and the economies of installation of cellular
systems in comparison with wireline systems, are opening markets in less
developed countries to enhanced telecommunications services and increased
competition. In many foreign countries, different technologies have been adopted
for the implementation of wireless communications. For example, the analog AMPS
standard is utilized in the United States, while GSM has widely been adopted in
the rest of the world.
Wireless Communications
The rapid changes and dramatic growth driven by these forces is especially
evident in the provision of wireless services, including cellular, paging and
PCS. The Cellular Telecommunications Industry Association ("CTIA") estimates
that the number of cellular subscribers in the United States increased from
340,000 in December 1985 to 33.7 million in December 1995. In 1995, cellular
providers generated more than $19 billion in revenue in the United States, while
paging providers generated more than $3 billion in revenue from approximately 25
million subscribers. In addition to growth in the cellular telephone market, the
emergence of new wireless communications technologies and services, such as PCS
and satellite-based telephony, is expected to increase the quality and
capabilities of wireless communications, including, to varying degrees, seamless
roaming, increased service coverage, improved signal quality and greater data
transmission capacity.
Both existing and new service providers in other communications markets are
pursuing opportunities in the wireless industry. For example, equipment vendors
such as Motorola are involved in joint ventures to offer telephony and paging
services, while cable companies actively pursue such evolving wireless markets
as PCS. All these providers continue to experience regular hardware and software
upgrades from no less than a dozen major switching network suppliers, as the
features and technology in the wireless marketplace continue to evolve.
While the number of cellular service subscribers in the United States has
grown substantially in recent years, the average revenue per subscriber has
declined and is expected to decrease further. The CTIA has reported that revenue
per subscriber declined 47% from 1987 to 1995. Cellular service providers are
anticipating significantly increased price competition in the wireless
telecommunications industry as providers of PCS and other services emerge in the
geographic markets previously served only by cellular carriers, requiring them
to differentiate services and adopt innovative rate tariffs.
Other Segments
Other segments of the telecommunications services industry are experiencing
similar change and convergence. Wireline providers, including providers of
local, long-distance, network access and related services, provide services to
approximately 93 million customers in the U.S., generating more than $174
billion in 1994. Deregulation has spurred the creation of new entrants in both
the local and long distance market and has increased competitive pricing
pressures among all providers. Regional Bell Operating Companies (RBOCs) and
long-distance providers compete with providers of wireless services through the
purchase of cellular companies and PCS licenses, while wireline providers are
pursuing opportunities in the cable market. At the same time, utility companies
are leveraging their existing electrical and fiber optic infrastructures to
provide telecommunications services to their customers. In addition, on-line
service providers, including companies such as Prodigy, America Online and
CompuServe, have generated a large and rapidly growing market for the provision
of a range of services including electronic mail, news, and other information,
as well as home shopping and access to the Internet.
23
<PAGE>
Traditional Transactional Billing
Transactional billing is the process of matching specific calling events with
a subscriber database. Historically, this was primarily a billing process, used
in order to generate invoices for wireless, long-distance and local service by
individual and business users. In light of the competitive and price pressures
faced by service providers, and the proliferation of service features and
pricing options within the telecommunications services industry, the billing
function is continuing to evolve from primarily a service support function to a
marketing and revenue enhancement device used to differentiate the increasingly
fungible services offered by providers. Transactional billing is becoming an
increasingly significant interface with the subscriber, and is therefore a
critical element of attracting, communicating with, and retaining customers.
Many telecommunications services providers in the U.S. have traditionally
used transactional billing systems developed internally or through cooperative
joint ventures for operation on a provider's mainframe computer. These "legacy"
systems typically are difficult to maintain and modify, and often do not meet
the multiple and evolving needs of a service provider. Legacy systems often
cannot be integrated with other information sources within a provider's
organization, or databases outside an organization. Introduction of changes in
parameters such as price and service often requires significant reconfiguration
or reprogramming. These traditional means of billing and monitoring service have
proven inadequate to respond to the evolving and dynamic requirements of the
telecommunications services marketplace. The enormous growth in number of
subscribers, and the proliferation and range of services offered, require highly
capable, flexible and scalable support systems, which can adequately support the
size and nature of customer offerings on a cost effective basis.
Other service providers have elected to out-source billing and management
information-related functions because of the significant level of technological
expertise and capital resources required to implement systems successfully. In
addition, many emerging telecommunications services providers lack any
transactional billing infrastructure at all. One of the primary challenges that
these newer service providers face is to bring new services to market quickly.
They typically focus their capital resources on developing networking and
switching technology and on creating marketable services rather than on creating
billing systems. These providers typically seek to outsource the billing
functions because efficient flexible billing solutions are often too costly and
time consuming to develop internally.
To survive in an increasingly competitive environment, all these providers
need solutions which
(bullet) enable them to differentiate themselves quickly and efficiently in a
crowded and highly fungible market through the development,
validation, implementation and support of innovative rate structures
and changing mixes of service and feature offerings;
(bullet) integrate seamlessly with their corporate management information
services, so that providers can use the data generated for
operational and other strategic purposes as an integral part of
their marketing and sales plans; and
(bullet) offer flexibility and reliability as critical components of
subscriber relations, communication and retention.
The ITDS Solution
The Company's solution is based upon an integrated software system that not
only provides reliable and accurate transactional billing and management
information support, but also includes the means to automate subscriber
activation, remittance processing, collections, data retrieval and reporting,
electronic funds transfer, credit management, automation of inventory
management, and data archiving on a fully-integrated basis, running in either
single or multiple telecommunications services markets, including cellular,
paging, long distance and satellite. In comparison with traditional solutions,
the Company's software and services:
(bullet) permit providers to develop, validate, implement and support rate
changes without the corresponding requirement to develop or change
support systems, reducing the time to introduce new marketing or
sales strategies;
(bullet) permit providers to introduce new features or combinations of
features, either directly or with others, on a timely basis;
(bullet) assure that providers have immediate access to multiple databases on
a fully-integrated basis, to improve marketing and sales planning;
24
<PAGE>
(bullet) deliver accurate, timely and useful billing information to
customers, regardless of mix or change in level of service and
rates, to facilitate customer attraction and retention; and
(bullet) improve providers' cash flows and reduce bad debt by detecting fraud
and delivering accurate and timely receivable and collection
information across systems and service offerings.
The ITDS Strategy
The Company's goal is to become a leading provider of integrated
transactional billing and management information products and services to the
converging telecommunications service industry in the United States and
internationally. Key elements of its strategy include:
(bullet) Expand Sales to Wireless Services Providers. The Company believes
that the wireless segment of the telecommunications services market
will continue to grow rapidly and will be characterized by both
increased competition and heightened subscriber expectations. To
date, the Company has built a significant customer base among
smaller and mid-sized wireless providers. The Company intends to
build upon this base by adding additional wireless services
providers, including providers of PCS and satellite services, as
well as larger telecommunications services providers which need the
same innovative, flexible solutions that the Company has developed
to meet the needs of its existing customer base.
(bullet) Leverage Technology Features to Address Requirements of Related
Market Segments. The Company believes it is well positioned to
leverage its technology base by offering transactional billing and
management information solutions to providers in such other
telecommunications services market segments as wireline and data
transmission, Internet and other enhanced services. Expansion into
these additional sources of potential revenue will not require
commensurate investment in software development because the
Company's existing core technology already meets the more
challenging and demanding requirements of the wireless segment of
the market, while enabling the Company to offer features and
functions to meet provider requirements.
(bullet) Expand International Operations. The Company believes that the same
market pressures created by deregulation and technological advances
will increase the demand internationally for flexible and integrated
transactional billing and management information solutions. In
addition, the Company believes that the flexibility of its system
will permit it to address the requirements of international
telecommunications services providers without the need for
significant reconfiguration. For example, the Company's system
currently supports the provision of cellular services based on GSM
technology, which has been widely adopted outside the U.S., as well
as other emerging digital services. The Company intends to pursue
international opportunities by leveraging relationships with
domestic customers that may be expanding overseas, by seeking
strategic international partners, and by selling directly abroad.
(bullet) Leverage Employee Experience. The Company's employees are largely
dedicated to the support and service of its customers, from initial
conversion and implementation of the Company's technology, to
on-going support and provision of "back-office" services. As a
result of their experience with customer requirements and the needs
of the telecommunications services industry generally, the Company's
employees are able to configure the Company's technology to provide
a focused and appropriate solution for each customer's requirements
on a timely and cost-effective basis. The Company believes that this
expertise is an important competitive advantage which it intends to
leverage in retaining existing customers and expanding its customer
base.
(bullet) Expand Direct Sales and Develop Strategic Relationships.
Historically, the Company has built its customer base primarily
through the efforts of its senior management. In order to achieve
its targeted levels of growth and build its customer base among
larger telecommunications services providers, the Company has
recently begun to invest significantly in the development of a
direct sales force and sales support organization. In recent months,
the Company has expanded its sales force as the nucleus of this
effort. The Company is also seeking to create additional strategic
distribution and marketing alliances and to enter new markets,
through relationships with hardware vendors and equipment providers.
For example, the Company works with Hewlett-Packard to develop
software systems compatible with Hewlett-Packard hardware and serves
as a reseller of Hewlett-Packard equipment configured for the
Company's software.
25
<PAGE>
Products and Services
Core System
The Company provides its customers with integrated transactional billing and
management information solutions through the installation of its software
systems and the provision of billing services. The Company's software is
installed at a customer site to interface directly with the customer's systems
and generate relevant subscriber billing and other data, as well as to support a
wide range of transactional billing and subscriber management functions. The
Company processes the billing information through the use of its software,
eliminating the need for customers to maintain their own "back-office" data
processing operation. Customers contract for the use of the Company's software
and the provision of the Company's services on a long-term exclusive basis,
generally between three and four years, and are billed monthly on a
per-subscriber basis.
The Company's suite of ITDS integrated applications allows customers the
flexibility of rapidly changing their billing services to implement, for
example, immediate rate plan changes for access, toll usage or toll discounts
without the need for programming. Drawing on its client/server architecture, the
system can be integrated with a customer's other communication and data systems
to provide customers with the ability to obtain real-time billing information
and to generate up-to-date subscriber analysis and reports. The ITDS 10X system
does not require any customer dedicated circuits, and customers can maintain the
system along with rate tables and subscriber databases on their local network,
while utilizing the system to interface with external databases and systems as
appropriate. To further assure its operational flexibility and usefulness, the
system supports key industry standards such as the CIBER standard for the
wireless clearinghouse for AMPS cellular systems in the U.S. and the TAP
standard for international clearinghouse for GSM cellular systems. The Company
also interfaces with major U.S. credit bureaus, the Federal Reserve system and
various U.S. banks for electronic funds transfer and credit card transactions.
The ITDS 10X system includes a complete library of billing and financial reports
for production as part of the month-end billing process. These reports provide
customers with critical transactional billing data and can be modified or
configured by customers to respond most appropriately to their specific
information requirements. The following diagram illustrates the integrated
features and interfaces of the Company's core technology:
[Text Representation of Chart]
(Home & Roam
Switch Call Billing Records) ITDS 10X(R) Subscriber
MTSO ----> Collector -------------------> Data Base
|
|
|
|
- ---------------------------------------------------------------------------
| | | | | | | | | |
SwitchLink | | CreditLink | | Payment | | 10XArchive
Provisioning | | | | | Options | | CD/ROM
| | | | | | | |
| | | Point | | | |
Debit/Threshold | | Of | |InventoryScan |
Billing* | | Sale | | |
| | | | | | |
| | | | | | |
General Ledger | | | Collections | 10XWrite
Interface | | | Module | Report Writer
| | | | |
| ------ -------------------------------------
| | | | | |
| | | | | |
| | | | | |
Client Credit Credit ITDS | ACH Bank
Accounting Bureau Cards PayScan | Draft
System |
Direct
Invoice
* Under Development
26
<PAGE>
The ITDS 10X system performs each of the following transactional billing,
subscriber management and information functions, while updating relevant
customer database on a real-time basis:
On-Line Subscriber Care and Management Support--Provides end-to-end support
for all subscriber interface requirements:
<TABLE>
<CAPTION>
<S> <C>
Subscriber Order Entry Credit Bureau Interface
Integrated Point of Sale Transactional Credit Card Billing
Phone Number Assignment Rate & Feature Assignment
Switch Provisioning Interface Equipment Inventory Assignment & Tracking
Lead Generation & Tracking Multiple Account Receivable Options
Automatic Clearinghouse for Bank Automatic Call Credit Adjustments
Draft Payments
Multi-tiered Security Systems On-Line What-if Plan Selection
Automatic Notes and Reminders Multiple Search Keys at Account or Phone Level
</TABLE>
Message Processing and Rating--Includes the collection of raw call detail
records from the customer's switch network, and the editing, formatting, rating
and guiding of all traffic events necessary to produce subscriber invoices,
traffic reports and other call related information:
<TABLE>
<CAPTION>
<S> <C>
Data Collection from all Switch Polling or Receipt of Near Real Time
Types Records
Roamer In/Out Collect Processing Up to 999 Rate Plans per Market
Error Management & Reporting Rating, Re-rating and "Pseudo
Roaming" Support
Discounts by Amount or Percentage Variable Time Periods for Air and/or
Toll
Selective or Global Exceptions Unlimited Toll Plans On-line
</TABLE>
Billing & Invoicing--Application of rated messages to invoices, summary files
and reports:
<TABLE>
<CAPTION>
<S> <C>
Multiple Bill Cycles by Market FIFO Overdue Payment Application
Balance Forward Billing Invoice Format Options
Multiple Level Invoices Global, Group or Individual Messages
Full Lockbox Support Federal Reserve Bank Interface
Currency Conversion Language Options
International Addressing Print Fulfillment Options
</TABLE>
Although customers can perform their own on-site cycle-end rating and bill
processing by licensing the Company's batch billing software, most customers
elect to contract with the Company to perform those functions for them at the
Company's data center. Customers transmit call detail records from their
switching network or network provider directly to the Company's data center. In
addition, the Company can extract necessary data from the customer's file
server. The Company formats, guides, rates, and taxes the call records in
accordance with the appropriate subscriber parameters and produces print image
data output and various reports. The Company's bill verification personnel add
an additional level of assurance that subscriber invoices and management reports
are accurate and timely. The Company then arranges with third-party vendors for
the printing and distribution of subscriber invoices on a monthly basis.
In addition to the foregoing general features, the ITDS system incorporates a
modular system architecture which can support a number of complementary
applications to meet a customer's specific requirements, including:
27
<PAGE>
(bullet) ITDS SwitchLink: ITDS SwitchLink is a direct multi-switch interface
between ITDS 10X and all types of telecommunication switches,
including cellular, wireline, paging and voice mail platforms.
SwitchLink manages line and feature activation or deactivation in
connection with ITDS 10X service order activity. SwitchLink
automatically updates the switch data base and maintains a log file
of all orders that have been accepted or rejected by the switch.
(bullet) ITDS CreditLink: ITDS CreditLink interfaces with several U.S.-based
credit bureaus to provide on-line credit analysis of potential
subscribers. Service providers enter name, address and credit
information to generate credit reports. By utilizing available
credit scoring tables, users may build custom scoring algorithms.
(bullet) ITDS Collections Module: The ITDS Collections module provides
support for dedicated collections personnel. Users may define
collections thresholds and pass account extracts to the Collections
Module at any time. The system displays recent invoices and
long-term payment history on-line, automatically generates follow-up
notes and generates collections letters on demand. The Collections
Module provides users queuing options based on user ID, amount due
thresholds, time zone of each number, or combinations thereof. In
addition, automatic contact notes are generated to create
productivity reports of collections personnel.
(bullet) ITDS PayScan: The Company can support customers' existing remittance
processing relationships through customization of the ITDS 10X
system, or can provide remittance services with ITDS PayScan, an
automated lockbox remittance processing system. ITDS PayScan uses an
easily installed scanning device to create edited, balanced batches
that may be transferred to ITDS 10X payment files. PayScan speeds
remittance processing, improves remittance productivity and allows
greater flexibility than external bank vendors.
(bullet) ITDS InventoryScan: ITDS InventoryScan is a complete inventory
management system which allows easy bar code scanning and on-line
inventory record maintenance from the physical receipt of equipment
to entry into the ITDS inventory subsystem. All equipment, such as
phones and accessories, that are packaged with industry standard bar
code identifiers may be instantly transferred into or out of
inventory by the use of a hand-held computer, scanner gun, and ITDS
InventoryScan software.
(bullet) ITDS Report Writer: The ITDS Report Writer allows real-time data
from different sources within the system to be used to create
customized ad hoc subscriber reports. The ITDS 10X system provides a
library of over 100 types of reports which can be accessed and
modified on-site by the customer.
New Products and Enhancements
The Company continues to refine its existing software and to introduce new
enhancements to meet evolving customer requirements. Enhancements currently
under development include incorporation of a Windows 95-compatible user
interface; incorporation of an Oracle relational database management system; and
provision for the ITDS 10X system to operate with UNIX-based file servers, in
order to address the needs of larger customers on a scalable and interoperable
basis. In addition, the Company is currently developing enhanced features for
its ITDS 10X system, such as a debit/threshold billing function and the ITDS
FraudEliminator. The ITDS FraudEliminator will allow service providers to
monitor and limit usage of specific subscriber phones at the request of a
customer and is expected to significantly reduce the cost to customers
associated with fraud by detecting subscription fraud and cloning activities
through real-time collection of call detail records. See "Research and
Development."
Point of Sale System
In addition to the ITDS 10X system and related products, the Company recently
introduced a point of sale package (the "ITDS Point of Sale System"). The ITDS
Point of Sale System is a highly capable sales tool designed to incorporate the
entire sales process into a quick and convenient on-line function. The system
can be used in-store or as a mobile unit, so that customers can market wireless
products and services outside of traditional store settings. The system enables
sales clerks to quickly process initial service applications, on-line credit
checks, inventory updates, assignment of telephone numbers, rate plan selection,
invoicing and payments. Upon credit verification, the system immediately creates
an entry in the customer's subscriber database and can activate telephone
service at the switch. In addition, because complete access to the entire ITDS
10X database is available, walk up inquiries and account payments from existing
subscribers can be handled immediately.
28
<PAGE>
The ITDS Point of Sale System is made available to users as a complete
package. An intelligent workstation, color monitor, hand held inventory
scanner, and full size cash drawer are installed as an integrated part of the
ITDS 10X database. All information, including categorized sales figures and
updated inventory stock levels, entered into the ITDS Point of Sale System is
available for immediate reporting and analysis.
Customer Support
The Company believes that because its solutions are critical to the
competitive success of its customers, the Company must provide a high level of
support from the time a customer converts to the Company's software and
continuing through the on-going provision of transactional billing services. To
that end, the Company assigns to each new customer a dedicated conversion team
that specializes in facilitating the transition onto the ITDS 10X system by
applying an implementation methodology which includes study of the customer's
needs, definition of relevant conversion requirements, and on-site installation
and training. This is followed up by systematic analysis of the implementation
process, live conversion and follow-up training as required to meet the
customer's requirements.
Thereafter, the Company assigns a support team including a customer service
representative and a programmer/analyst for on-going support of the customer's
requirements, including implementation of additional functionality if requested
by the customer. In addition, the Company provides a fully-staffed customer
service department and 24-hour, 7 day a week access to customer service
representatives. Customers meet with the Company's senior management on a
monthly basis and are contacted by their support representatives weekly. The
Company also conducts focus groups and user groups to identify ways to improve
the system efficiency. This customer service and support program allows the
Company to maintain a dialogue with its customers and to identify, anticipate
and meet evolving customer needs.
To ensure its customers the highest level of accuracy in its billing
services, before each customer billing cycle, the Company conducts roundtable
"pre-run" discussions among personnel from the Company's testing, customer
service and operations departments to verify customer database integrity, review
usage price plan changes for completeness and accuracy, review any scheduled
software changes and obtain release from the customer's system administrator for
processing. The Company's quality assurance personnel then perform an in-depth
review of each completed cycle before being released to the customer for review.
Anomalies are investigated, corrected and reviewed with the customer. Only after
receiving customer approval are customer invoices released to a third party for
fulfillment processing. Quality assurance managers invoice all pre-print orders
and monitor actual invoice printing to ensure consistent high quality and
adequate inventory.
The Company's service and support activities are supplemented by the
provision of on-going training classes to customers, free of charge, to assist
customers in utilizing the system capabilities more effectively. Typically, the
Company schedules two to three such classes a month addressing different aspects
of the transactional billing and management information service process.
In August 1996, the Company's customer service and support department
consisted of 30 persons, with an additional nine dedicated quality assurance
employees.
Sales and Marketing
The Company's strategy has been to establish and maintain long-term customer
relationships. As customers' subscriber bases grow and as customers add systems
features to their existing ITDS 10X systems, the Company generates increased
revenue. The Company's customer support programs enable it to understand
customer needs and offer strategic solutions from its suite of integrated
products and features. In addition, the flexible and scalable architecture of
the ITDS 10X core technology enables the Company to maintain customer
relationships as customers enter into additional telecommunications markets. The
Company's customers include COMSAT Mobile Communications, France Telecom FCR,
HighwayMaster Corporation, Horizon G.P., Inc., The Lincoln Telephone and
Telegraph Company, Nebraska Cellular Telephone Corporation, Omaha Cellular
Limited Partnership, Point Communications Company and TRICOM, SA.
Although historically, the Company has achieved substantial growth with a
core marketing team of senior executives, the Company has recently begun to
establish a direct sales force as part of its overall strategy to add additional
wireless providers as customers and to expand the sales of its systems in other
segments of the telecommunications markets. The Company has begun to develop
strategic alliances with hardware and
29
<PAGE>
telecommunication equipment product vendors, in order to expand into new
markets. For example, the Company works with Hewlett-Packard to develop software
systems compatible with Hewlett-Packard hardware. The Company also serves as a
reseller of Hewlett-Packard equipment configured for the Company's software
system. In addition, the Company has begun to seek strategic international
partners that will enable the Company to gain access to distribution systems and
complementary product offerings and to facilitate the Company's international
growth. The Company intends to continue to focus on the development of such
alliances as international deregulation and technological changes increase
demand for viable, flexible and interoperable transactional billing and
management information systems. The Company's marketing efforts also include
providing marketing newsletters to its customers, advertising and participating
in industry trade shows, seminar lectures, and industry standards meetings.
System Development
The Company's research and development efforts are focused on enhancing
existing products and services as well as developing products, features and
services that can be integrated into the Company's core ITDS 10X technology. The
Company's Product Development Committee reviews product and service development
proposals and establishes internal guidelines for efficient development. The
Company's research and development team also works closely with customers to
perform customization of products to meet specific needs. In addition to
internal development, the Company works with its strategic partners Hewlett
Packard and Oracle to develop products compatible with their product offerings.
Currently, the Company has a number of new enhancements under development to
meet evolving customer requirements, including incorporation of Windows 95
compatible user interface; incorporation of an Oracle relational database
management system; and provision for the ITDS 10X system to operate with Unix
based file servers.
The Company actively participates in industry standards associations to
assure that its development efforts are in compliance with standards as they
evolve and to assure that the Company's software can be used on a fully open and
interoperable basis. For example, the Company works closely with a variety of
standards committees and working groups of CIBERNET, the standards body of the
Cellular Telephone Industry Association ("CTIA"). The Company participates in
the CIBERNET Advisory Committee, which evaluates proposed changes to standards
for wireless industry data exchange; the CIBERNET Net Settlement Working Group,
which evaluates proposed changes to the subscriber net settlement process; and
the CIBERNET Data Message Handler Working Group, which focuses on billing
aspects of the TIA IS-124 standard. In addition, the Company participates in
CTIA's International Forum for AMPS Standard, and the Bellcore Ordering and
Billing Forum.
In the years ended December 31, 1993, 1994, and 1995, the Company incurred
cash expenditures of $600,541, $1,043,989 and $1,662,457 respectively, on
systems development, of which $303,197, $288,602 and $479,316 were capitalized
as software development costs in each of such years. In July 1996, the Company
employed 36 people in product and system development and programming.
Competition
The market for billing and management information systems for the
telecommunications service industry is highly competitive and the Company
expects that the high level of growth within the telecommunications service
industry will encourage new entrants, both domestically and internationally, in
the future. The Company competes with both independent providers of
transactional systems and services and with internal billing departments of
telecommunications services providers. The Company believes its most significant
competitors in the wireless telecommunications segment are Alltel Information
Systems, Inc., Cincinnati Bell Information Systems, Inc. ("CBIS"), Computer
Sciences Corp. and Electronic Data Systems, Inc. In the future, the Company may
compete in both the wireless and wireline markets with additional companies who
currently compete in market segments other than wireless. In addition, the
Company competes with several international providers of billing and management
information systems and, as the Company continues to expand into international
markets, it will compete with additional providers abroad.
The Company believes that principal competitive factors include the ability
to provide timely products, features and services that are responsive to
evolving customer needs in an industry characterized by rapidly changing
technologies and ongoing deregulation. The Company must provide statement
accuracy, meet billing cycle deadlines, offer competitive pricing and maintain
high product and service quality. The Company believes that its fully integrated
architecture enables it to compete favorably in the telecommunications services
industry by offering
30
<PAGE>
its customers a high degree of flexibility to quickly modify their billing and
management systems as their needs and the needs of their subscribers change.
In addition, the Company believes that its ability to compete successfully
will depend in part on a number of factors outside its control, including the
development by others of software that is competitive with the Company's
products and services, the price at which others offer comparable products and
services, the extent of competitors' responsiveness to customer needs and the
ability of the Company's competitors to hire, retain and motivate key personnel.
Many of the Company's current and potential future competitors have
significantly greater financial, technical and marketing resources, generate
higher revenue and have greater name recognition than does the Company. In
addition, many of the Company's competitors have established commercial
relationships or joint ventures with major cellular and other telecommunications
services providers.
Proprietary Rights and Licenses
The Company relies in part on trademark, copyright and trade secret laws to
protect its proprietary rights. The Company distributes its products under
service and software license agreements which typically grant customers
non-exclusive licenses, subject to terms and conditions prohibiting unauthorized
reproduction, transfer or use. The Company believes that because of the rapid
pace of technological change in the telecommunications and software industries,
the technological expertise of its personnel, the complexity of its system
architecture and the frequency and timeliness of product and service offerings
are more significant than the legal protections of its products. In addition,
the Company enters into non-disclosure agreements with each employee and
consultant and each third-party to whom the Company provides proprietary
information. Access to the Company's core source code is greatly restricted.
The Company licenses from third parties technology that is important to
certain functionalities of its products. The Company is not aware of any
patent infringement or any violation of other proprietary rights claimed by
any third party relating to the Company or the Company's products. See "Risk
Factors--Dependence on Proprietary Technology."
Employees
In August 1996, the Company had a total of 169 employees, of whom 30 were
engaged in customer service, 79 were engaged in systems, programming and
development, 9 in quality assurance, 25 in new customer conversions, 2 in sales
and 24 in administration and training. None of the Company's employees are
represented by labor unions. The Company believes that its employee relations
are good.
Properties
The Company leases approximately 23,000 square feet of office space in the
Stamford, Connecticut metropolitan area for its corporate headquarters, systems
and programming, client service, operations, quality assurance, documentation
and training, and administration. The Company also leases approximately 1,200
square feet of office space in Middletown, Connecticut for additional software
development activities. The Company has entered into a sublease agreement for
48,222 square feet of office space in Stamford, Connecticut to which it intends
to relocate its corporate headquarters and consolidate each of its Connecticut
offices on or about November 1, 1996. The Company maintains satellite offices in
College Station, Texas, Champaign, Illinois, and Orlando, Florida for
individuals engaged in product management and sales.
Legal Proceedings
The Company is not a party to any material legal proceedings.
31
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers, directors and certain additional management of the
Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ----------------------------- --- ------------------------------------------------
<S> <C> <C>
Directors and Named
Executive Officers
Charles L. Bakes 66 President, Chief Executive Officer and Director
Mark D. Spitzer (1) Executive Vice President, Chief Financial
47 Officer, Treasurer and Director
Lewis D. Bakes Executive Vice President, Chief Operating
38 Officer, Secretary and Director
David L. Wells Executive Vice President, Chief Information
48 Officer and Director
Barry K. Lewis 40 Senior Vice President
Stuart L. Bell (1) (2) 43 Director
Michael E. Kalogris (1) (2) 47 Director
Additional Management
James V. O'Neill 67 Senior Vice President
Peter L. Masanotti 41 Vice President and General Counsel
</TABLE>
- ----------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Charles L. Bakes co-founded the Company in 1990 and has served as the
Company's President and a director since that time. In 1983, Mr. C. Bakes
co-founded the Clinton Financial Group, Inc., a broker/dealer specializing in
the marketing of private placement equity investments, where he served as a
Vice President until 1990.
Mark D. Spitzer co-founded the Company in 1990 and has served as Executive
Vice President, Chief Financial Officer and a director since that time. In
1983, Mr. Spitzer co-founded the Clinton Financial Group, Inc. along with Mr.
C. Bakes and served as its President until joining the Company. From 1983 to
1990, Mr. Spitzer also served as a principal of The Clinton Companies, an
investor and developer of commercial and residential properties.
Lewis D. Bakes co-founded the Company in 1990 and has served as Executive
Vice President, Chief Operating Officer and a director since that time. Mr.
L. Bakes served as an attorney at the law firm of Kleban & Samor P.C. from
1984 until 1987, and served as General Counsel to The Clinton Companies from
1987 to 1990.
David L. Wells co-founded the Company in 1990 and has served as Executive
Vice President, Chief Information Officer and a director since that time. From
1985 to 1990, Mr. Wells served as President and Co-founder of Micro
Communications Technology, Inc., which specialized in development of
communications software packages.
Barry K. Lewis joined the Company in 1994, serving initially as the Company's
Vice President of the Wireless Division and later as the Senior Vice President
of the Wireless Division. From 1983 until he joined the Company, Mr. Lewis
worked for Auxton Computer Enterprise and CBIS, wireless software billing
vendors, ultimately serving as CBIS' Director of the Wireless Division.
Stuart L. Bell has been a director of the Company since August 1996. Since
1995, he has served as Chairman of the Board of Innovative Medical Research,
Inc., a company that executes clinical trials, Assistant to the Chief Executive
Officer of CUC International, a membership services company, and as a director
of Harbinger Corporation, an electronic commerce company. From 1975 to 1995, he
served as Chief Financial Officer, Treasurer and Executive Vice President,
Office of the President, of CUC International.
32
<PAGE>
Michael E. Kalogris has been a director of the Company since August 1996.
He has served as President and Chief Executive Officer of Horizon
Cellular Group, an owner and operator of cellular telephone systems, since
September 1991 and has been a director of Cruise Phone, a provider of marine
communications, using satellite and cellular communications systems since March
1996. From May 1988 to September 1991, he served as President and Chief
Executive Officer of Metrophone, a wireless carrier in Philadelphia. Mr.
Kalogris is Secretary of the Cellular Telecommunications Industry Association, a
member of its Executive Board and Co-Chairman of its Fraud Advisory Council.
James V. O'Neill joined the Company in 1992 and has served as Senior Vice
President since that time. Mr. O'Neill was Vice President of Telecommunications
for IMI Systems, Inc., an international consulting firm, from 1987 until 1992.
In addition, Mr. O'Neill served as an Adjunct Faculty Member at the University
of Wisconsin from 1987 until 1992, where he lectured on subjects relating to
cellular communications.
Peter L. Masanotti joined the Company in August 1996 as Vice President and
General Counsel. From 1980 until he joined the Company, Mr. Masanotti was an
attorney at the law firm Kleban & Samor, P.C., and served as that firm's
Managing Partner since 1993.
Following this offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. The
Board will consist of two Class I Directors (Messrs. Kalogris and Bell), two
Class II Directors (Messrs. L. Bakes and Spitzer) and two Class III Directors
(Messrs. C. Bakes and Wells). At each annual meeting of stockholders, a class of
directors will be elected for a three-year term to succeed the directors or
director of the same class whose terms are then expiring. The terms of the Class
I Directors, Class II Directors and Class III Directors expire upon the election
and qualification of successor directors at the annual meeting of stockholders
held during the calendar years 1997, 1998 and 1999, respectively.
Each officer serves at the discretion of the Board of Directors. Charles
L. Bakes is the father of Lewis D. Bakes.
Board Committees
The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation and benefits for executive officers, directors, employees
and consultants of the Company and administers and grants stock options pursuant
to the Company's 1996 Stock Incentive Plan and 1996 Employee Stock Purchase
Plan. The Audit Committee reviews the results and scope of the audit and other
services provided by the Company's independent public accountant.
Board Compensation
All of the directors are reimbursed for expenses incurred in connection with
their attendance at Board and committee meetings. Directors are not entitled to
compensation in their capacities as directors. On September 30, 1996, the
Company granted to each of Messrs. Bell and Kalogris an option to purchase up to
25,000 shares of Common Stock at an exercise price of $12.00 per share. Each
option becomes exercisable in four equal annual installments beginning September
30, 1997.
Executive Compensation
The following table sets forth the compensation for the year ended December
31, 1995 for the Company's Chief Executive Officer and its four most highly
compensated executive officers during fiscal 1995 (the Chief Executive Officer
and such other executive officers are hereinafter referred to as the "Named
Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------
All Other
Name and Principal Position Salary Bonus Compensation
- -------------------------------------------------- ------- ------- -------------
<S> <C> <C> <C>
Charles L. Bakes
President, Chief Executive Officer and Director $239,950 $308,825 --
Mark D. Spitzer
Executive Vice President, Chief Financial
Officer, Treasurer and Director $322,887 $294,798 --
33
<PAGE>
Annual Compensation
-----------------------------------
All Other
Name and Principal Position Salary Bonus Compensation
- -------------------------------------------------- ------- ------- -------------
<S> <C> <C> <C>
Lewis D. Bakes
Executive Vice President, Chief Operating
Officer, Secretary and Director $321,772 $290,913 --
David L. Wells
Executive Vice President, Chief Information
Officer and Director $204,000 $120,181 --
Barry K. Lewis --
Senior Vice President $115,000 $ 7,500
</TABLE>
Employment Agreement
In June 1994, the Company entered into an employment agreement with Mr. Lewis
providing for the employment of Mr. Lewis as Vice President of Wireless Services
which agreement was amended on September 30, 1996. The agreement terminates on
July 4, 1997, unless sooner terminated as provided therein. The agreement
provides for an annual base salary of $135,000 per year (plus performance
bonuses to be determined in the sole discretion of the Board of Directors). In
addition, under the agreement, Mr. Lewis is entitled to receive a payment from
the Company of $275,000 on or before December 31, 1996 and, upon completion of
this offering, the Company is obligated to sell to Mr. Lewis 18,333 fully-vested
shares of Common Stock, at a purchase price of $.01 per share, pursuant to the
1996 Stock Incentive Plan. The agreement also contains a non-competition
provision pursuant to which Mr. Lewis is prohibited from competing with the
Company during his employment with the Company and for one year thereafter.
1996 Stock Incentive Plan
The Company's 1996 Stock Incentive Plan (the "1996 Incentive Plan") permits
the Company to grant options to purchase Common Stock, to make awards of
restricted Common Stock, and to issue certain other equity-related securities of
the Company ("Awards") to employees and directors of and consultants to the
Company. The total number of shares of Common Stock which may be issued under
the 1996 Incentive Plan is 1,000,000 shares. The maximum number of shares which
may be issued to any individual under the 1996 Incentive Plan is 250,000 per
year. Stock options entitle the optionee to purchase Common Stock from the
Company for a specified exercise price during a period specified in the
applicable option agreement. Non-qualified stock options may be granted at
exercise prices which are above, equal to or below the fair market value of the
Common Stock. The exercise price of shares of Common Stock subject to options
qualifying as incentive stock options or intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
of 1986, as amended, may not be less than the fair market value of the Common
Stock on the date of the grant. Restricted stock awards entitle the recipient to
purchase or otherwise receive Common Stock from the Company under terms which
provide for vesting over a period of time and forfeiture of the unvested portion
of the Common Stock subject to the award upon the termination of the recipient's
employment or other relationship with the Company. The 1996 Incentive Plan is
administered by the Compensation Committee of the Board of Directors, which will
select the persons to whom Awards are granted and determine the number of shares
of Common Stock covered by the Award, its exercise or purchase price, its
vesting schedule and (in the case of stock options) its expiration date. Awards
granted under the 1996 Incentive Plan will be generally nontransferable. It is
expected that stock options will generally become exercisable over a four-year
period and expire ten years after the date of grant (subject to earlier
termination in the event of the termination of the optionee's employment or
other relationship with the Company).
1996 Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") will
take effect upon the closing of this offering. The Purchase Plan authorizes the
issuance of up to a total of 200,000 shares of Common Stock to participating
employees through a series of semiannual offerings, which are expected to
commence on each February 1 and August 1, beginning February 1, 1997. Any
employee of the Company or a participating subsidiary is eligible to participate
in an offering if he or she is regularly employed by the Company or a subsidiary
for at least 30 hours a week and for more than five months in a calendar year on
the first day of the applicable offering. The price at which employees may
purchase Common Stock in an offering is 85% of the closing price of the Common
Stock on the Nasdaq National Market on the day the offering commences or on the
day the offering terminates, whichever is lower. An
34
<PAGE>
employee may elect to have up to 10% of his or her qualifying compensation
withheld for the purpose of purchasing stock under the Purchase Plan. If the
total number of shares of Common Stock that would otherwise be purchased in the
offering with accumulated payroll deductions exceeds the number of shares
available during the offering, the available shares will be allocated on a pro
rata basis to participating employees.
Compensation Committee Interlocks and Insider Participation
The current members of the Company's Compensation Committee are Messrs.
Bell and Kalogris. No executive officer of the Company has served as a director
or member of the compensation committee (or other committee serving an
equivalent function) of any other entity, whose executive officers served as a
director of or member of the Compensation Committee of the Company.
CERTAIN TRANSACTIONS
In December 1995, the Company issued to CII, a beneficial owner of more than
5% of the Common Stock, 129 shares of Class C Convertible Preferred Stock at a
purchase price of $4,961.24 per share. Each share of Class C Convertible
Preferred Stock converted into one share of Series C Convertible Preferred Stock
upon the merger of the Company into its Delaware subsidiary. Each share of
Series C Convertible Preferred Stock will automatically convert into 800 shares
of Common Stock upon the closing of this offering. The holder of the shares of
Common Stock issuable upon conversion of such Series C Convertible Preferred
Stock is entitled to certain registration rights with respect thereto. See
"Shares Eligible for Future Sale."
Pursuant to Software License Agreements entered into by the Company in the
normal course of its business, in January 1994 and May 1994, Horizon Cellular
Group ("Horizon") paid the Company $1,684,694 for billing software and services
rendered in 1995 and has paid the Company $1,581,382, for such services rendered
from January 1, 1996 until August 31, 1996. Mr. Kalogris, who became a director
of the Company in August 1996, serves as President and Chief Executive Officer
of Horizon.
For a description of certain employment and other arrangements between the
Company and its executive officers, see "Management--Executive Compensation" and
"--Employment Agreement."
The Company believes that the securities issued in the transactions described
above were sold at their then fair market value and that the terms of the
transactions described above were no less favorable than the Company could have
obtained from unaffiliated third parties.
The Company has adopted a policy providing that all material transactions
between the Company and its officers, directors and other affiliates must (i) be
approved by a majority of the members of the Company's Board of Directors and by
a majority of the disinterested members of the Company's Board of Directors and
(ii) be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties. In addition, this policy will require that any loans
by the Company to its officers, directors or other affiliates be for bona fide
business purposes only.
In connection with the Recapitalization, the Company was reincorporated in the
State of Delaware pursuant to a merger and an 800-for-1 stock split was
effected. Pursuant to the Recapitalization, the Company's treasury shares and
Class A and Class B Preferred Stock were retired, and the holders of shares of
Class A and Class B Preferred Stock were issued as merger consideration an
aggregate of 852,812 shares of Common Stock valued at $12 per share (for an
aggregate of $10,233,744, treated as a distribution to such shareholders) and
promissory notes in the aggregate amount of $825,000, evidencing the Company's
obligations to repay capital. The Company believes that the shares of Common
Stock and promissory notes issued as merger consideration to the holders of
Class A and Class B Preferred Stock appropriately reflect the relative rights
and preferences of the Class A and Class B Preferred Stock prior to the
Recapitalization. In addition, CII has agreed to exercise immediately prior to
this offering warrants to purchase the aggregate of 334,524 shares of Common
Stock at an aggregate purchase price of $822,959, and, as described above, all
outstanding shares of Series C Convertible Preferred Stock will be converted
into shares of Common Stock upon consummation of this offering.
35
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of August 1, 1996, after giving
effect to the Recapitalization, and as adjusted to reflect the sale of the
shares of Common Stock offered hereby, by (i) each person or entity known to the
Company to own beneficially more than 5% of the Common Stock, (ii) each of the
Company's directors and Named Executive Officers, (iii) each Selling Stockholder
and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Shares of Common
Stock Beneficially
Shares of Common Stock Owned
Beneficially Owned Prior to After the
the Offering (2) Offering (2) (3)
---------------------------- --------------------
Number of
Shares of
Name and Address (1) of Common Stock
Beneficial Owner Number Percent Being Offered Number Percent
- ----------------------------------- ------------- ------------ ---------------- -------- --------
<S> <C> <C> <C> <C> <C>
Connecticut Innovations,
Incorporated (4) 437,724 7.0% 0 437,724 5.3%
845 Brook Street
Rocky Hill, CT 06067
Charles L. Bakes (5) 1,671,756 26.9% 224,413 1,447,343 17.6%
Mark D. Spitzer (6) 1,279,756 20.6% 171,791 1,107,965 13.5%
Lewis D. Bakes (7) 1,250,600 20.1% 167,878 1,082,722 13.2%
David L. Wells (8) 719,400 11.6% 96,571 622,829 7.6%
Barry K. Lewis 18,333 (9) * 0 18,333 *
Stuart L. Bell 0 -- 0 0 --
Michael E. Kalogris 0 -- 0 0 --
James V. O'Neill 44,800 * 6,014 38,786 *
All directors and executive
officers as a group (7 persons) 4,939,845 79.5% 666,667 4,279,192 52.1%
</TABLE>
- ------------
* Less than 1%
(1) The address of each person in the table other than Connecticut Innovations,
Incorporated is 969 High Ridge Road, Suite 205, Stamford, Connecticut 06905.
(2) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares as
to which the individual has sole or shared voting power or investment power
and also any shares which the individual has the right to acquire within 60
days after August 1, 1996. The inclusion herein of such shares, however,
does not constitute an admission that the named stockholder is a direct or
indirect beneficial owner of such shares. Unless otherwise indicated, each
person or entity named in the table has sole voting power and investment
power (or shares such power with his or her spouse) with respect to all
shares of capital stock listed as owned by such person or entity.
(3) Assumes no exercise of the Underwriters' over-allotment options.
(4) Consists of (i) 334,524 shares of Common Stock to be issued upon exercise of
the Warrants immediately prior to this offering and (ii) the conversion of
129 shares of Series C Convertible Preferred Stock into 103,200 shares of
Common Stock upon the closing of this offering, all as contemplated by the
Recapitalization.
(5) Consists of 1,663,556 shares beneficially owned by Mr. C. Bakes' wife, as
to which shares Mr. C. Bakes disclaims beneficial ownership and 8,200
shares held by Mr. C. Bakes from an aggregate of 32,800 shares (the
"Tenants in Common Shares") held by Mr. C. Bakes, Mark D. Spitzer, David
L. Wells and Lewis D. Bakes as Tenants in Common.
(6) Includes 8,200 of the Tenants in Common Shares.
(7) Consists of 1,242,400 shares beneficially owned by Mr. L. Bakes' wife, as
to which shares Mr. L. Bakes disclaims beneficial ownership, and 8,200 of
the Tenants in Common Shares.
(8) Includes 533,600 shares beneficially owned by Mr. Wells' wife, as to which
shares Mr. Wells disclaims beneficial ownership, and 8,200 of the Tenants in
Common Shares.
(9) Represents the shares to be issued to Mr. Lewis upon completion of this
offering.
36
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the Company will be authorized to issue
40,000,000 shares of Common Stock, $.01 par value per share, of which 8,212,504
shares will be issued and outstanding, and 2,000,000 of undesignated Preferred
Stock, $.01 par value per share, of which no shares will be issued and
outstanding.
Common Stock
Upon the closing of this offering, the Company's Certificate of Incorporation
("Certificate of Incorporation") will authorize the issuance of up to 40,000,000
shares of Common Stock, $.01 par value per share. Holders of Common Stock are
entitled to one vote for each share held on all matters submitted to a vote of
stockholders and do not have cumulative voting rights. Accordingly, holders of a
majority of the shares of Common Stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available therefor,
subject to any preferential dividend rights of outstanding Preferred Stock. Upon
the liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding Preferred Stock. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are, and the shares offered by the Company in this
offering will be, when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
class of Preferred Stock which the Company may designate and issue in the
future. Certain holders of Common Stock have the right to require the Company to
effect the registration of their shares of Common Stock in certain
circumstances. See "Shares Eligible for Future Sale."
Preferred Stock
Upon the closing of this offering, the Certificate of Incorporation will
authorize the issuance of up to 2,000,000 shares of Preferred Stock, $.01 par
value per share. Under the terms of the Certificate of Incorporation, the Board
of Directors is authorized, subject to any limitations prescribed by law,
without stockholder approval, to issue such shares of Preferred Stock in one or
more class. Each such class of Preferred Stock shall have such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences, as
shall be determined by the Board of Directors.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
Delaware Law and Certain Charter and By-Law Provisions
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Certificate of Incorporation provides for the division of the Board of
Directors into three classes as nearly equal in size as possible with staggered
three-year terms. See "Management." In addition, the Certificate of
Incorporation provides that directors may be removed only for cause by the
affirmative vote of the holders of two-thirds of the shares of capital stock of
the corporation entitled to vote. Under the Certificate of Incorporation, any
vacancy on the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may only be filled by vote of a
majority of the directors then in office. The classification of the Board of
Directors and the limitations on the removal of directors and filling of
vacancies could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of the
Company.
37
<PAGE>
The Certificate of Incorporation also provides that, after the closing of
this offering, any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting and
may not be taken by written action in lieu of a meeting. The Certificate of
Incorporation further provides that special meetings of the stockholders may
only be called by the Chairman of the Board of Directors, the Chief Executive
Officer or, if none, the President of the Company or by the Board of Directors.
Under the Company's By-Laws, in order for any matter to be considered "properly
brought" before a meeting, a stockholder must comply with certain requirements
regarding advance notice to the Company. The foregoing provisions could have the
effect of delaying until the next stockholders meeting stockholder actions which
are favored by the holders of a majority of the outstanding voting securities of
the Company. These provisions may also discourage another person or entity from
making a tender offer for the Company's Common Stock, because such person or
entity, even if it acquired a majority of the outstanding voting securities of
the Company, would be able to take action as a stockholder (such as electing new
directors or approving a merger) only at a duly called stockholders meeting, and
not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. The Certificate of Incorporation and the
By-Laws require the affirmative vote of the holders of at least 75% of the
shares of capital stock of the Company issued and outstanding and entitled to
vote to amend or repeal any of the provisions described in the prior two
paragraphs.
The Certificate of Incorporation contains certain provisions permitted under
the General Corporation Law of Delaware relating to the liability of directors.
The provisions eliminate a director's liability for monetary damages for a
breach of fiduciary duty, except in certain circumstances involving wrongful
acts, such as the breach of a director's duty of loyalty or acts or omissions
which involve intentional misconduct or a knowing violation of law. Further, the
Certificate of Incorporation contains provisions to indemnify the Company's
directors and officers to the fullest extent permitted by the General
Corporation Law of Delaware. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
38
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, based upon the number of shares outstanding
at September 30, 1996, there will be 8,212,504 shares of Common Stock of the
Company outstanding. Of these shares, the 2,666,667 shares sold in this offering
will be freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), except that any
shares purchased by "affiliates" of the Company, as that term is defined in Rule
144 ("Rule 144") under the Securities Act ("Affiliates"), may generally only be
sold in compliance with the limitations of Rule 144 described below.
The remaining 5,545,837 shares of Common Stock are deemed "Restricted Shares"
as defined under Rule 144. Restricted Shares may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules are
summarized below. Subject to the lock-up agreements described below and the
provisions of Rule 144, 144(k) and 701, additional shares will be available for
sale in the public market (subject in the case of shares held by affiliates to
compliance with certain volume restrictions) as follows (i) 761,700 shares will
be available for immediate sale in the public market on the date of the
Prospectus, (ii) 4,312,813 shares will be eligible for resale 90 days after the
date of this Prospectus; and (iii) 471,324 shares will be eligible for sale upon
expiration of their respective two-year holding periods.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned Restricted Shares for at least
two years (and, with respect to non-affiliates of the Company, a person who has
beneficially owned Restricted Securities at least two years and less than three
years), will be entitled to sell in any three-month period a number of shares
that does not exceed the greater of (i) 1% of the then outstanding shares of the
Company's Common Stock (approximately 82,125 shares immediately after the
offering) or (ii) the average weekly trading volume of the Company's Common
Stock in the Nasdaq Stock Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Such sales pursuant to Rule 144 are subject to certain
requirements relating to manner of sale, notice and availability of current
public information about the Company. A person (or persons whose shares are
aggregated) who is not deemed to have been an Affiliate of the Company at any
time during the 90 days immediately preceding the sale and who has beneficially
owned Restricted Shares for at least three years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above. The
Securities and Exchange Commission has recently proposed to reduce the two- and
three-year holding periods under Rule 144 to one and two years, respectively. If
enacted, such modification will have a material effect on the timing of when
certain shares of Common Stock become eligible for resale.
Rule 701 promulgated under the Securities Act provides that shares of Common
Stock acquired pursuant to written plans such as the 1996 Stock Incentive Plan
may be resold by persons other than Affiliates, beginning 90 days after the date
of this Prospectus, subject only to the manner of sale provisions of Rule 144,
and by Affiliates, beginning 90 days after the date of this Prospectus, subject
to all provisions of Rule 144 except its two-year minimum holding period.
The Company has agreed, subject to certain exceptions, not to offer, sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus, except that the Company may issue, and grant
options to purchase, shares of Common Stock under the 1996 Stock Incentive Plan
and the 1996 Employee Stock Purchase Plan. In addition, the Company may issue
shares of Common Stock in connection with any acquisition of another company if
the terms of such issuance provide that such Common Stock shall not be resold
prior to the expiration of the 180 day period referenced in the preceding
sentence.
All of the security holders of the Company have agreed pursuant to Lock-Up
Agreements, subject to certain limited exceptions, not to offer, sell or
otherwise dispose of any shares of Common Stock beneficially owned by them for a
period of 180 days after the date of this Prospectus, 75% of such shares for a
period of 270 days after the date of this Prospectus and 40% of such shares for
a period of 365 days after the date of this Prospectus. The Lock-Up Agreement
executed by CII shall not restrict the transfer of shares of Common Stock
beneficially owned by CII in the event the Company relocates outside of
Connecticut.
The Company intends to file registration statements on Form S-8 under the
Securities Act to register all shares of Common Stock issuable under the 1996
Stock Incentive Plan and the 1996 Employee Stock Purchase Plan. The registration
statements are expected to be filed shortly after the effective date of the
Registration Statement of which
39
<PAGE>
this Prospectus is a part and will be effective upon filing. Shares issued
upon the exercise of stock options after the effective date of the Form S-8
registration statements will be eligible for resale in the public market
without restriction, subject to Rule 144 limitations applicable to Affiliates
and the Lock-up Agreements noted above.
The Company granted to CII rights with respect to the registration of up to
437,724 shares of Common Stock under the Securities Act (the "Registration
Rights"). Under the terms of the Registration Rights, if the Company proposes to
register any of its securities under the Securities Act either for its own
account or for the account of a security holder or holders, CII is entitled to
notice of such registration and is entitled to include such shares of Common
Stock in such registration. In addition, CII is entitled to demand up to two
registrations, the expenses of which will be borne by the Company. The
Registration Rights are subject to certain conditions and limitations, among
them the right of the underwriters of a registered offering to limit the number
of shares included in such registration.
Prior to this offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of significant numbers of shares of the Common Stock in the
public market could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
40
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the form
of which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, the Company and the Selling Stockholders have agreed to
sell to each of the Underwriters named below, and each of such Underwriters, for
whom Lehman Brothers Inc. and Cowen & Company are acting as representatives (the
"Representatives"), has severally agreed to purchase from the Company and the
Selling Stockholders, the respective number of shares of Common Stock set forth
opposite its name below:
Number of
Shares of
Common
Underwriters Stock
- -------------------- ---------
Lehman Brothers Inc.
Cowen & Company
---------
Total 2,666,667
=========
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the shares of Common Stock are subject to certain conditions, and
that if any of the foregoing shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, then all of the shares of
Common Stock agreed to be purchased by the Underwriters pursuant to the
Underwriting Agreement must be so purchased.
The Company and the Selling Stockholders have been advised that the
Underwriters propose to offer the shares of Common Stock in part directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus, and in part to certain selected dealers (who may include the
Underwriters) at such public offering price less a selling concession not in
excess of $ per share. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per share to certain brokers and dealers. After
this offering, the public offering price, the concession to selected dealers and
the reallowance may be changed by the Underwriters.
The Company and the Selling Stockholders have granted to the Underwriters
options to purchase up to an aggregate of 200,000 and 200,000 additional shares
of Common Stock, respectively, at the public offering price, less the aggregate
underwriting discounts and commissions shown on the cover page of this
Prospectus, exercisable solely to cover over-allotments, if any. Such options
may be exercised at any time until 30 days after the date of the Underwriting
Agreement. To the extent that either option is exercised, the Underwriters will
be committed, subject to certain conditions, to purchase a number of additional
shares of Common Stock proportionate to such Underwriter's initial commitment as
indicated in the preceding table and the Company and such Selling Stockholders
will be obligated, pursuant to such over-allotment options to sell such shares
of Common Stock to the Underwriters.
The Company has agreed that, without the prior written consent of Lehman
Brothers, Inc., it will not, subject to certain limited exceptions, directly or
indirectly, offer, sell or otherwise dispose of any shares of Common Stock, or
any securities convertible into or exchangeable or exercisable for any such
shares, for 180 days after the date of this Prospectus. All of the security
holders of the Company have agreed that, without the prior written consent of
Lehman Brothers Inc., they will not, subject to certain limited exceptions,
directly or indirectly, offer, sell or otherwise dispose of (i) any shares of
Common Stock or any securities convertible into or exchangeable or exercisable
for any such shares for a period of 180 days after the date of this Prospectus,
(ii) 75% of such shares
41
<PAGE>
or securities for a period of 270 days after the date of this Prospectus and
(iii) 40% of such shares or securities for a period of 365 days after the date
of this Prospectus. These restrictions on transfer shall not apply to shares
of Common Stock beneficially owned by CII in the event the Company relocates
outside of Connecticut.
Prior to this offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated
among the Company and the Representatives. Among the factors to be considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, will be the Company's historical performance
and capital structure, estimates of the business potential and earnings
prospects of the Company, an overall assessment of the Company, an assessment of
the Company's management and the consideration of the above factors in relation
to market valuation of companies in related businesses.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "ITDS".
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933 and to contribute, under certain circumstances, to
payments that the Underwriters may be required to make in respect thereof.
Any offers in Canada will be made only pursuant to an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
such offer is made.
Purchasers of the Common Stock offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the country
of purchase in addition to the offering price set forth on the cover page
hereof.
The Representatives have informed the Company that they do not intend to
confirm sales of Common Stock offered hereby to any accounts over which they
exercise discretionary authority.
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company hereby will
be passed upon for the Company by Hale and Dorr, Boston, Massachusetts, and for
the Underwriters by Chadbourne & Parke LLP, New York, New York.
EXPERTS
The financial statements of the Company at December 31, 1995 and 1994, and
for each of the three years in the period ended December 31, 1995, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form S-1 under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission, to which Registration Statement reference is hereby made.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement and the
exhibits thereto may be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.C., Washington, D.C. 20549 and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In
addition, the Company is required to file electronic versions of these documents
with the Commission through the Commission's Electronic Data Gathering, Analysis
and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
42
<PAGE>
As a result of this offering, the Company will become subject to the information
and reporting requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith will file periodic reports, proxy statements and
other information with the Securities and Exchange Commission. The Company
intends to furnish to its stockholders annual reports containing audited
financial information for each fiscal year of the Company and unaudited
quarterly reports for the first three quarters of each fiscal year of the
Company.
43
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors F-2
Financial Statements
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (unaudited)
and pro forma (unaudited) F-3
Statements of Operations for the years ended December 31, 1993, 1994 and 1995
and the six months ended June 30, 1995 and 1996 (unaudited) F-5
Statements of Stockholders' Equity (Deficiency) for the years ended
December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996 (unaudited) F-6
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995
and the six months ended June 30, 1995 and 1996 (unaudited) F-7
Notes to Financial Statements F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
International Telecommunication Data Systems, Inc.
We have audited the accompanying balance sheets of International
Telecommunication Data Systems, Inc. as of December 31, 1995 and 1994, and the
related statements of operations, stockholders' equity (deficiency) and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Telecommunication
Data Systems, Inc. at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
March 15, 1996, except for Note 10,
as to which the date is September 27, 1996
F-2
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------- June 30, June 30, 1996
1994 1995 1996 Pro forma
--------- --------- --------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 412,250 $1,172,692 $1,031,990 $25,767,808
Short-term investments (Note 2) 99,286 295,069 340,200 340,200
Accounts receivable 891,178 1,348,787 2,333,856 2,333,856
Prepaid expenses 43,564 279,942 279,478 279,478
Deferred income taxes 10,605 20,256 43,000 43,000
---------- ---------- ---------- -----------
Total current assets 1,456,883 3,116,746 4,028,524 28,764,342
Property and equipment:
Computers, including leased property under
capital leases of $392,058, $1,275,366 and
$1,592,431, respectively 931,760 1,642,697 1,959,762 1,959,762
Furniture and fixtures, including leased
property under capital leases of $33,119 90,015 90,015 90,015 90,015
Trade booth 37,809 37,809 37,809 37,809
Equipment, including leased property under
capital leases of $20,882 in 1995 and $53,508
in June 30, 1996 7,466 29,933 62,558 62,558
Leasehold improvements 27,026 27,026 27,026 27,026
---------- ---------- ---------- -----------
1,094,076 1,827,480 2,177,170 2,177,170
Less: accumulated depreciation and amortization 499,537 709,911 997,173 997,173
---------- ---------- ---------- -----------
594,539 1,117,569 1,179,997 1,179,997
Other assets:
Product development costs--at cost, net of
accumulated amortization of $119,818,
$286,110 and $410,324, respectively 471,981 785,005 1,002,839 1,002,839
Other 127,795 185,563 189,775 189,775
Deferred income taxes -- 228,823 99,000 99,000
---------- ---------- ---------- -----------
599,776 1,199,391 1,291,614 1,291,614
---------- ---------- ---------- -----------
Total assets $2,651,198 $5,433,706 $6,500,135 $31,235,953
========== ========== ========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
BALANCE SHEETS--CONTINUED
<TABLE>
<CAPTION>
December 31, June 30, June 30, 1996
----------------------
1994 1995 1996 Pro forma
--------- --------- --------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Liabilities and stockholders' equity (deficiency)
Current liabilities:
Accounts payable $ 384,886 $ 256,001 $ 347,395 $ 347,395
Accrued expenses 126,916 386,137 345,221 345,221
Accrued compensation 45,592 693,386 440,900 440,900
Current portion of accrued rent liability 17,365 26,401 27,597 27,597
Current maturities of notes payable 75,821 77,198 36,527 36,527
Current maturities of long-term debt (Note 3) 524,920 69,240 66,982 --
Current maturities of capital lease obligations
(Note 6) 124,702 398,261 507,843 353,590
---------- ---------- ---------- -----------
Total current liabilities 1,300,202 1,906,624 1,772,465 1,551,230
Accrued rent liability 79,694 53,293 45,850 45,850
Notes payable 77,378 -- -- --
Long-term debt (Note 3) 1,181,126 1,742,033 1,710,252 --
Capital lease obligations (Note 6) 172,279 695,028 772,087 491,433
Deferred income taxes 10,605 -- -- --
Deferred revenue -- -- 200,000 200,000
Other 16,184 17,694 47,842 47,842
Commitments and contingencies (Note 7) -- -- -- --
Preferred Stock--Class C
$4,961 par value, cumulative, nonvoting
250 shares authorized, 129 shares outstanding -- 640,000 640,000 --
Stockholders' equity (deficiency) (Notes 4 and 10)
Preferred Stock--Class A (net of issuance costs)
$25,000 par value, noncumulative, nonvoting
50 shares authorized, 18 shares outstanding 400,400 400,400 400,400 --
Preferred Stock--Class B (net of issuance costs)
$250 par value, noncumulative, nonvoting
2,000 shares authorized, 1,500 shares outstanding 327,600 327,600 327,600 --
Preferred Stock, $.01 par value; 2,000,000 shares
authorized, none issued -- -- -- --
Common Stock, $.01 par value; 40,000,000 shares
authorized, 5,124,800 shares issued, 4,875,200
shares outstanding at December 31, 1994 and 1995
and June 30, 1996 and 8,165,736 issued and
outstanding June 30, 1996 pro forma 51,248 51,248 51,248 81,657
Additional paid-in capital 28,112 -- -- 38,110,736
Retained earnings (deficit) (593,600) (184) 932,421 (9,292,795)
Treasury stock (400,030) (400,030) (400,030) --
---------- ---------- ---------- -----------
Total stockholders' equity (deficiency) (186,270) 379,034 1,311,639 28,899,598
---------- ---------- ---------- -----------
Total liabilities and stockholders' equity
(deficiency) $2,651,198 $5,433,706 $6,500,135 $31,235,953
========== ========== ========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
------------------------------------ --------------------------
1993 1994 1995 1995 1996
--------- --------- ---------- --------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $3,145,934 $6,324,041 $10,820,815 $4,885,770 $7,864,641
Costs and expenses:
Operating expenses 834,337 1,646,852 2,787,687 1,193,880 1,847,718
General, administrative and
selling expenses 1,575,407 2,409,683 4,601,242 2,070,218 2,683,019
Depreciation and amortization 241,953 405,873 640,917 275,108 437,708
Systems development and
programming costs 297,344 755,387 1,183,141 452,761 964,390
---------- ---------- ----------- ---------- ----------
Total costs and expenses 2,949,041 5,217,795 9,212,987 3,991,967 5,932,835
---------- ---------- ----------- ---------- ----------
Operating income 196,893 1,106,246 1,607,828 893,803 1,931,806
Other income 50,852 28,413 49,477 22,805 12,815
Interest expense (329,326) (389,793) (452,925) (235,906) (218,416)
---------- ---------- ----------- ---------- ----------
Income (loss) before income tax
expense (81,581) 744,866 1,204,380 680,702 1,726,205
Income tax expense -- 36,666 378,786 214,086 732,000
---------- ---------- ----------- ---------- ----------
Income (loss) before extraordinary
item (81,581) 708,200 825,594 466,616 994,205
Extraordinary loss (net of $158,038
tax benefit) -- -- (223,696) (223,696) --
---------- ---------- ----------- ---------- ----------
Net income (loss) $ (81,581) $ 708,200 $ 601,898 $ 242,920 $ 994,205
========== ========== =========== ========== ==========
Pro forma income per common share:
Income before extraordinary item $ .13 $ .07 $ .16
Extraordinary loss (.03) (.03) --
----------- ---------- ----------
Pro forma net income $ .10 $ .04 $ .16
Shares used in computing pro forma =========== ========== ==========
income per common share 6,165,736 6,165,736 6,165,736
=========== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 IS UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock
----------------------------------------------------
Class A Class B Common Stock
------------------------ ------------------------
Number Number Number
of Shares $25,000 of Shares $250 of Shares Par
Outstanding Par Value Outstanding Par Value Outstanding Value
---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992 18 $400,400 1,500 $327,600 3,259,200 $32,592
Issuance of common
stock 32,000 320
Distribution of stock to
officers 1,800,000 18,000
Net loss
Preferred stock
dividends
-- -------- ------ -------- ---------- -------
Balance at December 31,
1993 18 400,400 1,500 327,600 5,091,200 50,912
Issuance of common
stock 33,600 336
Net income
Preferred stock
dividends
Purchase of treasury
stock (249,600)
-- -------- ------ -------- ---------- -------
Balance at December 31,
1994 18 400,400 1,500 327,600 4,875,200 51,248
Issuance of preferred
stock
Net income
Preferred stock
dividends
-- -------- ------ -------- ---------- -------
Balance at December 31,
1995 18 400,400 1,500 327,600 4,875,200 51,248
Net income
Preferred stock
dividends
-- -------- ------ -------- ---------- -------
Balance at June 30, 1996 18 $400,400 1,500 $327,600 4,875,200 $51,248
== ======== ====== ======== ========== =======
</TABLE>
<TABLE>
<CAPTION>
Additional Retained
Paid-in Treasury Earnings
Capital Stock at Cost (Deficit)
---------- -------------- ------------
<S> <C> <C> <C>
Balance at December 31,
1992 $ 14,968 $ -- $(1,220,219)
Issuance of common
stock 280
Distribution of stock to
officers 16,185
Net loss (81,581)
Preferred stock
dividends (11,250)
-------- --------- -----------
Balance at December 31,
1993 20,183 -- (1,301,800)
Issuance of common
stock 30,429
Net income 708,200
Preferred stock
dividends (22,500)
Purchase of treasury
stock (400,030)
-------- --------- -----------
Balance at December 31,
1994 28,112 (400,030) (593,600)
Issuance of preferred
stock
Net income 601,898
Preferred stock
dividends (28,112) (8,482)
-------- --------- -----------
Balance at December 31,
1995 -- (400,030) (184)
Net income 994,205
Preferred stock
dividends (61,600)
-------- --------- -----------
Balance at June 30, 1996 $ -- $(400,030) $ 932,421
======== ========= ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
--------------------------------- -------------------------
1993 1994 1995 1995 1996
-------- -------- --------- -------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Income (loss) before extraordinary loss $ (81,581) $ 708,200 $ 825,594 $ 466,616 $ 994,205
Adjustments to reconcile income (loss)
before extraordinary loss to net cash
provided by operating activities:
Depreciation and amortization 241,953 405,873 640,917 275,108 437,708
Distribution of stock to officers 34,185 -- -- -- --
Compensation paid in Common Stock -- 30,135 -- -- --
Deferred interest expense 321,215 342,032 -- -- (400)
Loss (gain) on disposal of equipment (5,237) 14,705 (245) -- --
Deferred income taxes -- -- (93,960) -- 107,079
Change in operating assets and liabilities:
Accounts receivable (140,159) (429,785) (457,609) (526,481) (985,069)
Prepaid expenses (25,028) 8,300 (236,378) (85,780) 464
Accounts payable and accrued expenses 241,293 93,574 781,049 598,441 (202,008)
Deferred revenue -- -- -- -- 200,000
Other assets and liabilities, net 32,891 (13,310) (157,414) (138,681) (68,143)
--------- ---------- ---------- --------- ----------
Net cash provided by operating activities 619,532 1,159,724 1,301,954 589,223 483,836
Investing activities
Capital expenditures (226,812) (144,624) (17,358) (15,735) --
Proceeds from sale of equipment 23,000 -- 13,500 -- 400
Purchases of securities (50,152) -- -- -- --
Purchase of investments (99,216) (200,000) (245,069) (238,749) (295,130)
Proceeds from maturities of investments -- 200,000 99,286 100,000 250,000
Product development costs (303,197) (288,602) (479,316) (230,817) (342,048)
--------- ---------- ---------- --------- ----------
Net cash used for investing activities (656,377) (433,226) (628,957) (385,301) (386,778)
Financing activities
Principal payments on long-term debt (150,374) (292,668) (276,507) (104,923) (34,039)
Proceeds from long-term debt 362,500 -- -- -- --
Principal payments on notes payable (65,483) (18,672) (76,001) (37,193) (40,671)
Principal payments on capital lease obligations (49,104) (98,590) (166,297) (67,784) (163,050)
Proceeds from sale of common stock 600 630 -- -- --
Proceeds from sale of Preferred Stock -- -- 640,000 -- --
Preferred stock dividends paid (11,250) (22,500) (33,750) (11,250) --
Purchase of treasury stock -- (240,000) -- -- --
--------- ---------- ---------- --------- ----------
Net cash provided by (used for) financing
activities 86,889 (671,800) 87,445 (221,150) (237,760)
Net change in cash and cash equivalents 50,044 54,698 760,442 (17,228) (140,702)
Cash and cash equivalents at beginning of
period 307,508 357,552 412,250 412,250 1,172,692
--------- ---------- ---------- --------- ----------
Cash and cash equivalents at end of period $ 357,552 $ 412,250 $1,172,692 $ 395,022 $1,031,990
========= ========== ========== ========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 182,889 $ 335,731 $ 447,241 $ 221,429 $ 218,416
</TABLE>
Supplemental disclosure of noncash financing activities:
Capital lease obligations totaling $960,059, $234,512 and $140,820 in the years
ended December 31, 1995, 1994 and 1993, and $349,692 and $382,396 in the six
months ended June 30, 1996 and 1995, respectively, were incurred for the
acquisition of new equipment.
In 1994, notes payable totaling $175,000 with a present value of $160,030 were
issued when the Company repurchased common stock.
See accompanying notes.
F-7
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of June 30, 1996 and for the
six months ended June 30, 1995 and 1996 is unaudited)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Company provides comprehensive transactional billing and management
information solutions to providers of wireless, long distance and satellite
telecommunications services. These solutions are built upon a flexible
proprietary software technology to address customer requirements as they evolve,
regardless of market segment, geographic area or mix of network features or
billing options. The Company typically provides its services to customers under
exclusive contracts with terms ranging from three to four years, and bills
customers monthly, typically on a per subscriber basis. As a result,
substantially all of the Company's revenue is recurring in nature, and increases
as a provider's subscriber base grows.
Basis of Presentation
Property and equipment are carried at cost, less accumulated depreciation
computed using the straight-line method over the estimated useful lives of the
assets.
In 1992, the Company acquired certain software, which is carried at cost,
less accumulated amortization computed using the straight-line method based on
an estimated life of five years.
The Company capitalizes software development costs incurred in the
development of software used in its product and service line only after
establishing commercial and technical viability and ceases when the product is
available for general release. The capitalized costs include salaries and
related payroll costs incurred in the development activities. Software
development costs are carried at cost less accumulated amortization computed
using the greater of the amount resulting from applying the ratio that current
gross revenue for the product bears to total and anticipated future gross
revenue for the product to capitalized costs or the straight-line method over
the remaining estimated useful life of the product; generally such deferred
costs are amortized over five years. During the years ended December 31, 1995,
1994 and 1993, $166,292, $90,682 and $30,319, respectively, of capitalized
software development costs were amortized.
Revenues and costs associated with the recurring process of providing billing
and other service/software solutions functions are recognized at the time
services are performed. Revenues and costs associated with the licensing and
installation of software are recognized upon execution of the licensing
agreement over the delivery/ installation period of the software.
In 1995, the FASB issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." The Statement, which has been adopted in 1996, requires
companies to investigate potential impairments of long-lived assets, certain
identifiable intangibles, and associated goodwill on an exception basis, when
there is evidence that events or changes in circumstances have made recovery of
an asset's carrying value unlikely. The adoption of Statement No. 121 has not
had a material effect on the Company's financial position or results of
operations.
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock Based Compensation," which is effective for the
Company's December 31, 1996 year end. SFAS No. 123 allows an entity to
continue the application of the accounting prescribed by APB No. 25, however,
pro forma footnote disclosures of net income and earnings per share, as if
SFAS No. 123 had been applied, are required. The Company intends to continue
its current accounting under APB No. 25 and provide the required pro forma
footnote disclosures commencing with its fiscal 1996 year end financial
statements.
Supplemental earnings per share, assuming, at the beginning of the respective
periods, the exercise of the warrants, the redemption and conversion of all
outstanding preferred stock, and the sale of common stock, the proceeds of which
would be used for debt retirement, as described in Note 10, are as follows:
F-8
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of June 30, 1996 and for the
six months ended June 30, 1995 and 1996 is unaudited)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
<TABLE>
<CAPTION>
Year ended Six months ended
December 31, 1995 June 30, 1996
------------------ -------------------
<S> <C> <C>
Income before extraordinary item $ .17 $.17
Extraordinary item (.04) --
----- ----
Net income $ .13 $.17
===== ====
</TABLE>
The statements of operations for the six months ended June 30, 1995 and 1996,
and balance sheet as of June 30, 1996 are unaudited and include all adjustments,
consisting only of normal recurring adjustments, which management considers
necessary for a fair presentation of the results of such periods. Results of
operations for the six months ended June 30, 1996 are not necessarily indicative
of results to be expected for the full year.
Cash Equivalents
The Company considers all highly liquid debt instruments with a maturity of
three months or less when purchased to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts and disclosures reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Major Customers
The Company markets its services through a core team of senior executives and
is in the process of developing a direct sales force.
Three customers accounted for approximately 23%, 27% and 29% of the Company's
total revenues in 1995, 1994 and 1993, respectively. Credit losses have not been
significant.
2. INVESTMENTS
Short-term investments, recorded at cost plus accrued interest (approximates
market), consist of United States Treasury Bills and United States Treasury
Notes, maturing within 180 days. These investments are included in other assets.
The investments are classified as held to maturity as the Company has the
ability and intent to hold all investments to maturity. The income from these
investments is included in other income.
3. DEBT
At December 31, 1994, the Company had an aggregate of $1,316,575 payable to
Connecticut Innovations Incorporated ("CII") under certain debt agreements dated
August 16, 1991 and July 21, 1992 with face amounts of $600,000 and $350,000,
respectively. These loans required payment of principal and interest payments
which were calculated based on revenues for the period by a specified percentage
rate. These loans were structured such that they would be considered paid in
full based upon the aggregate payments (principal and interest) at specified
dates. Based on the estimated payments, the imputed interest rate approximated
25% at December 31, 1994. On June 30, 1995, the Company consolidated these loans
with CII into one loan with a principal amount of $1,485,000 at a 14.5% interest
rate. Under the terms of this loan agreement, the Company will pay interest of
$17,944 monthly for two years and $34,940 monthly subsequent to that for
principal and interest through July 2002. Also see Note 8. The Company believes
that the outstanding balance of this note approximates fair value because of its
repayment terms.
F-9
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of June 30, 1996 and for the
six months ended June 30, 1995 and 1996 is unaudited)
3. DEBT (Continued)
The Company also has a loan payable to CII, originally issued in 1993 for
$350,000 at a 10% interest rate, which was refinanced in December 1994 with a
$389,472, 10% interest bearing note. This note includes principal plus accrued
interest on the original loan. The new note is payable in equal monthly
installments over 60 months and has a balance of $326,273 at December 31, 1995
and $292,234 at June 30, 1996, respectively. As additional consideration for the
refinancing of this loan, the Company issued the lender warrants to purchase 2%
of the outstanding Common Stock of the Company at an exercise price of $385,000
- - currently 116,193 shares. CII also currently holds warrants, issued in
connection with a previous transaction, to purchase 218,331 shares of Common
Stock (subject to adjustment) at an aggregate exercise price of $437,959. The
warrants became exercisable immediately and expire on January 1, 2002. The
outstanding loan balance approximates fair value.
In addition, pursuant to the August 16, 1991 debt agreement, as amended,
between the Company and CII, the Company is obligated to make a one-time
payment to CII of $200,000 upon (i) the closing of an initial public offering,
(ii) the sale of the Company through merger, sale of assets or otherwise or
(iii) the exclusive or semi-exclusive licensing agreement for the sale of any
product of the Company.
In 1994, the Company issued notes payable of $175,000 with no stated
interest. Interest of 9% has been imputed on these notes. Certain of these
notes are guaranteed by certain officers and stockholders of the Company. The
remaining balance of these notes of $77,198 is payable in 1996.
Substantially all assets of the Company are pledged under the various debt
agreements.
Maturities of long-term debt are as follows as of December 31, 1995:
1996 $ 69,240
1997 164,185
1998 316,765
1999 361,587
2000 308,927
Thereafter 590,569
----------
$1,811,273
==========
4. CAPITAL STOCK
All share and per share amounts have been adjusted to reflect the increase in
authorized shares of Common Stock and to give effect to the 800-for-1 split of
the Common Stock, described in Note 10.
Each share of outstanding Class A Preferred Stock is entitled to a
noncumulative dividend equal to 10% of the Class A par value, and a priority
return of its par value, plus .5% of any proceeds generated from a liquidating
distribution, or .5% of the then outstanding common stock (exclusive of shares
issuable upon exercise of certain warrants) immediately prior to a public
offering.
Each 100 shares outstanding of Class B Preferred Stock is entitled to a
noncumulative dividend equal to 10% of the Class B par value, and a priority
return of its par value, plus .375% of any proceeds generated from a liquidating
distribution, or .375% of the then outstanding common stock (exclusive of shares
issuable upon exercise of certain warrants) immediately prior to a public
offering. The Class B shares are subordinate to the Class A Preferred shares
with respect to dividends, capital transactions and liquidating distributions.
The Class C Preferred Stock is junior to Class A and B with regard to
liquidation and dividend preference, is entitled to an 8% cumulative dividend
and is convertible into ITDS Common Stock at any time at the option of the
holder on an 800-for-one basis. The stock may be put to the Company upon the
occurrence of certain events at a price to be determined at the put date as
defined in the agreement. In addition, the holders of the Class C Preferred
Stock can demand registration of the stock in certain circumstances.
F-10
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of June 30, 1996 and for the
six months ended June 30, 1995 and 1996 is unaudited)
4. CAPITAL STOCK (Continued)
In 1994, an officer of the Company exercised an option to acquire 33,600
shares of common stock for $630. Compensation expense of $30,135 was
recognized for the difference between the exercise price and estimated fair
market value of the shares.
5. DEFERRED COMPENSATION
The Company has a deferred compensation plan for certain nonshareholder key
employees. The deferred compensation is based upon the award of performance
units, the value of which is related to the financial performance of the
Company. The performance units vest incrementally over a ten year period from
the date of grant or vest 100% upon a public offering. At December 31, 1995,
unvested performance units with value of $51,150 were outstanding.
In addition, in accordance with the terms of his employment agreement, as
amended on September 30, 1996, an employee will become entitled to receive a
payment of $275,000 on or before December 31, 1996 and, only in the event of a
change in control or a public offering of the Company's Common Stock, the right
to purchase 18,333 fully-vested shares of the Company's Common Stock for $.01
per share.
6. CAPITALIZED LEASE OBLIGATIONS
The Company leases computer equipment and office furniture under capital
leases expiring in various years through 1999. The assets and liabilities under
capital leases are recorded at the lower of the present value of the minimum
lease payments or the fair value of the asset. Depreciation of assets under
capital leases is included in depreciation expense.
Maturities of capital lease obligations are as follows as of December 31,
1995:
1996 $ 537,677
1997 465,813
1998 223,058
1999 53,886
----------
Total lease obligations 1,280,434
Less: amount representing interest 187,145
----------
Present value of minimum lease payments $1,093,289
==========
7. COMMITMENTS AND CONTINGENCIES
The Company leases its Connecticut office facilities under noncancelable
operating leases expiring in July 1996 and April 1999. Under the terms of the
leases there will be a rental increase in 1996. The Company recognizes rental
expense on a straight line basis over the term of the lease. Rent expense was
$330,914, $221,225 and $173,796 for the years ended December 31, 1995, 1994 and
1993, respectively.
Minimum future rental payments due under such leases as of December 31, 1995
are as follows:
1996 $242,072
1997 199,628
1998 199,628
1999 49,907
--------
$691,235
========
F-11
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of June 30, 1996 and for the
six months ended June 30, 1995 and 1996 is unaudited)
7. COMMITMENTS AND CONTINGENCIES (Continued)
In addition, the Company leases office facilities in Florida and Texas under
separate operating leases expiring in 1995 with options to renew. Rent expense
for these leases was $2,160 and $2,090 for the years ended December 31, 1995 and
1994, respectively. The Florida facility lease expired in August 1995 and was
not renewed.
The Company is also obligated to pay utilities and property taxes above the
landlords' base year costs.
The Company rents office furniture from an entity owned by certain
stockholders of the Company. The agreement calls for a monthly rental
amount of $2,266 and can be canceled at any time. Total rental expense under the
agreement for both 1995 and 1994 was $27,192 and $27,000 in 1993.
The Company is not a party to any material legal proceedings.
8. EXTRAORDINARY ITEM
As described in Note 3, on June 30, 1995 the Company refinanced existing debt
with CII. In doing so, the Company recorded an extraordinary non-cash loss of
$223,696 net of a $158,038 tax benefit. Such extraordinary loss was due to
negotiated acceleration of payments due to early termination of the debt
agreement.
9. INCOME TAXES
Significant components of income tax expense (benefit) before extraordinary
item are as follows:
December 31, June 30,
------------------
1994 1995 1996
------- ------- ----------
(Unaudited)
Current:
Federal $28,828 $344,360 $458,000
State 7,838 128,386 167,000
------- -------- --------
36,666 472,746 625,000
------- -------- --------
Deferred:
Federal -- (62,640) 78,000
State -- (31,320) 29,000
------- -------- --------
-- (93,960) 107,000
------- -------- --------
Total tax expense $36,666 $378,786 $732,000
======= ======== ========
A reconciliation of applicable federal statutory rate to the Company's
effective tax (benefit) rate from income before tax expense and extraordinary
item follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1993 1994 1995
------ ----- -------
<S> <C> <C> <C>
Statutory rate (34.0)% 34.0% 34.0%
State income taxes, net of federal income tax benefit 0.7 5.3
Debt consolidation expenses (10.1)
Net operating loss carryforwards 34.0 (41.9)
Alternative minimum tax 2.5
Nondeductible interest expense 6.4
Other, net 3.2 2.3
----- ----- -----
--% 4.9% 31.5%
===== ===== =====
</TABLE>
F-12
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(continued)
(Information as of June 30, 1996 and for the
six months ended June 30, 1995 and 1996 is unaudited)
9. INCOME TAXES (Continued)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
December 31
---------------------
1994 1995
-------- --------
Deferred tax liabilities:
Software development costs $251,515 $443,709
Capitalized leases 72,259 173,026
-------- --------
Total deferred tax liabilities 323,774 616,735
-------- --------
Deferred tax assets:
Deferred charges 41,251 33,013
Depreciation and amortization 136,892 323,010
Accrued compensation 31,216 26,408
AMT credit carryforward 18,748
Interest 120,046 483,383
Other 3,613
-------- --------
Total deferred tax assets 351,766 865,814
-------- --------
Deferred:
Net deferred tax asset before valuation allowance 27,992 249,079
Valuation allowance for deferred tax assets 27,992
-------- --------
Net deferred tax asset $ -- $249,079
======== ========
10. SUBSEQUENT EVENTS
In connection with a proposed Initial Public Offering (IPO) of the Company's
Common Stock, the Company's Certificate of Incorporation authorized the issuance
of up to 40,000,000 shares of Common Stock, $.01 par value per share and the
issuance of up to 2,000,000 shares of Preferred Stock, $.01 par value per share.
Pursuant to a recapitalization, the Company was reincorporated in the State of
Delaware and an 800-for-1 split of its Common Stock was effected. A portion of
the estimated proceeds from the sale of the Company's Common Stock to be sold in
the IPO will be used to retire substantially all of the Company's outstanding
debt. In addition, the Company's Class A and B Preferred Stock were retired and
the holders of such shares were issued an aggregate of 852,812 post-split shares
of the Company's Common Stock and promissory notes in the aggregate amount of
$825,000, evidencing the Company's obligations to repay capital. The
distribution of the 852,812 shares of the Company's Common Stock valued at $12
per share for an aggregate of $10,233,744 will result in a one-time, non-cash
charge to retained earnings and a corresponding increase to additional paid-in
capital. Further, CII has agreed to exercise outstanding warrants to purchase
334,524 post-split shares of the Company's Common Stock at an aggregate purchase
price of $822,959, and will convert all outstanding shares of Series C Preferred
Stock into such Common Stock.
The pro forma earnings per share gives effect to all of the above
transactions. The June 30, 1996 pro forma unaudited balance sheet gives effect
to the above transactions and to the sale of 2,000,000 shares of Common Stock
offered hereby at an assumed offering price of $15 per share and application of
the estimated net proceeds therefrom.
A total of 1,200,000 common shares have been authorized for issuance under
the Company's 1996 Stock Incentive Plan and 1996 Employee Stock Purchase
Plan.
On June 11, 1996, the Company entered into a noncancellable lease expiring on
August 31, 2000 for 48,222 square feet of office space in Stamford, Connecticut.
In connection therewith, the Company is in the process of obtaining a letter of
credit in the initial amount of $362,000 as security for the lease. Minimum
future rental payments due under such lease are $723,330 per year. In addition,
the Company is in the process of obtaining a $250,000 credit facility. The
letter of credit and credit facility will be secured by substantially all of
the assets of the Company.
F-13
<PAGE>
[Inside Back cover of Prospectus]
[Picture of Globe with ITDS Family of Products]
ITDS 10X
CORD Compliant SwitchLink
GSM/PCS
Compliant CreditLink
10XArchive [Photo of Globe] InventoryScan
10XWrite General Ledger
Report Writer [ITDS logo] Interface
INTERNATIONAL
Debit/Threshold TELECOMMUNICATION Collections
Billing* DATA SYSTEMS Module
PayScan Point Of Sale
* Under Development
ITDS provides comprehensive transactional billing and management
information solutions to providers of wireless, long distance and satellite
telecommunications services. The Company uses its robust and flexible
proprietary software technology to develop billing solutions which address
customer requirements as they evolve, regardless of market segment,
geographic area or mix of network features or billing options.
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company, any of the Selling
Stockholders or any of the Underwriters. This Prospectus does not constitute an
offer to sell or the solicitation of an offer to buy any securities other than
the securities to which it relates or an offer to sell or the solicitation of an
offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the date hereof or that
the information contained herein is correct as of any time subsequent to its
date.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary 3
Risk Factors 6
Use of Proceeds 11
Dividend Policy 11
Capitalization 12
Dilution 13
Selected Financial Data 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 16
Business 22
Management 32
Certain Transactions 35
Principal and Selling Stockholders 36
Description of Capital Stock 37
Shares Eligible for Future Sale 39
Underwriting 41
Legal Matters 42
Experts 42
Additional Information 42
Index to Financial Statements F-1
</TABLE>
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as Underwriters
and with respect to their unsold allotments or subscriptions.
2,666,667 Shares
[ITDS LOGO]
Common Stock
----------------
PROSPECTUS
, 1996
----------------
Lehman Brothers
Cowen & Company
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth an estimate (except for the SEC
registration fee and NASD filing fee) of the fees and expenses, all of which
will be borne by the Registrant, in connection with the sale and distribution of
the securities being registered, other than the underwriting discounts and
commissions.
SEC Registration Fee $ 16,920
NASD Filing Fee 5,407
Nasdaq National Market Listing Fee 38,000
Blue Sky Fees and Expenses 20,000
Transfer Agent and Registrar Fees 10,000
Accounting Fees and Expenses 240,000
Legal Fees and Expenses 240,000
Printing, Engraving and Mailing Expenses 150,000
Miscellaneous 29,673
--------
Total $750,000
========
Item 14. Indemnification of Directors and Officers
Article SEVENTH of the Registrant's Certificate of Incorporation (the
"Certificate of Incorporation") provides that no director of the Registrant
shall be personally liable for any monetary damages for any breach of fiduciary
duty as a director, except to the extent that the Delaware General Corporation
Law prohibits the elimination or limitation of liability of directors for breach
of fiduciary duty.
Article EIGHTH of the Registrant's Certificate of Incorporation provides that
a director or officer of the Registrant (a) shall be indemnified by the
Registrant against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement incurred in connection with any litigation or
other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a Director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.
Indemnification is required to be made unless the Registrant determines that
the applicable standard of conduct required for indemnification has not been
met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
II-1
<PAGE>
Article EIGHTH of the Registrant's Certificate of Incorporation further
provides that the indemnification provided therein is not exclusive,
and provides that in the event that the Delaware General Corporation Law is
amended to expand the indemnification permitted to directors or officers the
Registrant must indemnify those persons to the fullest extent permitted by such
law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under the Underwriting Agreement, the Underwriters are obligated, under
certain circumstances, to indemnify directors and officers of the Registrant
against certain liabilities, including liabilities under the Securities Act.
Reference is made to the form of Underwriting Agreement filed as Exhibit 1
hereto.
Item 15. Recent Sales of Unregistered Securities
Set forth in chronological order below is information regarding the number of
shares of Common Stock and Preferred Stock issued by the Registrant since July
30, 1993. Also included is the consideration, if any, received by the Registrant
for such shares, and information relating to the section of the Securities Act
of 1933, as amended (the "Securities Act"), or rule of the Securities and
Exchange Commission under which exemption from registration was claimed. No sale
of securities involved the use of an underwriter and no commissions were paid in
connection with the sales of any securities. The following descriptions give
effect to the Recapitalization.
In December 1993, the Company cancelled and retired 18 shares of "old"
Preferred Stock of the Company (representing all of the then outstanding shares
of "old" Preferred Stock) and issued an aggregate of 18 shares of Class A
Preferred Stock of the Company in the names of and in the amounts formerly held
by each former holder of "old" Preferred Stock. The holders of Class A Preferred
Stock paid no consideration to the Company other than the cancellation of the
respective shares of "old" Preferred Stock formerly held by them. As part of the
Recapitalization, the 18 shares of Class A Preferred Stock were converted into
an aggregate of 524,808 shares of Common Stock and promissory notes in the
aggregate amount of $450,000 for no consideration other than the cancellation of
the Class A Preferred Stock.
In December 1993, the Company cancelled and retired 1,500 shares of "old"
Class B Preferred Stock of the Company (representing all of the then outstanding
shares of "old" Class B Preferred Stock) and issued an aggregate of 1,500 shares
of "new" Class B Preferred Stock of the Company in the names of and in the
amounts formerly held by each former holder of "old" Class B Preferred Stock.
The holders of "new" Class B Preferred Stock paid no consideration other than
the cancellation of the respective shares of "old" Class B Preferred Stock
formerly held by them. As part of the Recapitalization, the 1,500 shares of
Class B Preferred Stock were converted into an aggregate of 328,004 shares of
Common Stock and promissory notes in the aggregate amount of $375,000 for no
additional consideration other than the cancellation of the Class B Preferred
Stock.
In 1993 the Company issued a note payable to Connecticut Innovations,
Incorporated ("CII") in the amount of $350,000, which was refinanced in
December 1994 for a note in the principal amount of $389,472, bearing 10%
interest.
In March 1993, the Board of Directors issued the following shares of
Common Stock as bonuses: 460,800 shares to Mark D. Spitzer, 410,400 shares to
Lewis D. Bakes, 656,800 shares to Charles L. Bakes and 272,000 shares to
David L. Wells.
In 1994, the Company issued an interest-free note payable to a former
stockholder in the amount of $150,000 as part of the settlement of litigation.
II-2
<PAGE>
On December 29, 1994, the Company issued to CII a warrant (the "1994
Warrant") in connection with the issuance by the Company of the
promissory note in the amount of $389,500. The 1994 Warrant is exercisable for
116,193 shares of Common Stock (subject to adjustment) at a price of $3.31345
per share (subject to adjustment).
On December 29, 1994, the Company issued a substitute warrant originally
issued to CII on July 21, 1992 (the "Substitute 1992 Warrant"). The Substitute
1992 Warrant may be exercised by CII for 218,331 shares of Common Stock (subject
to adjustment) at an exercise price of $2.00594 per share (subject to
adjustment).
On December 30, 1994, the Company issued 33,600 shares of Common Stock to
James V. O'Neill in consideration of services performed by Mr. O'Neill during
the years ended December 31, 1993 and 1994.
On December 11, 1995, the Company issued to CII 129 shares of Class C
Convertible Preferred Stock at a purchase price of $4,961.24 per share.
On September 30, 1996, the Company issued 28,435 shares of Common Stock to
Peter Masanotti, at a price of $0.01 per share under the 1996 Stock Incentive
Plan.
The shares of capital stock and securities issued in the above transactions
were offered and sold in reliance upon the exemption from registration under
Section 4(2) of the Securities Act or Regulation D or Rule 701 promulgated under
the Securities Act, relative to sales by an issuer not involving a public
offering.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<S> <C>
1* Form of Underwriting Agreement.
2* Agreement and Plan of Merger, dated September 27, 1996 between the Registrant
and International Telecommunications Data Systems, Inc. a Connecticut
corporation.
3.1* Certificate of Incorporation of the Registrant, as amended.
3.2 By-Laws of the Registrant.
4.1 Specimen Certificate for shares of Common Stock, $.01 par value, of the
Registrant.
5* Opinion of Hale and Dorr with respect to validity of the securities being
offered.
10.1 Form of 1996 Equity Incentive Plan.
10.2 1996 Employee Stock Purchase Plan.
10.3* Employment Agreement between the Registrant and Barry K. Lewis.
10.4* Stock Purchase Agreement dated December 11, 1995, as amended, between the
Registrant and Connecticut Innovations, Incorporated relating to Class C
Convertible Preferred Stock.
10.5* Form of Lease between the Company and 969 Associates, dated December 1990.
10.6 Sublease dated June 11, 1996 between the Registrant and Learning International,
relating to 225 High Ridge Road, Stamford, Connecticut.
10.7 Form of CII Warrant.
11* Computation of income per Common Share.
23.1* Consent of Hale and Dorr (included in Exhibit 5).
23.2* Consent of Ernst & Young LLP.
24 Power of Attorney.
27 Financial Data Schedule.
</TABLE>
- ------------
* Filed herewith.
All other Exhibits have been previously filed.
II-3
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted because they are not required or because the
required information is given in the Financial Statements or Notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Certificate of
Incorporation and By-Laws of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser. The undersigned Registrant hereby
undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Boston, Commonwealth of Massachusetts, on this 30th day of September,
1996.
INTERNATIONAL TELECOMMUNICATION
DATA SYSTEMS, INC.
By: /s/ Charles L. Bakes
----------------------------
Charles L. Bakes
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- ---------------------------- --------------------------------- ------------------
/s/ Charles L. Bakes
- ---------------------------- President, Chief Executive
Charles L. Bakes Officer and Director (Principal
Executive Officer) September 30, 1996
* Chief Financial Officer
- ---------------------------- (Principal Financial and
Mark D. Spitzer Accounting Officer) and Director September 30, 1996
*
- ---------------------------- Director September 30, 1996
Lewis D. Bakes
*
- ---------------------------- Director September 30, 1996
David L. Wells
*
- ---------------------------- Director September 30, 1996
Stuart L. Bell
*
- ---------------------------- Director September 30, 1996
Michael E. Kalogris
*By: /s/ Charles L. Bakes
-----------------------
Charles L. Bakes
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<S> <C>
1* Form of Underwriting Agreement.
2* Agreement and Plan of Merger, dated September 27, 1996 between the Registrant
and International Telecommunications Data Systems, Inc. a Connecticut
corporation.
3.1* Certificate of Incorporation of the Registrant, as amended.
3.2 By-Laws of the Registrant.
4.1 Specimen Certificate for shares of Common Stock, $.01 par value, of the
Registrant.
5* Opinion of Hale and Dorr with respect to validity of the securities being
offered.
10.1 Form of 1996 Equity Incentive Plan.
10.2 1996 Employee Stock Purchase Plan.
10.3* Employment Agreement between the Registrant and Barry K. Lewis.
10.4* Stock Purchase Agreement dated December 11, 1995, as amended, between the
Registrant and Connecticut Innovations, Incorporated relating to Class C
Convertible Preferred Stock.
10.5* Form of Lease between the Company and 969 Associates, dated December 1990.
10.6 Sublease dated June 11, 1996 between the Registrant and Learning International,
relating to 225 High Ridge Road, Stamford, Connecticut.
10.7 Form of CII Warrant.
11* Computation of income per Common Share.
23.1* Consent of Hale and Dorr (included in Exhibit 5).
23.2* Consent of Ernst & Young LLP.
24 Power of Attorney.
27 Financial Data Schedule.
</TABLE>
- -------------
* Filed herewith.
All other Exhibits have been previously filed.
<PAGE>
_______________ Shares
International Telecommunication Data Systems, Inc.
Common Stock
UNDERWRITING AGREEMENT
October , 1996
LEHMAN BROTHERS INC.,
COWEN & COMPANY
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
International Telecommunication Data Systems, Inc., a Delaware
corporation (the "Company"), proposes and certain stockholders of the Company
named in Schedule 2 hereto (the "Selling Stockholders"), propose to sell an
aggregate of 2,666,667 shares (the "Firm Stock") of the Company's Common Stock,
par value $0.01 per share (the "Common Stock"). Of the 2,666,667 shares of the
Firm Stock, 2,000,000 are being sold by the Company and 666,667 by the Selling
Stockholders. In addition, the Company and the Selling Stockholders propose to
grant to the Underwriters named in Schedule 1 hereto (the "Underwriters") an
option to purchase up to an additional 400,000 shares of the Common Stock on the
terms and for the purposes set forth in Section 3 (the "Option Stock"). The Firm
Stock and the Option Stock, if purchased, are hereinafter collectively called
the "Stock." This is to confirm the agreement concerning the purchase of the
Stock from the Company and the Selling Stockholders by the Underwriters.
1. Representations, Warranties and Agreements of the Company. The
Company represents, warrants and agrees that:
(a) A registration statement on Form S-1 and an amendment
thereto, with respect to the Stock has (i) been prepared by the Company
in conformity with the requirements of the United States Securities Act
of 1933, as amended (the "Securities Act"), and the rules and
regulations (the "Rule and Regulations") of
<PAGE>
the United States Securities and Exchange Commission (the "Commission")
thereunder, (ii) been filed with the Commission under the Securities Act
and (iii) become effective under the Securities Act. Copies of such
registration statement and the amendment thereto have been delivered by
the Company to you as the representatives (the "Representatives") of the
Underwriters. As used in this Agreement, "Effective Time" means the date
and the time as of which such registration statement, or the most recent
post-effective amendment thereto, if any, was declared effective by the
Commission; "Effective Date" means the date of the Effective Time;
"Preliminary Prospectus" means each prospectus included in such
registration statement, or amendments thereof, before it became
effective under the Securities Act and any prospectus filed with the
Commission by the Company with the consent of the Representatives
pursuant to Rule 424(a) of the Rules and Regulations; "Registration
Statement" means such registration statement, as amended at the
Effective Time, including all information contained in the final
prospectus filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations in accordance with Section 6(a) hereof and deemed
to be a part of the registration statement as of the Effective Time
pursuant to paragraph (b) of Rule 430A of the Rules and Regulations; and
"Prospectus" means such final prospectus, as first filed with the
Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the Rules
and Regulations. The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all respects to the
requirements of the Securities Act and the Rules and Regulations and do
not and will not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided that no
representation or warranty is made as to information contained in or
omitted from the Registration Statement or the Prospectus in reliance
upon and in conformity with written information furnished to the Company
through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction in which its ownership or
lease of property or the conduct of its
2
<PAGE>
business requires such qualification, except where the failure so to
qualify would not have a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations,
business or prospects of the Company, taken as a whole (herein, a
"Material Adverse Effect"), and has all power and authority necessary to
own or hold its properties and to conduct the business in which it is
engaged; and the Company has no subsidiaries.
(d) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and conform to the description thereof contained in
the Prospectus.
(e) The shares of the Stock to be issued and sold by the Company
to the Underwriters hereunder have been duly and validly authorized and,
when issued and delivered against payment therefor as provided herein,
will be duly and validly issued, fully paid and non-assessable and the
Stock will conform to the description thereof contained in the
Prospectus under the section entitled "Description of Capital Stock";
and the issuance of the Stock is not subject to preemptive or other
similar rights that have not been waived.
(f) This Agreement has been duly authorized, executed and
delivered by the Company.
(g) The execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated hereby
including the (i) reincorporation of the Company from a Connecticut
corporation to a Delaware corporation, (ii) Common Stock split, (iii)
retirement of the Company's treasury shares, shares of the Company's
Class A Preferred Stock and Class B Preferred Stock, (iii) conversion of
shares of the Company's Series C Convertible Preferred Stock and (iv)
exercise of the Company's warrants to purchase shares of Common Stock
(the "Recapitalization") will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any material indenture, mortgage, deed of trust, loan agreement
or other material agreement or instrument to which the Company is a
party or by which the Company is bound or to which any of the property
or assets of the Company is subject, nor will such actions result in any
violation of the provisions of the certificate of incorporation or
by-laws of the Company or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over the
Company or any of its properties or assets; and except for the
registration of the Stock under the Securities Act and such consents,
approvals, authorizations, registrations or qualifications as may be
required under the
3
<PAGE>
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
applicable state securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby.
(h) Except as described in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person or the
right (other than rights which have been waived or satisfied) to require
the Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Securities Act.
(i) Except as described in the Prospectus, the Company has not
sold or issued any shares of Common Stock during the six-month period
preceding the date of the Prospectus, including any sales pursuant to
Rule 144A under, or Regulations D or S of, the Securities Act, other
than shares issued pursuant to employee benefit plans, qualified stock
option or equity plans or other employee compensation plans or pursuant
to outstanding options, rights or warrants outstanding prior to the
commencement of such six-month period.
(j) The Company has not sustained, since the date of the latest
audited financial statements included in the Prospectus, any material
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than
as set forth or contemplated in the Prospectus; and, since such date,
there has not been any change in the capital stock or long-term debt of
the Company or any material adverse change, or any development involving
a prospective material adverse change, in or affecting the general
affairs, management, financial position, stockholders' equity or results
of operations of the Company, otherwise than as set forth or
contemplated in the Prospectus.
(k) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement and
included in the Prospectus present fairly the financial condition and
results of operations of the Company purported to be shown thereby, at
the dates and for the periods
4
<PAGE>
indicated, and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the
periods involved.
(l) Ernst & Young LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and
who have delivered the initial letter referred to in Section 9(g)
hereof, are independent public accountants as required by the Securities
Act and the Rules and Regulations.
(m) The Company does not own any real property. The Company has
good and marketable title to all personal property owned by it, in each
case free and clear of all liens, encumbrances and defects except such
as are described in the Prospectus or such as do not materially affect
the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company; and all
real and personal property and buildings held under lease by the Company
are held by it under valid, subsisting and enforceable leases, with such
exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company.
(n) The Company carries, or is covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of its
business and the value of its respective properties and as is customary
for companies engaged in similar businesses in similar industries.
(o) The Company owns or possesses adequate rights to use all
material patents, patent applications, trademarks, service marks, trade
names, trademark registrations, service mark registrations, copyrights
and licenses necessary for the conduct of its business and has no reason
to believe that the conduct of its business will conflict with, and has
not received any notice of any claim of conflict with, any such rights
of others.
(p) There are no legal or governmental proceedings pending to
which the Company is a party or of which any property or assets of the
Company is the subject which, if determined adversely to the Company,
might have a Material Adverse Effect; and to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(q) There are no contracts or other documents which are required
to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or filed as
exhibits to the Registration Statement.
5
<PAGE>
(r) No relationship, direct or indirect, exists between or among
the Company on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company on the other hand, which is
required to be described in the Prospectus which is not so described.
(s) No labor disturbance by the employees of the Company exists
or, to the knowledge of the Company, is imminent which might be expected
to have a Material Adverse Effect.
(t) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Section 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each "pension
plan" for which the Company would have any liability that is intended to
be qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by
failure to act, which would cause the loss of such qualification.
(u) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof and
has paid all taxes due thereon, and no tax deficiency has been
determined adversely to the Company which has had nor does the Company
have any knowledge of any tax deficiency which, if determined adversely
to the Company, might have a Material Adverse Effect.
(v) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, the Company has not (i) issued or granted
any securities, (ii) incurred any liability or obligation, direct or
contingent, other than liabilities and obligations which were incurred
in the ordinary course of business, (iii) entered into any transaction
not in the ordinary course of business or (iv) declared or paid any
dividend on its capital stock.
(w) The Company (i) makes and keeps accurate books and records
and (ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with
management's authorization,
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(B) transactions are recorded as necessary to permit preparation of its
financial statements and to maintain accountability for its assets, (C)
access to its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(x) The Company (i) is not in violation of its certificate of
incorporation or by-laws, (ii) is not in default in any material
respect, and no event has occurred which, with notice or lapse of time
or both, would constitute such a default, in the due performance or
observance of any term, covenant or condition contained in any material
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which it is a party or by which it is bound or to which
any of its properties or assets is subject and (iii) is not in violation
in any material respect of any law, ordinance, governmental rule,
regulation or court decree to which it or its property or assets may be
subject or has failed to obtain any material license, permit,
certificate, franchise or other governmental authorization or permit
necessary to the ownership of its property or to the conduct of its
business.
(y) Neither the Company, nor any director, officer, agent,
employee or other person associated with or acting on behalf of the
Company, has used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expense relating to political
activity; made any direct or indirect unlawful payment to any foreign or
domestic government official or employee from corporate funds; violated
or is in violation of any provision of the Foreign Corrupt Practices Act
of 1977; or made any bribe, rebate, payoff, influence payment, kickback
or other unlawful payment.
(z) The Company is not an "investment company" within the meaning
of such term under the Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder.
2. Each Selling Stockholder severally represents, warrants and
agrees that:
(a) The Selling Stockholder has, and immediately prior to the
Delivery Date (as defined in Section 5 hereof) the Selling Stockholder
will have good and valid title to the shares of Stock to be sold by the
Selling Stockholder hereunder on such date, free and clear of all liens,
encumbrances, equities or claims; and upon delivery of such shares and
payment therefor pursuant hereto, good and valid title to such shares,
free and clear of all liens, encumbrances, equities or claims, will pass
to the several Underwriters.
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(b) The Selling Stockholder has placed in custody under a custody
agreement and power of attorney (the "Custody Agreement and Power of
Attorney" and, together with all other similar agreements executed by
the other Selling Stockholders, the "Custody Agreements and Powers of
Attorney") with Lewis D. Bakes and Peter L. Masanotti or either of them,
as custodian (the "Custodian"), for delivery under this Agreement,
certificates in negotiable form (with signature guaranteed by a
commercial bank or trust company having an office or correspondent in
the United States or a member firm of the New York or American Stock
Exchanges) representing the shares of Stock to be sold by the Selling
Stockholder hereunder, and the Selling Stockholder has duly and
irrevocably executed and delivered a power of attorney appointing the
Custodian and one or more other persons, as attorneys-in-fact, with full
power of substitution, and with full authority (exercisable by any one
or more of them) to execute and deliver this Agreement and to take such
other action as may be necessary or desirable to carry out the
provisions hereof on behalf of the Selling Stockholder.
(c) The Selling Stockholder has full right, power and authority
to enter into this Agreement and the Custody Agreement and Power of
Attorney; the execution, delivery and performance of this Agreement and
the Custody Agreement and Power of Attorney by the Selling Stockholder
and the consummation by the Selling Stockholder of the transactions
contemplated hereby and thereby will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute
a default under, any material indenture, mortgage, deed of trust, loan
agreement or other material agreement or instrument to which the Selling
Stockholder, if applicable, is a party or by which the Selling
Stockholder is bound or to which any of the property or assets of the
Selling Stockholder is subject, nor will such actions result in any
violation of the provisions of the charter or by-laws of the Selling
Stockholder or any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Selling
Stockholder or the property or assets of the Selling Stockholder; and,
except for the registration of the Stock under the Securities Act and
such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and applicable
state securities laws in connection with the purchase and distribution
of the Stock by the Underwriters, no consent, approval, authorization or
order of, or filing or registration with, any such court or governmental
agency or body is required for the execution, delivery and performance
of this Agreement or the Custody Agreement and Power of Attorney by the
Selling Stockholder and the consummation by the Selling Stockholder of
the transactions contemplated hereby and thereby.
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<PAGE>
(d) To the knowledge of such Selling Stockholder, the
Registration Statement and the Prospectus and any further amendments or
supplements to the Registration Statement or the Prospectus will, when
they become effective or are filed with the Commission, as the case may
be, do not and will not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided that no
representation or warranty is made as to information contained in or
omitted from the Registration Statement or the Prospectus in reliance
upon and in conformity with written information furnished to the Company
through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein.
(e) The Selling Stockholder has no reason to believe that the
representations and warranties of the Company contained in Section 1
hereof are not materially true and correct, is familiar with the
Registration Statement and the Prospectus (as amended or supplemented)
and has no knowledge of any material fact, condition or information not
disclosed in the Registration Statement, as of the effective date, or
the Prospectus (or any amendment or supplement thereto), as of the
applicable filing date, which has adversely affected or may adversely
affect the business of the Company and is not prompted to sell shares of
Common Stock by any information concerning the Company which is not set
forth in the Registration Statement and the Prospectus.
(f) The Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the shares of the Stock.
3. Purchase of the Stock by the Underwriters. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell [_____] shares of the
Firm Stock and each Selling Stockholder hereby agrees to sell
the number of shares of the Firm Stock set opposite name of such Selling
Stockholder in Schedule 2 hereto, severally and not jointly, to the several
Underwriters and each of the Underwriters, severally and not jointly, agrees to
purchase the number of shares of the Firm Stock set opposite that Underwriter's
name in Schedule l hereto. Each Underwriter shall be obligated to purchase from
the Company, and from each Selling Stockholder, that number of shares of the
Firm Stock which represents the same proportion of the number of shares of the
Firm Stock to be sold by the Company, and by each Selling Stockholder, as the
number of shares of the Firm Stock set forth opposite the name of such
Underwriter in Schedule l represents of the total number of shares of the
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<PAGE>
Firm Stock to be purchased by all of the Underwriters pursuant to this
Agreement. The respective purchase obligations of the Underwriters with respect
to the Firm Stock shall be rounded among the Underwriters to avoid fractional
shares, as the Representatives may determine.
In addition, the Company and the Selling Stockholders grant to
the Underwriters an option to purchase up to ______ shares of Option Stock.
Such option is granted solely for the purpose of covering overallotments in the
sale of Firm Stock and is exercisable as provided in Section 5 hereof.
Shares of Option Stock shall be purchased severally for the account of the
Underwriters in proportion to the number of shares of Firm Stock set opposite
the name of such Underwriters in Schedule l hereto. The respective purchase
obligations of each Underwriter with respect to the Option Stock shall be
adjusted by the Representatives so that no Underwriter shall be obligated to
purchase Option Stock other than in l00 share amounts. The price of both the
Firm Stock and any Option Stock shall be $_____ per share.
The Company and the Selling Stockholders shall not be obligated
to deliver any of the Stock to be delivered on the First Delivery Date or the
Second Delivery Date (as hereinafter defined), as the case may be, except upon
payment for all the Stock to be purchased on such Delivery Date as provided
herein.
4. Offering of Stock by the Underwriters. Upon authorization by
the Representatives of the release of the Firm Stock, the several Underwriters
propose to offer the Firm Stock for sale upon the terms and conditions set forth
in the Prospectus.
5. Delivery of and Payment for the Stock. Delivery of and payment
for the Firm Stock shall be made at the office of Chadbourne & Parke LLP, 30
Rockefeller Plaza, New York, New York 10112, at 10:00 A.M., New York City time,
on the third full business day following the date of this Agreement or at such
other date or place as shall be determined by agreement between the
Representatives and the Company. This date and time are sometimes referred to as
the First Delivery Date. On the First Delivery Date, the Company and the Selling
Stockholders shall deliver or cause to be delivered certificates representing
the Firm Stock to the Representatives for the account of each Underwriter
against payment to or upon the order of the Company and the Selling Stockholders
of the purchase price by certified or official bank check or checks payable in
immediately available funds. Time shall be of the essence, and delivery at the
time and place specified pursuant to this Agreement is a further condition of
the obligation of each Underwriter hereunder. Upon delivery, the Firm Stock
shall be registered in such names and in such denominations as the
Representatives shall request in writing not less
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<PAGE>
than two full business days prior to the First Delivery Date. For the purpose of
expediting the checking and packaging of the certificates for the Firm Stock,
the Company and the Selling Stockholders shall make the certificates
representing the Firm Stock available for inspection by the Representatives in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of this
Agreement, the option granted in Section 3 may be exercised, in whole or in
part, at any time and from time to time, upon written notice being given to the
Company by the Representatives. Such notice shall set forth the aggregate number
of shares of Option Stock as to which the option is being exercised, the names
in which the shares of Option Stock are to be registered, the denominations in
which the shares of Option Stock are to be issued and the date and time, as
determined by the Representatives, when the shares of Option Stock are to be
delivered; provided, however, that this date and time shall not be earlier than
the First Delivery Date nor earlier than the second business day after the date
on which the option shall have been exercised nor later than the fifth business
day after the date on which the option shall have been exercised. The date and
time the shares of Option Stock are delivered are sometimes referred to as the
"Second Delivery Date" and the First Delivery Date and the Second Delivery Date
are sometimes each referred to as a "Delivery Date."
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this Section 5
(or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on the
Second Delivery Date. On the Second Delivery Date, the Company shall deliver or
cause to be delivered the certificates representing the Option Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by certified or official bank
check or checks payable in immediately available funds. Time shall be of the
essence, and delivery at the time and place specified pursuant to this Agreement
is a further condition of the obligation of each Underwriter hereunder. Upon
delivery, the Option Stock shall be registered in such names and in such
denominations as the Representatives shall request in the aforesaid written
notice. For the purpose of expediting the checking and packaging of the
certificates for the Option Stock, the Company shall make the certificates
representing the Option Stock available for inspection by the Representatives in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the Second Delivery Date.
6. Further Agreements of the Company. The Company agrees:
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<PAGE>
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than Commission's close of business
on the second business day following the execution and delivery of this
Agreement or, if applicable, such earlier time as may be required by
Rule 430A(a)(3) under the Securities Act; to make no further amendment
or any supplement to the Registration Statement or to the Prospectus
except as permitted herein; to advise the Representatives, promptly
after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed
and to furnish the Representatives with copies thereof; to advise the
Representatives, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing
or suspending the use of any Preliminary Prospectus or the Prospectus,
of the suspension of the qualification of the Stock for offering or sale
in any jurisdiction, of the initiation or threatening of any proceeding
for any such purpose, or of any request by the Commission for the
amending or supplementing of the Registration Statement or the
Prospectus or for additional information; and, in the event of the
issuance of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or the Prospectus or suspending any
such qualification, to use promptly its best efforts to obtain its
withdrawal;
(b) To furnish promptly to each of the Representatives and to
counsel for the Underwriters a signed copy of the Registration Statement
as originally filed with the Commission, and each amendment thereto
filed with the Commission, including all consents and exhibits filed
therewith;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with
the Commission and each amendment thereto and (ii) each Preliminary
Prospectus, the Prospectus and any amended or supplemented Prospectus;
and, if the delivery of a prospectus is required at any time after the
Effective Time in connection with the offering or sale of the Stock or
any other securities relating thereto and if at such time any events
shall have occurred as a result of which the Prospectus as then amended
or supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made when such Prospectus is delivered, not misleading, or, if for
any other reason it shall be necessary to amend or supplement the
Prospectus in order to comply with the Securities Act, to notify the
Representatives and, upon their request, to file such
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<PAGE>
document and to prepare and furnish without charge to each Underwriter
and to any dealer in securities as many copies as the Representatives
may from time to time reasonably request of an amended or supplemented
Prospectus which will correct such statement or omission or effect such
compliance;
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the
Representatives, be required by the Securities Act or requested by the
Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any Prospectus
pursuant to Rule 424 of the Rules and Regulations, to furnish a copy
thereof to the Representatives and counsel for the Underwriters and
obtain the consent of the Representatives to the filing;
(f) As soon as practicable after the Effective Date (but in no
event later than 15 months after the Effective Date), to make generally
available to the Company's security holders and to deliver to the
Representatives an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a) of
the Securities Act and the Rules and Regulations (including, at the
option of the Company, Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Representatives copies of all materials furnished by the
Company to its shareholders and all public reports and all reports and
financial statements furnished by the Company to the principal national
securities exchange upon which the Common Stock may be listed pursuant
to requirements of or agreements with such exchange or to the Commission
pursuant to the Exchange Act or any rule or regulation of the Commission
thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for offering
and sale under the securities laws of such jurisdictions as the
Representatives may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Stock;
(i) For a period of 180 days from the date of the Prospectus, not
to, directly or indirectly, offer for sale, sell or otherwise dispose of
(or enter into any transaction or device which is designed to, or could
be expected to, result in the disposition by any person at any time in
the future of) any shares of Common
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<PAGE>
Stock (other than the Stock and shares issued pursuant to employee
benefit plans, qualified stock option or equity plans or other employee
compensation plans existing on the date hereof or pursuant to currently
outstanding options, warrants or rights), or sell or grant options,
rights or warrants with respect to any shares of Common Stock (other
than the grant of options pursuant to option plans existing on the date
hereof), without the prior written consent of Lehman Brothers Inc. on
behalf of the Representatives [except that the Company may issue up to
______ shares of Common Stock, other securities of the Company in
exchange for the equity or substantially all of the assets of a company
or business in connection with a merger or acquisition, provided that
prior to any such issuance the recipients of such shares of Common
Stock or other securities shall have agreed in writing to be bound by
this provision for the remainder of the 180-day period]; and to cause
each officer and director of the Company to furnish to the
Representatives, prior to the First Delivery Date, a letter or letters,
in form and substance satisfactory to counsel for the Underwriters,
pursuant to which each such person shall agree not to, directly or
indirectly, offer for sale, sell or otherwise dispose of (or enter into
any transaction or device which is designed to, or could be expected
to, result in the disposition by any person at any time in the future
of) any shares of Common Stock for a period of 180 days from the date
of the Prospectus, without the prior written consent of Lehman Brothers
Inc.;
(j) Prior to the Effective Date, to apply for the inclusion of
the Stock for quotation on the Nasdaq National Market and to use its
best efforts to effect such quotation, subject only to official notice
of issuance, prior to the First Delivery Date;
(k) To apply the net proceeds from the sale of the Stock being
sold by the Company as set forth in the Prospectus; and
(l) To take such steps as shall be necessary to ensure that the
Company shall not become an "investment company" within the meaning of
such term under the Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder.
7. Further Agreements of the Selling Stockholders. Each Selling
Stockholder agrees:
(a) Without the prior written consent of Lehman Brothers Inc. on
behalf of the Representative, not to offer, sell or grant any option for
the sale or otherwise dispose of (or enter into any transaction which is
designed to, or could be expected to result in the disposition by any
person at any time in the future of) (i) any shares of Common Stock or
(ii) any securities convertible into or
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<PAGE>
exercisable for shares of Common Stock, owned by such Selling
Stockholder or with respect to which such Selling Stockholder has the
power of disposition, whether directly or indirectly (collectively the
"Stock"), (x) with respect to all of the Stock, for a period of 180 days
subsequent to the date of the Prospectus, (y) with respect to 75% of the
Stock, for a period of 270 days subsequent to the date of the Prospectus
and (z) with respect to 40% of the Stock, for a period of 365 days
subsequent to the date of the Prospectus.
(b) That the Stock to be sold by the Selling Stockholder
hereunder, which is represented by the certificates held in custody for
the Selling Stockholder, is subject to the interest of the Underwriters
and the other Selling Stockholders thereunder, that the arrangements
made by the Selling Stockholder for such custody are to that extent
irrevocable, and that the obligations of the Selling Stockholder
hereunder shall not be terminated by any act of the Selling Stockholder,
by operation of law, by the death or incapacity of any individual
Selling Stockholder or, in the case of a trust, by the death or
incapacity of any executor or trustee or the termination of such trust,
or the occurrence of any other event.
(c) To deliver to the Representatives prior to the First Delivery
Date a properly completed and executed United States Treasury Department
Form W-8 (if the Selling Stockholder is a non-United States person) or
Form W-9 (if the Selling Stockholder is a United States person.)
8. Expenses. The Company agrees to pay (a) the costs incident to
the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation, printing
and filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus,
all as provided in this Agreement; (d) the costs of producing and distributing
this Agreement and any other related documents in connection with the offering,
purchase, sale and delivery of the stock; (e) the costs of delivering and
distributing the Custody Agreements and Powers of Attorney; (f) the filing fees
incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of sale of the Stock; (g) any applicable
listing or other fees, including the fees for quotation of the Common Stock on
the Nasdaq National Market; (h) the fees and expenses of qualifying the Stock
under the securities laws of the several jurisdictions as provided in Section
6(h) and of preparing, printing and distributing a Blue Sky Memorandum
(including related fees and expenses of counsel to the Underwriters); and
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(i) all other costs and expenses incident to the performance of the obligations
of the Company and the Selling Stockholders under this Agreement; provided that,
except as provided in this Section 8 and in Section 13 the Underwriters shall
pay their own costs and expenses, including the costs and expenses of their
counsel, any transfer taxes on the Stock which they may sell and the expenses of
advertising any offering of the Stock made by the Underwriters.
9. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
and the Selling Stockholders contained herein, to the performance by the Company
and the Selling Stockholders of their respective obligations hereunder, and to
each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(a); no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and any request of the
Commission for inclusion of additional information in the Registration
Statement or the Prospectus or otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the
Company on or prior to such Delivery Date that the Registration
Statement or the Prospectus or any amendment or supplement thereto
contains an untrue statement of a fact which, in the opinion of
Chadbourne & Parke LLP, counsel for the Underwriters, is material or
omits to state a fact which, in the opinion of such counsel, is material
and is required to be stated therein or is necessary to make the
statements therein not misleading.
(c) All corporate proceedings and other legal matters incident to
the authorization, form and validity of this Agreement, the Custody
Agreements and Powers of Attorney, the Stock, the Registration Statement
and the Prospectus, and all other legal matters relating to this
Agreement and the transactions contemplated hereby, including the
Recapitalization, shall be reasonably satisfactory in all material
respects to counsel for the Underwriters, and the Company and the
Selling Stockholders shall have furnished to such counsel all documents
and information that they may reasonably request to enable them to pass
upon such matters.
(d) Hale and Dorr shall have furnished to the Representatives its
written opinion, as counsel to the Company, addressed to the
Underwriters and dated
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such Delivery Date, in form and substance reasonably satisfactory to the
Representatives, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of the State of Delaware, is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction
listed on Schedule III attached hereto; and, to the knowledge of
such counsel, the Company has no subsidiaries;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the shares of Stock being
delivered on such Delivery Date) have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the Prospectus;
(iii) There are no preemptive or other rights to subscribe
for or to purchase, nor any restriction upon the voting or
transfer of, any shares of the Stock pursuant to the Company's
certificate of incorporation or by-laws or, to such counsel's
knowledge, any agreement or other instrument to which the Company
is a party or by which it may be bound;
(iv) To such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company is a party or of which
any property or assets of the Company is the subject which, if
determined adversely to the Company, might have a Material
Adverse Effect; and, to such counsel's knowledge, no such
proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(v) The Registration Statement was declared effective
under the Securities Act as of the date and time specified in
such opinion, the Prospectus was filed with the Commission
pursuant to the subparagraph of Rule 424(b) of the Rules and
Regulations specified in such opinion on the date specified
therein and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has
been issued and no proceeding for that purpose is pending or
threatened by the Commission;
(vi) The Registration Statement and the Prospectus and
any further amendments or supplements thereto made by the Company
prior to
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such Delivery Date (other than the financial statements and
schedules and other financial data contained therein, as to
which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the Securities
Act and the Rules and Regulations;
(vii) To such counsel's knowledge, there are no contracts
or other documents which are required to be described in the
Prospectus or filed as exhibits to the Registration Statement by
the Securities Act or by the Rules and Regulations which have not
been described or filed as exhibits to the Registration Statement
or incorporated therein by reference as permitted by the Rules
and Regulations;
(viii) This Agreement has been duly authorized, executed
and delivered by the Company;
(ix) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the compliance
by the Company with all of the provisions of this Agreement and
the consummation of the transactions contemplated hereby
including the Recapitalization will not conflict with or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument listed as
an exhibit to the Registration Statement, nor will such actions
result in any violation of the provisions of the certificate of
incorporation or by-laws of the Company or any statute or any
order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company
or any of its properties or assets; and, except for the
registration of the Stock under the Securities Act and such
consents, approvals, authorizations, registrations or
qualifications as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") or under the Exchange Act
and applicable state securities laws in connection with the
purchase and distribution of the Stock by the Underwriters, no
consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body
is required for the execution, delivery and performance of this
Agreement, by the Company and the consummation of the
transactions contemplated hereby including the Recapitalization;
and
(x) Except as described in the Prospectus, to such
counsel's knowledge, there are no contracts or agreements between
the Company and any person granting such person the right to
require the Company to
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file a registration statement under the Securities Act with
respect to any securities of the Company owned or to be owned by
such person or the right (other than rights which have been
waived or satisfied) to require the Company to include such
securities in the securities registered pursuant to the
Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the
Company under the Securities Act.
In rendering such opinion, such counsel may state that its opinion is
limited to matters governed by the Federal laws of the United States of
America, the laws of the Commonwealth of Massachusetts and the General
Corporation Law of the State of Delaware. Such counsel shall also have
furnished to the Representatives a written statement, addressed to the
Underwriters and dated such Delivery Date, in form and substance
satisfactory to the Representatives, to the effect that (x) such counsel
has acted as counsel to the Company in connection with the
Recapitalization and the preparation of the Registration Statement, and
(y) based on the procedures set forth therein, but without independent
check or verification, no facts have come to the attention of such
counsel which lead it to believe that the Registration Statement, as of
the Effective Date, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading. The
foregoing statement may be qualified by a statement to the effect that
such counsel does not (i) assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus or (ii) express any view as to the financial
statements and schedules and other financial data contained therein.
(e) Hale and Dorr shall have furnished to the Representatives its
written opinion, as counsel to the Selling Stockholders, addressed to
the Underwriters and dated such Delivery Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that:
(i) Each Selling Stockholder has full right, power and
authority to enter into this Agreement and the Custody Agreement
and Power of Attorney; to such counsel's knowledge, no consent,
approval, authorization or order of any court or governmental
agency or body is required for the execution and delivery and
performance of this Agreement and the Custody Agreement and Power
of Attorney by each Selling Stockholder, and consummation by the
Selling Stockholders of the transactions contemplated thereby,
except such as have been obtained or
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<PAGE>
made and are in full force and effect and such as may be
required by the NASD or under the Exchange Act and applicable
state securities laws;
(ii) This Agreement has been duly authorized, executed
and delivered by or on behalf of each Selling Stockholder;
(iii) A Custody Agreement and Power of Attorney have been
duly authorized, executed and delivered by each Selling
Stockholder and constitute valid and binding agreements of each
Selling Stockholder, enforceable in accordance with their
respective terms; and
(iv) Upon registration of the Stock to be sold by the
Selling Stockholders in the names of the Underwriters in the
stock records of the Company, and assuming the Underwriters
purchased such stock in good faith and without notice of any
adverse claim within the meaning of Section 8-302 of the Uniform
Commercial Code as in effect in the Commonwealth of
Massachusetts, the Underwriters acquired all rights of the
Selling Stockholders in such Stock free and clear of any adverse
claim, any lien in favor of the Company and any restrictions on
transfer imposed by the Company.
In rendering such opinion, such counsel may (i) state that its opinion
is limited to matters governed by the Federal laws of the United States
of America and the Delaware General Corporate Law and (ii) in rendering
the opinion in Section 9(e)(iv) above, rely upon a certificate of each
Selling Stockholder in respect of matters of fact as to ownership of and
liens, encumbrances, equities or claims on the shares of Stock sold by
such Selling Stockholder, provided that such counsel shall furnish
copies thereof to the Representatives and state that it believes that
both the Underwriters and it are justified in relying upon such
certificate.
(f) The Representatives shall have received from Chadbourne &
Parke LLP, counsel for the Underwriters, such opinion or opinions, dated
such Delivery Date, with respect to the issuance and sale of the Stock,
the Registration Statement, the Prospectus and other related matters as
the Representatives may reasonably require, and the Company shall have
furnished to such counsel such documents as they reasonably request for
the purpose of enabling them to pass upon such matters.
(g) At the time of execution of this Agreement, the
Representatives shall have received from Ernst & Young LLP a letter, in
form and substance satisfactory to the Representatives, addressed to the
Underwriters and dated the
20
<PAGE>
date hereof (i) confirming that they are independent public accountants
within the meaning of the Securities Act and are in compliance with the
applicable requirements relating to the qualification of accountants
under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of
the date hereof (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more than five
days prior to the date hereof), the conclusions and findings of such
firm with respect to the financial information and other matters
ordinarily covered by accountants' "comfort letters" to underwriters in
connection with registered public offerings.
(h) With respect to the letter of Ernst & Young LLP referred to
in the preceding paragraph and delivered to the Representatives
concurrently with the execution of this Agreement (the "initial
letter"), the Company shall have furnished to the Representatives a
letter (the "bring-down letter") of such accountants, addressed to the
Underwriters and dated such Delivery Date (i) confirming that they are
independent public accountants within the meaning of the Securities Act
and are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 201 of Regulation S-X of the
Commission, (ii) stating, as of the date of the bring-down letter (or,
with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in
the Prospectus, as of a date not more than five days prior to the date
of the bring-down letter), the conclusions and findings of such firm
with respect to the financial information and other matters covered by
the initial letter and (iii) confirming in all material respects the
conclusions and findings set forth in the initial letter.
(i) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board, its
President or a Vice President and its chief financial officer stating
that:
(i) The representations, warranties and agreements of
the Company in Section 1 are true and correct as of such Delivery
Date; the Company has complied with all its agreements contained
herein; and the conditions set forth in Sections 9(a) and 9(k)
have been fulfilled; and
(ii) They have carefully examined the Registration
Statement and the Prospectus and, in their opinion (A) as of the
Effective Date, the Registration Statement and Prospectus did not
include any untrue statement of a material fact and did not omit
to state a material fact required to be stated therein or
necessary to make the statements therein
21
<PAGE>
not misleading, and (B) since the Effective Date no event has
occurred which should have been set forth in a supplement or
amendment to the Registration Statement or the Prospectus.
(j) Each Selling Stockholder (or the Custodian or one or more
attorneys-in-fact on behalf of the Selling Stockholders) shall have
furnished to the Representatives on the Delivery Date a certificate,
dated such Delivery Date, signed by, or on behalf of, the Selling
Stockholder (or the Custodian or one or more attorneys-in-fact) stating
that the representations, warranties and agreements of the Selling
Stockholder contained herein are true and correct as of such Delivery
Date and that the Selling Stockholder has complied with all agreements
contained herein to be performed by the Selling Stockholder at or prior
to such Delivery Date.
(k) (i) The Company shall not have sustained since the date of
the latest audited financial statements included in the Prospectus any
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than
as set forth or contemplated in the Prospectus or (ii) since such date
there shall not have been any change in the capital stock or long-term
debt of the Company or any change, or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company, otherwise than as set forth or contemplated in the Prospectus,
the effect of which, in any such case described in clause (i) or (ii),
is, in the judgment of the Representatives, so material and adverse as
to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Stock being delivered on such Delivery
Date on the terms and in the manner contemplated in the Prospectus.
(l) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission, by
such exchange or by any other regulatory body or governmental authority
having jurisdiction, (ii) a banking moratorium shall have been declared
by Federal or state authorities, (iii) the United States shall have
become engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a
declaration of a national emergency or war by the United States or (iv)
there shall have occurred such a material adverse
22
<PAGE>
change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the
United States shall be such) as to make it, in the judgment of a
majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the Stock
being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(m) The Nasdaq National Market shall have approved the Stock for
inclusion, subject only to official notice of issuance and evidence of
satisfactory distribution.
(n) You shall have been furnished such additional documents and
certificates as you or counsel for the Underwriters may reasonably
request related to this Agreement and the transactions contemplated
hereby.
All opinions, letters, evidence and certificates mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
10. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each
Underwriter, its officers and employees and each person, if any, who controls
any Underwriter within the meaning of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any action in respect
thereof (including, but not limited to, any loss, claim, damage, liability or
action relating to purchases and sales of Stock), to which that Underwriter,
officer, employee or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or supplement
thereto or (B) in any blue sky application or other document prepared or
executed by the Company (or based upon any written information furnished by the
Company) specifically for the purpose of qualifying any or all of the Stock
under the securities laws of any state or other jurisdiction (any such
application, document or information being hereinafter called a "Blue Sky
Application"), (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading or
(iii) any act or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Stock or the
offering contemplated hereby, and which is included as part
23
<PAGE>
of or referred to in any loss, claim, damage, liability or action arising out of
or based upon matters covered by clause (i) or (ii) above (provided that the
Company shall not be liable under this clause (iii) to the extent that it is
determined in a final judgment by a court of competent jurisdiction that such
loss, claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its gross negligence or willful misconduct), and shall reimburse each
Underwriter and each such officer, employee or controlling person promptly upon
demand for any legal or other expenses reasonably incurred by that Underwriter,
officer, employee or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of, or is based upon, any untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus, or in
any such amendment or supplement, or in any Blue Sky Application, in reliance
upon and in conformity with written information concerning such Underwriter
furnished to the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein. The foregoing indemnity
agreement is in addition to any liability which the Company may otherwise have
to any Underwriter or to any officer, employee or controlling person of that
Underwriter.
(b) The Selling Stockholders, severally in proportion to the
number of shares of Stock to be sold by each of them hereunder, shall indemnify
and hold harmless each Underwriter, its officers and employees, and each person,
if any, who controls any Underwriter within the meaning of the Securities Act,
from and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof (including, but not limited to, any loss, claim,
damage, liability or action relating to purchases and sales of Stock), to which
that Underwriter, officer, employee or controlling person may become subject,
under the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state in any
Preliminary Prospectus, Registration Statement or the Prospectus, or in any
amendment or supplement thereto, any material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
each Underwriter, its officers and employees and each such controlling person
for any legal or other expenses reasonably incurred by that Underwriter, its
officers and employees or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim,
24
<PAGE>
damage, liability or action as such expenses are incurred; provided, however,
that the Selling Stockholders shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of, or is
based upon, any untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or in any such amendment or supplement in reliance upon and in
conformity with written information concerning such Underwriter furnished to the
Company through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein. Notwithstanding the foregoing sentence, the
aggregate liability of any Selling Stockholder pursuant to the provisions of
this paragraph shall be limited to an amount equal to the aggregate purchase
price, less underwriting discounts and commissions, received by such Selling
Stockholder from the sale of such Selling Stockholder's Stock hereunder. The
foregoing indemnity agreement is in addition to any liability which the Selling
Stockholders may otherwise have to any Underwriter or any officer, employee or
controlling person of that Underwriter.
(c) Each Underwriter, severally and not jointly, shall indemnify
and hold harmless the Company, its officers and employees, each of its directors
(including any person who, with his or her consent, is named in the Registration
Statement as about to become a director of the Company), and each person, if
any, who controls the Company within the meaning of the Securities Act, from and
against any loss, claim, damage or liability, joint or several, or any action in
respect thereof, to which the Company or any such director, officer or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in any Preliminary Prospectus, the Registration Statement or
the Prospectus or in any amendment or supplement thereto, or (B) in any Blue Sky
Application or (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information concerning such Underwriter furnished to the
Company through the Representatives by or on behalf of that Underwriter
specifically for inclusion therein, and shall reimburse the Company and any such
director, officer or controlling person for any legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses are
incurred. The foregoing indemnity agreement is in addition to any liability
which any Underwriter may otherwise have to the Company or any such director,
officer, employee or controlling person.
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<PAGE>
(d) Promptly after receipt by an indemnified party under this
Section 10 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 10, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 10 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 10.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice from
the indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Representatives shall have the right to employ counsel to represent jointly
the Representatives and those other Underwriters and their respective officers,
employees and controlling persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the Underwriters
against the Company or any Selling Stockholder under this Section 10 if, in the
reasonable judgment of the Representatives, it is advisable for the
Representatives and those Underwriters, officers, employees and controlling
persons to be jointly represented by separate counsel, and in that event the
fees and expenses of such separate counsel shall be paid by the Company or
Selling Stockholders. No indemnifying party shall (i) without the prior written
consent of the indemnified parties (which consent shall not be unreasonably
withheld), settle or compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless, such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding, or (ii) be liable for any settlement
of any such action effected without its written consent (which consent shall not
be unreasonably withheld), but if settled with the consent of the indemnifying
party or if there be a final judgment of the plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless any indemnified party
from and against any loss or liability by reason of such settlement or judgment.
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<PAGE>
(e) If the indemnification provided for in this Section 10 shall
for any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 10 (a), 10(b) or 10(c) in respect of any loss, claim, damage
or liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other from the offering of the Stock or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Stockholders on the one hand and the Underwriters on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations; provided that no Selling Stockholder shall be required
to contribute in excess of the amount of the purchase price for the sale of
Stock of such Selling Stockholder less underwriting discounts and commissions.
The relative benefits received by the Company and the Selling Stockholders on
the one hand and the Underwriters on the other with respect to such offering
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Stock purchased under this Agreement (before deducting expenses)
received by the Company and the Selling Stockholders, on the one hand, and the
total underwriting discounts and commissions received by the Underwriters with
respect to the shares of the Stock purchased under this Agreement, on the other
hand, bear to the total gross proceeds from the offering of the shares of the
Stock under this Agreement, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault shall be determined by reference to
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Selling Stockholders or the Underwriters, the intent of the parties
and their relative knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Company, the Selling Stockholders and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 10(e) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section shall be deemed to include, for
purposes of this Section 10(e), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 10(e), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Stock underwritten
27
<PAGE>
by it and distributed to the public was offered to the public exceeds the amount
of any damages which such Underwriter has otherwise paid or become liable to pay
by reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute as provided in this Section 10(e) are
several in proportion to their respective underwriting obligations and not
joint.
(f) The Underwriters severally confirm and the Company
acknowledges that the statements with respect to the public offering of the
Stock by the Underwriters set forth on the cover page of, the legend concerning
over-allotments on the inside front cover page of and the concession and
reallowance figures appearing under the caption "Underwriting" in, the
Prospectus are correct and constitute the only information concerning such
Underwriters furnished in writing to the Company by or on behalf of the
Underwriters specifically for inclusion in the Registration Statement and the
Prospectus.
11. Defaulting Underwriters. If, on either Delivery Date, any
Underwriter defaults in the performance of its obligations under this Agreement,
the remaining non-defaulting Underwriters shall be obligated to purchase the
Stock which the defaulting Underwriter agreed but failed to purchase on such
Delivery Date in the respective proportions which the number of shares of the
Firm Stock set opposite the name of each remaining non-defaulting Underwriter in
Schedule 1 hereto bears to the total number of shares of the Firm Stock set
opposite the names of all the remaining nondefaulting Underwriters in Schedule 1
hereto; provided, however, that the remaining nondefaulting Underwriters shall
not be obligated to purchase any of the Stock on such Delivery Date if the total
number of shares of the Stock which the defaulting Underwriter or Underwriters
agreed but failed to purchase on such date exceeds 9.09% of the total number of
shares of the Stock to be purchased on such Delivery Date, and any remaining
non-defaulting Underwriter shall not be obligated to purchase more than 110% of
the number of shares of the Stock which it agreed to purchase on such Delivery
Date pursuant to the terms of Section 3. If the foregoing maximums are exceeded,
the remaining non-defaulting Underwriters, or those other underwriters
satisfactory to the Representatives who so agree, shall have the right, but
shall not be obligated, to purchase, in such proportion as may be agreed upon
among them, all the Stock to be purchased on such Delivery Date. If the
remaining Underwriters or other underwriters satisfactory to the Representatives
do not elect to purchase the shares which the defaulting Underwriter or
Underwriters agreed but failed to purchase on such Delivery Date, this Agreement
(or, with respect to the Second Delivery Date, the obligation of the
Underwriters to purchase, and of the Company to sell, the Option Stock) shall
terminate without liability on the part of any non-defaulting Underwriter or the
Company or the
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<PAGE>
Selling Stockholders, except that the Company will continue to be liable for the
payment of expenses to the extent set forth in Sections 8 and 13. As used in
this Agreement, the term "Underwriter" includes, for all purposes of this
Agreement unless the context requires otherwise, any party not listed in
Schedule 1 hereto who, pursuant to this Section 11, purchases Firm Stock which a
defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter
of any liability it may have to the Company and the Selling Stockholders for
damages caused by its default. If other underwriters are obligated or agree to
purchase the Stock of a defaulting or withdrawing Underwriter, either the
Representatives or the Company may postpone the Delivery Date for up to seven
full business days in order to effect any changes that in the opinion of counsel
for the Company or counsel for the Underwriters may be necessary in the
Registration Statement, the Prospectus or in any other document or arrangement.
12. Termination. The obligations of the Underwriters hereunder
may be terminated by the Representatives by notice given to and received by the
Company and the Selling Stockholders prior to delivery of and payment for the
Firm Stock if, prior to that time, any of the events described in Sections 9(k)
or 9(l), shall have occurred or if the Underwriters shall decline to purchase
the Stock for any reason permitted under this Agreement.
13. Reimbursement of Underwriters' Expenses. If (a) the Company
or any Selling Stockholder shall fail to tender the Stock for delivery to the
Underwriters by reason of any failure, refusal or inability on the part of the
Company or any Selling Stockholder(s) to perform any agreement on its part to be
performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled by the Company or the Selling Stockholder(s)
is not fulfilled, the Company and the Selling Stockholder(s) will reimburse the
Underwriters for all reasonable out-of-pocket expenses (including fees and
disbursements of counsel) incurred by the Underwriters in connection with this
Agreement and the proposed purchase of the Stock, and upon demand the Company
and the Selling Stockholder(s) shall pay the full amount thereof to the
Representative(s). If this Agreement is terminated pursuant to Section 12 by
reason of the default of one or more Underwriters, neither the Company nor any
Selling Stockholder shall be obligated to reimburse any defaulting Underwriter
on account of those expenses.
14. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
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<PAGE>
(a) if to the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission to Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285, Attention: Syndicate
Department (Fax: 212-526-6588), with a copy, in the case of any notice
pursuant to Section 11(d), to the Director of Litigation, Office of the
General Counsel, Lehman Brothers Inc., 3 World Financial Center, 10th
Floor, New York, NY 10285;
(b) if to the Company, shall be delivered or sent by mail, telex
or facsimile transmission to the address of the Company set forth in
the Registration Statement, Attention: Charles L. Bakes
(Fax: 203-321-1335) with a copy to Hale and Dorr, 60 State Street,
Boston, Massachusetts 02109, Attention: John A. Burgess, Esq.;
(c) if to any Selling Stockholders, shall be delivered or sent
by mail, telex or facsimile transmission to such Selling Stockholder
at the address set forth on Schedule 2 hereto with a copy to Hale and
Dorr, 60 State Street, Boston, Massachusetts 02109, Attention:
John A. Burgess, Esq.;
provided, however, that any notice to an Underwriter pursuant to Section 10(d)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company and the
Selling Stockholders shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Underwriters by
Lehman Brothers Inc. on behalf of the Representatives and the Company and the
Underwriters shall be entitled to act and rely upon any request, consent, notice
or agreement given or made on behalf of the Selling Stockholders by the
Custodian.
15. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the Underwriters, the Company,
the Selling Stockholders and their respective personal representatives and
successors. This Agreement and the terms and provisions hereof are for the sole
benefit of only those persons, except that (A) the representations, warranties,
indemnities and agreements of the Company and the Selling Stockholders contained
in this Agreement shall also be deemed to be for the benefit of the person or
persons, if any, who control any Underwriter within the meaning of Section 15 of
the Securities Act and (B) the indemnity agreement of the Underwriters contained
in Section 10(c) of this Agreement shall be deemed to be for the benefit of
directors of the Company, officers of the Company who have signed the
Registration Statement and any person controlling the Company within the meaning
of Section 15 of the Securities Act. Nothing in this
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<PAGE>
Agreement is intended or shall be construed to give any person, other than the
persons referred to in this Section 15, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained herein.
16. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Selling Stockholders and the
Underwriters contained in this Agreement or made by or on behalf on them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Stock and shall remain in full force and effect, regardless of
any investigation made by or on behalf of any of them or any person controlling
any of them.
17. Definition of the Terms "Business Day" and "Subsidiary". For
purposes of this Agreement, (a) "business day" means any day on which the
New York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of New York applicable to agreements made
and to be performed in the State of New York without regard to the conflict of
laws provisions.
19. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience
of reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
31
<PAGE>
If the foregoing correctly sets forth the agreement among the
Company, the Selling Stockholders and the Underwriters, please indicate your
acceptance in the space provided for that purpose below.
Very truly yours,
INTERNATIONAL TELECOMMUNICATION
DATA SYSTEMS, INC.
By:____________________________
Name:
Title:
The Selling Stockholders named in
Schedule 2 to this Agreement
By:___________________________
Attorney-in-Fact
Accepted:
LEHMAN BROTHERS INC.
COWEN & COMPANY
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By:_____________________________
Authorized Representative
32
<PAGE>
SCHEDULE 1
Number of
Underwriters Firm Shares
- ------------ -----------
Lehman Brothers Inc....................................
Cowen & Company........................................
Total.......................................... ___________
33
<PAGE>
SCHEDULE II
Number of
Selling Stockholders Firm Shares
- -------------------- -----------
34
AGREEMENT AND PLAN OF MERGER
----------------------------
This Agreement is made and entered into as of this 27 day of
September, 1996 pursuant to Section 33-371 of the Connecticut General Statutes
and Section 252 of the Delaware General Corporation Law, by and between
International Telecommunication Data Systems, Inc., a Delaware corporation
("ITDS (Delaware)"), and International Telecommunication Data Systems, Inc., a
Connecticut corporation ("ITDS (Connecticut)").
WITNESSETH:
----------
WHEREAS, ITDS (Delaware) and ITDS (Connecticut) (individually
sometimes called a "Constituent Corporation" and together called the
"Constituent Corporations") desire that ITDS (Connecticut) merge with and into
ITDS (Delaware), a wholly-owned subsidiary of ITDS (Connecticut) (such
transaction hereinafter referred to as the "Merger");
WHEREAS, ITDS (Connecticut) was incorporated in Connecticut on May
11, 1990, and has an authorized capital stock of 100,000 shares of Common Stock,
no par value per share (the "ITDS (Connecticut) Common Stock"), of which 6,094
shares were issued and outstanding as of the date hereof, and 2,300 shares of
Preferred Stock, of which 50 shares are designated as Class A Preferred Stock of
ITDS (Connecticut) (the "ITDS (Connecticut) Class A Preferred Stock"), 18 of
which are issued and outstanding as of the date hereof; 2,000 shares are
designated as Class B Preferred Stock of ITDS (Connecticut) (the "ITDS
(Connecticut) Class B Preferred Stock"), 1,500 of which are issued and
outstanding as of the date hereof; and 250 shares are designated as Class C
Convertible Preferred Stock of ITDS (Connecticut) (the "ITDS (Connecticut) Class
C Preferred Stock"), 129 of which are issued and outstanding as of the date
hereof;
WHEREAS, the Certificate of Incorporation of ITDS (Delaware) was
filed in the office of the Secretary of the State of Delaware on August 28,
1996, and ITDS (Delaware) has authorized capital stock of 40,000,000 shares of
Common Stock, $.01 par value per share ("ITDS (Delaware) Common Stock"), 100 of
which are issued and outstanding and held by ITDS (Connecticut), and 2,000,000
shares of Preferred Stock, $.01 par value per share, none of which are issued
and outstanding, of which 250 shares are designated as Series C Convertible
Preferred Stock of ITDS (Delaware) (the "ITDS (Delaware) Series C Preferred
Stock"), none of which are issued and outstanding;
<PAGE>
WHEREAS, the registered office of ITDS (Delaware) in the State of
Delaware is located at Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware and the name and address of its registered agent is The Corporation
Trust Company; and the registered principal office of ITDS (Connecticut) in the
State of Connecticut is located at 969 High Ridge Road, Suite 205, Stamford,
Connecticut; and
WHEREAS, the respective Boards of Directors of the Constituent
Corporations desire that the Merger provided for herein be a tax-free
reorganization pursuant to Section 368(a) of the Internal Revenue Code of 1986,
as amended;
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and provisions hereinafter contained, the Constituent Corporations do hereby
prescribe the terms and conditions of said Merger and mode of carrying the same
into effect as follows:
FIRST: ITDS (Delaware) shall merge into itself ITDS (Connecticut),
and ITDS (Connecticut) shall merge into ITDS (Delaware), which shall be the
surviving corporation in the Merger (the "Surviving Corporation").
SECOND: The Certificate of Incorporation of ITDS (Delaware) as in
effect on the date of the Merger provided for in this Agreement, shall continue
in full force and effect as the Certificate of Incorporation of the Surviving
Corporation.
THIRD: The manner of converting the outstanding shares of the capital
stock of each of the Constituent Corporations into the shares or other
securities of the Surviving Corporation shall be as follows:
(a) Each share of ITDS (Delaware) Common Stock that is
issued and outstanding immediately prior to the date on which the Merger shall
become effective shall, by virtue of the Merger and without further action,
cease to exist and all certificates representing such shares shall be cancelled.
(b) Each share of ITDS (Connecticut) Common Stock that is
issued and outstanding (other than shares of ITDS (Connecticut) Common Stock, if
any, held in the treasury of ITDS (Connecticut) and Dissenting Shares (as
defined below)) on the date on which the Merger shall become effective shall, by
virtue of the Merger and without further action, cease to exist and shall be
converted into 800 shares of ITDS (Delaware) Common Stock. There shall not be
any issued and outstanding shares of ITDS (Connecticut) Common Stock that will
not be so converted or exchanged. No fractional
-2-
<PAGE>
shares of ITDS (Delaware) Common Stock shall be issued pursuant to such
conversion; any fractional shares that would otherwise have been issued to a
stockholder of ITDS (Connecticut) shall instead be rounded down to the nearest
whole number.
(c) Each share of ITDS (Connecticut) Class A Preferred
Stock that is issued and outstanding (other than shares of ITDS (Connecticut)
Class A Preferred Stock, if any, held in the treasury of ITDS (Connecticut) and
Dissenting Shares) on the date on which the Merger shall become effective shall,
by virtue of the Merger and without further action, cease to exist and shall be
converted into 29,156 shares of ITDS (Delaware) Common Stock. There shall not be
any issued and outstanding shares of ITDS (Connecticut) Class A Preferred Stock
that will not be so converted or exchanged. No fractional shares of ITDS
(Delaware) Common Stock shall be issued pursuant to such conversion; any
fractional shares that would otherwise have been issued to a stockholder of ITDS
(Connecticut) shall instead be rounded down to the nearest whole number. In
addition, each holder of the ITDS (Connecticut) Class A Preferred Stock shall be
entitled to receive for each share of ITDS (Connecticut) Class A Preferred Stock
held by such holder a promissory note in the original principal amount of
$25,000 issued by ITDS (Delaware) in the form attached hereto as Exhibit A.
(d) Each share of ITDS (Connecticut) Class B Preferred
Stock that is issued and outstanding (other than shares of ITDS (Connecticut)
Class B Preferred Stock, if any, held in the treasury of ITDS (Connecticut) and
Dissenting Shares) on the date on which the Merger shall become effective shall,
by virtue of the Merger and without further action, cease to exist and shall be
converted into 218.67 shares of ITDS (Delaware) Common Stock. There shall not be
any issued and outstanding shares of ITDS (Connecticut) Class B Preferred Stock
that will not be so converted or exchanged. No fractional shares of ITDS
(Delaware) Common Stock shall be issued pursuant to such conversion; any
fractional shares that would otherwise have been issued to a stockholder of ITDS
(Connecticut) shall instead be rounded down to the nearest whole number. In
addition, each holder of the ITDS (Connecticut) Class B Preferred Stock shall be
entitled to receive for each share of ITDS (Connecticut) Class B Preferred Stock
held by such holder, a promissory note in the original principal amount of $250
issued by ITDS (Delaware) in the form attached hereto as Exhibit B.
(e) Each share of ITDS (Connecticut) Series C Preferred
Stock that is issued and outstanding (other than shares of ITDS (Connecticut)
Series C Preferred Stock, if any, held in the
-3-
<PAGE>
treasury of ITDS (Connecticut) and Dissenting Shares) on the date on which the
Merger shall become effective shall, by virtue of the Merger and without further
action, cease to exist and shall be converted into one share of ITDS (Delaware)
Series C Preferred Stock. There shall not be any issued and outstanding shares
of ITDS (Connecticut) Class C Preferred Stock that will not be so converted or
exchanged. No fractional shares of ITDS (Delaware) Series C Preferred Stock
shall be issued pursuant to such conversion; any fractional shares that would
otherwise have been issued to a stockholder of ITDS (Connecticut) shall instead
be rounded down to the nearest whole number.
(f) Each share of ITDS (Connecticut) Common Stock, ITDS
(Connecticut) Class A Preferred Stock, ITDS (Connecticut) Class B Preferred
Stock or ITDS (Connecticut) Class C Preferred Stock, if any, that shall then be
held in the treasury of ITDS (Connecticut) on the effective date of the Merger
shall by virtue of the Merger and without further action, cease to exist and all
certificates representing such shares shall be cancelled.
(g) For purposes of this Agreement, "Dissenting Shares"
means shares of stock of ITDS (Connecticut) held as of the Effective Date by a
shareholder who has delivered to ITDS (Connecticut) written notice demanding
payment for his or her shares in accordance with Section 33-373 of the
Connecticut General Statutes. Dissenting Shares shall not be converted into or
represent the right to receive shares of ITDS (Delaware).
(h) After the effective date of the Merger, each holder of
an outstanding certificate representing shares of ITDS (Connecticut) stock shall
surrender the same to ITDS (Delaware) and each holder shall be entitled upon
such surrender to receive certificates for the number of shares of ITDS
(Delaware) stock on the basis provided herein. Until so surrendered, the
outstanding shares of the capital stock of ITDS (Connecticut) converted into the
capital stock of ITDS (Delaware) as provided herein, may be treated by ITDS
(Delaware) for all corporate purposes as evidencing the ownership of shares of
ITDS (Delaware), as though said surrender and exchange had taken place.
FOURTH: The terms and conditions of the Merger are as follows:
(a) The By-laws of ITDS (Delaware) as they shall exist on
the effective date of the Merger shall be and remain the By-laws of the
Surviving Corporation until the same shall be altered, amended or repealed as
therein provided.
-4-
<PAGE>
(b) The directors and officers of ITDS (Delaware)
immediately prior to the effective date of the Merger shall be the directors and
officers of the Surviving Corporation as of the effective date of this Merger,
and shall continue to hold office in accordance with the By-laws of the
Surviving Corporation.
(c) The Merger shall become effective upon filing with the
Secretary of the State of Delaware this Agreement, or a Certificate of Merger in
lieu thereof, pursuant to Section 252 of the General Corporation Law of the
State of Delaware and with the Secretary of the State of Connecticut a
Certificate of Merger pursuant to Section 33-367 of the Connecticut General
Statutes.
(d) Upon the effective date of the Merger, all property,
rights, privileges, franchises, patents, trademarks, licenses, registrations,
and other assets of every kind and description of ITDS (Connecticut) shall be
transferred to, vested in and devolved upon ITDS (Delaware) without further act
or deed and all property rights, and every other interest of ITDS (Delaware) and
ITDS (Connecticut) shall be as effectively the property of ITDS (Delaware) as
they were of ITDS (Delaware) and ITDS (Connecticut), respectively. All rights of
creditors of ITDS (Connecticut) and all liens upon any property of ITDS
(Connecticut) shall be preserved unimpaired, and all debts, liabilities and
duties of ITDS (Connecticut) shall attach to ITDS (Delaware) and may be enforced
against it to the same extent as if said debts, liabilities and duties had been
incurred or contracted by it. At any time, and from time to time, after the
effective date of the Merger, the last acting officers of ITDS (Connecticut), or
the corresponding officers of ITDS (Delaware), may, in the name of ITDS
(Connecticut), execute and deliver or cause to be executed and delivered all
such deeds and instruments and to take or cause to be taken such further or
other actions as ITDS (Delaware) may deem necessary or desirable in order to
vest in ITDS (Delaware) title to and possession of any property of ITDS
(Connecticut) acquired or to be acquired by reason of or as a result of the
Merger herein provided for and otherwise to carry out the intents and purposes
hereof, and the proper officers and directors of ITDS (Delaware) are fully
authorized in the name of ITDS (Connecticut) or otherwise to take any and all
such action.
(e) ITDS (Delaware) hereby (i) agrees that it may be served
with process in the State of Connecticut in any proceeding for the enforcement
of any obligation of ITDS (Connecticut) and in any proceeding for the
enforcement of the rights of a dissenting stockholder of ITDS (Connecticut)
pursuant to Section 33-373 of the Connecticut General Statutes; (ii) irrevocably
appoints the
-5-
<PAGE>
Secretary of the State of Connecticut as its agent to accept service of process
in any such proceeding and (iii) agrees that it will promptly pay to the
dissenting shareholders of ITDS (Connecticut) the amounts, if any, to which they
are entitled under the Connecticut General Statutes.
FIFTH: Anything herein or elsewhere to the contrary notwithstanding,
this Agreement may be terminated and abandoned by the Boards of Directors of the
Constituent Corporations at any time prior to the date that the requisite
certificates are filed in the office of the Secretary of the State of Delaware
and the office of the Secretary of the State of Connecticut. This Agreement may
be amended by the Boards of Directors of the Constituent Corporations at any
time prior to the date on which the requisite certificates are filed in the
office of the Secretary of the State of Delaware and the office of the Secretary
of the State of Connecticut, provided that an amendment made subsequent to the
approval of this Agreement by the stockholders of either Constituent Corporation
shall not (i) alter or change the amount or kind of shares, securities and/or
rights to be received in exchange for or on conversion of all or any of the
shares of any class or series thereof of such Constituent Corporation, (ii)
alter or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the Merger, or (iii) alter or change any of the
terms and conditions of this Agreement if such alteration or change would
adversely affect the holders of any class of stock of such Constituent
Corporation.
SIXTH: (a) This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of Delaware.
(b) ITDS (Delaware) and ITDS (Connecticut) each agrees to
execute and deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be necessary or desirable in
order to consummate or implement the transactions contemplated by this
Agreement.
IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the
approval and authority duly given by resolutions adopted by their respective
Boards of Directors, have caused these presents to be executed by the President
and attested to by the Secretary of each party hereto as the respective act,
deed and agreement of each of said corporation, as of the date first written
above.
-6-
<PAGE>
INTERNATIONAL TELECOMMUNICATION
DATA SYSTEMS, INC.
ATTEST: (a Delaware corporation)
By: /s/ Lewis D. Bakes By: /s/ Charles L. Bakes
------------------ --------------------
Lewis D. Bakes Charles L. Bakes
Secretary President
[CORPORATE SEAL]
INTERNATIONAL TELECOMMUNICATION
DATA SYSTEMS, INC.
ATTEST: (a Connecticut corporation)
By: /s/ Lewis D. Bakes By: /s/ Charles L. Bakes
------------------ --------------------
Lewis D. Bakes Charles L. Bakes
Secretary President
[CORPORATE SEAL]
-7-
<PAGE>
EXHIBITS
to
Merger Agreement
Exhibit A Form of Promissory Note for holders of Class A
Preferred Stock
Exhibit B Form of Promissory Note for holders of Class B
Preferred Stock
-8-
<PAGE>
EXHIBIT A
---------
PROMISSORY NOTE
---------------
September __, 1996
$[_____] Stamford, Connecticut
FOR VALUE RECEIVED, International Telecommunication Data Systems,
Inc., a Delaware corporation (the "Maker"), promises to pay to _______________,
or order, at the offices of the Maker or at such other place as the holder of
this Note may designate, the principal sum of $[______], with no interest.
Principal shall be paid as follows:
Principal shall be paid on the earlier of (i) the date two years from
the date of this Note or (ii) the closing of an underwritten initial
public offering of the Common Stock of International
Telecommunication Data Systems, Inc. pursuant to an effective
registration statement under the Securities Act of 1933, as amended.
This is one of a series of notes of the Maker (collectively referred
to herein as the "Notes"), all of like tenor, except as to the name of the
holder and the principal amount. The Notes are issued or issuable to former
holders of Class A and Class B Preferred Stock of International
Telecommunication Data Systems, Inc., a Connecticut corporation, the predecessor
corporation of the Maker.
This Note shall become immediately due and payable without notice or
demand upon the occurrence at any time of any of the following events of default
(individually, "an Event of Default" and collectively, "Events of Default"):
(1) the liquidation, termination of existence, dissolution,
insolvency or business failure of the Maker, or the
appointment of a receiver or custodian for the Maker or any
part of its property if such appointment is not terminated
or dismissed within sixty (60) days;
(2) the institution against the Maker or any indorser or
guarantor of this Note of any proceedings under the United
States Bankruptcy Code or any other federal or state
bankruptcy, reorganization, receivership, insolvency or
other similar law affecting the rights of creditors
generally, which proceeding is not dismissed within sixty
(60) days of filing;
(3) the institution by the Maker or any indorser or guarantor
of this Note of any proceedings under the United States
Bankruptcy Code or any other federal or state bankruptcy,
reorganization, receivership,
<PAGE>
insolvency or other similar law affecting the rights of
creditors generally or the making by the Maker or any
indorser or guarantor of this Note of a composition or an
assignment or trust mortgage for the benefit of creditors.
Upon the occurrence of an Event of Default, the holder shall have
then, or at any time thereafter, all of the rights and remedies afforded by the
Uniform Commercial Code as from time to time in effect in the state of
Connecticut or afforded by other applicable law.
No delay or omission on the part of the holder in exercising any
right under this Note shall operate as a waiver of such right or of any other
right of such holder, nor shall any delay, omission or waiver on any one
occasion be deemed a bar to or waiver of the same or any other right on any
future occasion. The Maker and every indorser of this Note regardless of the
time, order or place of signing waives presentment, demand, protest and notices
of every kind and assents to any extension or postponement of the time of
payment or any other indulgence and to the addition or release of any other
party or person primarily or secondarily liable.
This Note may be prepaid in whole or in part at any time or from time
to time without notice and without the consent of the holder. Any such
prepayment shall be without premium or penalty.
The terms and provisions of this Note may be excluded, modified or
amended by a written instrument duly executed on behalf of the Maker and the
holder expressly referring to this Note and setting forth the provision so
excluded, modified or amended. The terms and provisions of each of the Notes may
be excluded, modified or amended by a written instrument duly executed by the
Maker and the holder of Notes representing at least 50% of the aggregate
principal amount of the outstanding Notes.
All rights and obligations hereunder shall be governed by the state
of Connecticut and this Note is executed as an instrument under seal.
ATTEST: INTERNATIONAL TELECOMMUNICATION
DATA SYSTEMS, INC.
By:________________________ By:_______________________
Title:_____________________ Title:____________________
<PAGE>
EXHIBIT B
---------
PROMISSORY NOTE
September __, 1996
$[_____] Stamford, Connecticut
FOR VALUE RECEIVED, International Telecommunication Data Systems,
Inc., a Delaware corporation (the "Maker"), promises to pay to _______________,
or order, at the offices of the Maker or at such other place as the holder of
this Note may designate, the principal sum of $[______], with no interest.
Principal shall be paid as follows:
Principal shall be paid on the earlier of (i) the date two years from
the date of this Note or (ii) the closing of an underwritten initial
public offering of the Common Stock of International
Telecommunication Data Systems, Inc. pursuant to an effective
registration statement under the Securities Act of 1933, as amended.
This is one of a series of notes of the Maker (collectively referred
to herein as the "Notes"), all of like tenor, except as to the name of the
holder and the principal amount. The Notes are issued or issuable to former
holders of Class A and Class B Preferred Stock of International
Telecommunication Data Systems, Inc., a Connecticut corporation, the predecessor
corporation of the Maker.
This Note shall become immediately due and payable without notice or
demand upon the occurrence at any time of any of the following events of default
(individually, "an Event of Default" and collectively, "Events of Default"):
(1) the liquidation, termination of existence, dissolution,
insolvency or business failure of the Maker, or the
appointment of a receiver or custodian for the Maker or any
part of its property if such appointment is not terminated
or dismissed within sixty (60) days;
(2) the institution against the Maker or any indorser or
guarantor of this Note of any proceedings under the United
States Bankruptcy Code or any other federal or state
bankruptcy, reorganization, receivership, insolvency or
other similar law affecting the rights of creditors
generally, which proceeding is not dismissed within sixty
(60) days of filing;
(3) the institution by the Maker or any indorser or guarantor
of this Note of any proceedings under the United States
Bankruptcy Code or any other federal or state bankruptcy,
reorganization, receivership,
<PAGE>
insolvency or other similar law affecting the rights of
creditors generally or the making by the Maker or any
indorser or guarantor of this Note of a composition or an
assignment or trust mortgage for the benefit of creditors.
Upon the occurrence of an Event of Default, the holder shall have
then, or at any time thereafter, all of the rights and remedies afforded by the
Uniform Commercial Code as from time to time in effect in the state of
Connecticut or afforded by other applicable law.
No delay or omission on the part of the holder in exercising any
right under this Note shall operate as a waiver of such right or of any other
right of such holder, nor shall any delay, omission or waiver on any one
occasion be deemed a bar to or waiver of the same or any other right on any
future occasion. The Maker and every indorser of this Note regardless of the
time, order or place of signing waives presentment, demand, protest and notices
of every kind and assents to any extension or postponement of the time of
payment or any other indulgence and to the addition or release of any other
party or person primarily or secondarily liable.
This Note may be prepaid in whole or in part at any time or from time
to time without notice and without the consent of the holder. Any such
prepayment shall be without premium or penalty.
The terms and provisions of this Note may be excluded, modified or
amended by a written instrument duly executed on behalf of the Maker and the
holder expressly referring to this Note and setting forth the provision so
excluded, modified or amended. The terms and provisions of each of the Notes may
be excluded, modified or amended by a written instrument duly executed by the
Maker and the holder of Notes representing at least 50% of the aggregate
principal amount of the outstanding Notes.
All rights and obligations hereunder shall be governed by the state
of Connecticut and this Note is executed as an instrument under seal.
ATTEST: INTERNATIONAL TELECOMMUNICATION
DATA SYSTEMS, INC.
By:________________________ By:_______________________
Title:_____________________ Title:____________________
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
Pursuant to Section 242 of the
------------------------------
General Corporation Law of the State of Delaware
------------------------------------------------
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. (hereinafter called
the "Corporation"), a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, does hereby certify as
follows:
By unanimous written consent in lieu of a meeting of the Board of
Directors of the Corporation, resolutions were duly adopted, pursuant to Section
242 of the General Corporation Law of the State of Delaware, setting forth an
amendment to the Certificate of Incorporation of the Corporation, and declaring
said amendment to be advisable. The sole stockholder of the Corporation duly
approved said proposed amendment by written consent in accordance with Section
228 and 242 of the General Corporation Law of the State of Delaware. The
resolutions setting forth the amendment are as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation be and
hereby is amended, by deleting paragraph 3(d)(ii) of Section C
of Article Fourth thereof in its entirety and inserting in lieu
thereof the following:
"(ii) No Adjustment of Applicable Conversion Price. Subject to
the provisions of Section IV.C.3(d)(iii)(2) and Section
IV.C.3(d)(vi) below, no adjustment in the number of shares of
Common Stock into which the Series C Convertible Preferred Stock
is convertible shall be made, by adjustment in the Applicable
Conversion Price of the Series C Convertible Preferred Stock in
respect of the issuance of Additional Shares of Common Stock or
<PAGE>
otherwise, (a) unless the consideration per share for an
Additional Share of Common Stock issued or deemed to be issued by
the Corporation is less than the Applicable Conversion Price in
effect on the date of, and immediately before, the issue of such
Additional Share of Common Stock, or (b) if prior to such
issuance, the Corporation receives written notice from the
holders of at least 75% of the then outstanding shares of Series
C Preferred Stock agreeing that no such adjustment shall be made
as the result of the issuance of Additional Shares of Common
Stock.
FURTHER
RESOLVED: That the Certificate of Incorporation of the Corporation be
further amended by adding the following paragraph immediately
after paragraph 4 of Section C of Article Fourth thereof:
"5. Preemptive Rights.
The holders of the Series C Preferred Stock shall have
preemptive rights to purchase shares of Series C Preferred Stock
hereinafter issued or any securities exchangeable for or
convertible into shares of the same Series C Preferred Stock or
any warrants or other instruments evidencing rights or options to
subscribe for, purchase, or otherwise acquire shares of the same
Series C Preferred Stock."
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
this 26th day of September, 1996.
INTERNATIONAL TELECOMMUNICATION
DATA SYSTEMS, INC.
By:/s/ Charles L. Bakes
---------------------
Charles L. Bakes
<PAGE>
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
FIRST. The name of the Corporation is International Telecommunication
Data Systems, Inc.
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 42,000,000 shares, consisting of
(i) 40,000,000 shares of Common Stock, $.01 par value per share ("Common
Stock"), and (ii) 2,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock"), of which 250 shares are designated Series C Convertible
Preferred Stock, $.01 par value (the "Series C Convertible Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
<PAGE>
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or be junior to the
Preferred Stock of any other series to
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the extent permitted by law. Except as otherwise provided in this Certificate
of Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the designation or issuance of any shares of any
series of the Preferred Stock authorized by and complying with the conditions
of this Certificate of Incorporation, the right to have such vote being
expressly waived by all present and future holders of the capital stock of the
Corporation.
C. SERIES C CONVERTIBLE PREFERRED STOCK.
Two hundred and fifty (250) shares of the authorized and unissued
Preferred Stock of the Corporation are hereby designated "Series C Convertible
Preferred Stock", with the following rights, preferences, powers, privileges,
restrictions, qualifications and limitations:
1. Voting Rights. The holders of Series C Convertible Preferred Stock
shall be entitled to notice of any shareholders' meetings and any directors'
meetings but shall not be entitled to vote upon the election of directors or
officers or upon any question affecting the management or affairs' of the
Corporation, except where such notice or vote is required by law.
2. Dividend Rights. Holders of outstanding Series C Convertible
Preferred Stock shall receive cumulative cash dividends at a rate equal to
$396.90 per share per annum (computed on the basis of a 360-day year of 12
30-day months). All dividends due under this Section IV.C.2 shall be declared at
the discretion of the Board of Directors provided, however, that subject to the
provisions of this Section IV.C.2, the Board of Directors shall declare a
dividend on the Series C Convertible Preferred to the extent of funds legally
available therefor. Declared dividends shall be paid by the Corporation not more
than seventy-five (75) days, nor fewer than sixty (60) days, after the end of
each fiscal year with respect to which such dividend is due, and shall be paid
to the holders of record of the Series C Convertible Preferred Stock outstanding
ratably, in accordance with the number of shares of Series C Convertible
Preferred Stock held by each such holder on the record date. If less than the
full preferential dividend on the Series C Convertible Preferred Stock is
declared or paid in any calendar year, such amount of the preferential dividend
not declared or paid (the "Unpaid Dividend" for purposes of this paragraph)
shall not lapse, but except to the extent paid or converted into Series C
Convertible Preferred Stock as described below, shall cumulate and be dividends
that are preferential to all other dividends until paid. Subject to the
provisions of this Section IV.C.2, such cumulative and unpaid
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dividends shall be paid to the holders of the Series C Convertible Preferred
Stock before any dividends may be paid to the holders of any class of stock
ranking on liquidation junior to the Series C Convertible Preferred Stock. If
there is an Unpaid Dividend in respect of the Corporation's fiscal years ending
December 31, 1996 or December 31, 1997 (or both), then on or before February 28,
1998 the Corporation can elect to pay all, any part or none of the Unpaid
Dividend in which event the holder(s) of Series C Convertible Preferred Stock
shall elect either to (i) have such Unpaid Dividends cumulate and be added to
the preferential dividend in the subsequent year or years or (ii) convert the
entire amount of the Unpaid Dividend into Series C Convertible Preferred Stock
at a price per share equal to the Applicable Conversion Price (as hereinafter
defined); provided, however, that if the Corporation elects to pay the Unpaid
Dividend in respect of the Corporation's fiscal year(s) ending December 31,
1996, December 31, 1997 (or both) the holder(s) of Series C Convertible
Preferred Stock shall have the option, exercisable upon written notice sent to
the Corporation not later than sixty (60) days after the Corporation notifies
such holder(s) that it shall be paying the Unpaid Dividends either to (x)
receive the Unpaid Dividend in cash or (y) receive two-thirds in cash and
one-third in Series C Preferred Stock at a price per share equal to the
Applicable Conversion Price (as hereinafter defined). From and after the
Corporation's fiscal year ending December 31, 1998, to the extent there are
Unpaid Dividends in respect of any fiscal year, the holder(s) of Series C
Convertible Preferred Stock shall, not more than one hundred twenty (120) days
nor less than ninety (90) days after the end of each fiscal year with respect to
which such Unpaid Dividend is due, elect in writing to either (xx) have such
entire Unpaid Dividends cumulate and be added to the preferential dividends in
the subsequent year or years or (yy) convert the entire Unpaid Dividend into
Series C Convertible Preferred Stock at a price per share equal to the
Applicable Conversion Price (as hereinafter defined).
3. Conversion
The holders of the Series C Convertible Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series C Convertible Preferred
Stock shall be convertible, without the payment of any additional consideration
by the holder thereof, at the option of the holder thereof, and at the office of
the Corporation or any
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transfer agent for the Series C Convertible Preferred Stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by dividing
$4,961.24 by the Applicable Conversion Price (as hereinafter defined).
If more than one share of Series C Convertible Preferred Stock
shall be surrendered for conversion at the same time by the same holder of
record, the number of full shares that shall be issuable upon conversion thereof
shall be computed on the basis of the total number of shares so surrendered by
such holder. Each share of Series C Convertible Preferred Stock shall be so
convertible at any time after the date of issuance of such share. The price at
which shares of Common Stock shall be deliverable upon conversion of Series C
Convertible Preferred Stock without the payment of any additional consideration
by the holder thereof (the "Applicable Conversion Price") shall initially be
$6.20155 per share of Common Stock. Such initial Applicable Conversion Price
shall be subject to adjustment, in order to adjust the number of shares of
Common Stock into which the Series C Convertible Preferred Stock is convertible,
as hereinafter provided.
(b) Automatic Conversion. Each share of Series C Convertible Preferred
Stock shall automatically be converted into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $4,961.24 by
the then effective Applicable Conversion Price, upon the closing of an
underwritten public offering resulting in gross proceeds to the Corporation of
not less than $10,000,000 pursuant to an effective registration statement under
the Securities Act of 1933, as amended, covering the offer and sale of Common
Stock of the Corporation to the public. In the event of such an offering, the
party or parties entitled to receive the Common Stock issuable upon such
conversion of the Series C Convertible Preferred Stock shall be deemed to have
converted such Series C Convertible Preferred Stock immediately before the
closing of such offering, at which time the certificates evidencing Series C
Convertible Preferred Stock shall be deemed to be retired and cancelled and the
shares of Series C Convertible Preferred Stock represented thereby converted
into Common Stock. The Corporation may thereafter take such appropriate action
(without the need for stockholder action) as may be necessary to reduce the
authorized shares accordingly. Each person holding of record Series C
Convertible Preferred Stock at the time of any automatic conversion shall be
entitled to (i) any dividends which, pursuant to Section IV.C.2 hereof have
cumulated but remain unpaid at such time and (ii) any registration rights
granted to such person. Such dividends shall be paid to all such holders within
thirty (30) days of the automatic conversion.
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(c) Mechanics of Conversion. No fractional shares of Common Stock shall
be issued upon conversion of the Series C Convertible Preferred Stock. In lieu
of any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the Applicable
Conversion Price. Except in the case of an automatic conversion pursuant to
Section IV.C.3(b), before any holder of Series C Convertible Preferred Stock
shall be entitled to convert the same into full shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Series C Convertible
Preferred Stock, and shall give written notice to the Corporation at such office
that he elects to convert the same. Upon the date of an automatic conversion
pursuant to Section IV.C.3(b), any person entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of Common Stock on such date, whether or not
such holder has surrendered the certificate or certificates for such holder's
shares of Series C Convertible Preferred Stock. A holder surrendering his
certificate or certificates shall notify the Corporation of his name or the name
or names of his nominees in which he wishes the certificate or certificates for
shares of Common Stock to be issued. The Corporation shall, as soon as
practicable thereafter (and, in any event, within ten (10) days of such
surrender), issue and deliver at such office to such holder of Series C
Convertible Preferred Stock, or to his nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled, together with cash in lieu of any fraction of a share. Except in the
case of an automatic conversion pursuant to Section IV.C.3(b), such conversion
shall be deemed to have been made immediately before the close of business on
the date of such surrender of the shares of Series C Convertible Preferred Stock
to be converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
(d) Adjustments to Applicable Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this Section IV.C.3(d),
the following definitions shall apply:
(1) "Option" shall mean options, warrants or other rights to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
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(2) "Original Issue Date" shall mean the date of the
effectiveness of the merger of International Telecommunication Data Systems,
Inc., a Connecticut corporation, with and into the Corporation.
(3) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock and Series C Convertible Preferred
Stock) of capital stock or other securities directly or indirectly convertible
into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean any or all
shares of Common Stock issued (or, pursuant to Section IV.C.3(d)(iii), deemed to
be issued) by the Corporation after the Original Issue Date, other than shares
of Common Stock issuable upon exercise, conversion or exchange of any Options or
Convertible Securities outstanding as of the Original Issue or issued or
issuable upon conversion of shares of Series C Convertible Preferred Stock or
upon the exercise of the option(s) to convert Unpaid Dividends into shares of
Series C Convertible Preferred Stock as set forth in Section IV.C.2.
(ii) No Adjustment of Applicable Conversion Price. Subject to the
provisions of Section IV.C.3(d)(iii)(2) and Section IV.C.3(d)(vi) below, no
adjustment in the number of shares of Common Stock into which the Series C
Convertible Preferred Stock is convertible shall be made, by adjustment in the
Applicable Conversion Price of the Series C Convertible Preferred Stock in
respect of the issuance of Additional Shares of Common Stock or otherwise,
unless the consideration per share for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less than the Applicable
Conversion Price in effect on the date of, and immediately before, the issue of
such Additional Share of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of
Common Stock.
(1) Options and Convertible Securities. If the Corporation, at
any time or from time to time after the Original Issue Date, shall issue any
Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor,
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the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that such Additional Shares of Common Stock shall not
be deemed to have been issued unless the consideration per share (determined
pursuant to Section IV.C.3(d)(v) hereof) of such Additional Shares of Common
Stock would be less than the Applicable Conversion Price in effect on the date
of and immediately before such issue, or such record date, as the case may be,
and provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) no further adjustment in the Applicable Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time, pursuant to any provisions designed to
protect against dilution, or otherwise, for any increase or decrease in the
consideration payable to the Corporation, or increase or decrease in the number
of shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Applicable Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase's or
decrease's becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(C) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not have
been exercised, the Applicable Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if such Options or Convertible Securities, as the case may be, were never
issued;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Applicable Conversion Price to an amount
which exceeds the lower of (i) the Applicable Conversion Price on the original
date on which an
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adjustment was made pursuant to this Section IV.C.3(d)(iii)(1), or (ii) the
Applicable Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between such original adjustment date and the
date on which a readjustment is made pursuant to clause (B) or (C) above;
(E) in the case of any Options which expire by their terms
not more than 30 days after the date of issue thereof no adjustment of the
Applicable Conversion Price shall be made until the expiration or exercise of
all such Options, whereupon such adjustment shall be made in the same manner
provided in clause (C) above; and
(F) if such record date shall have been fixed and such
Options or Convertible Securities are not issued on the date fixed therefor, the
adjustment previously made in the Applicable Conversion Price which became
effective on such record date shall be cancelled as of the close of business on
such record date, and thereafter the Applicable Conversion Price shall be
adjusted pursuant to this Section IV.C.3(d)(iii) as of the actual date of their
issuance.
(2) Stock Dividends. Stock Distributions and Subdivisions. If
the Corporation at any time or from time to time after the Original Issue Date
shall declare or pay any dividend or make any other distribution on the Common
Stock payable in Common Stock, or effect a subdivision of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in Common Stock), then and in any such event, Additional Shares of Common Stock
shall be deemed to have been issued:
(A) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of any class of securities entitled to receive such dividend or
distribution, or
(B) in the case of any such subdivision, at the close of
business on the date immediately before the date upon which such corporate
action becomes effective.
If such record date shall have been fixed and such dividend shall not
have been fully paid on the date fixed for the payment thereof, the adjustment
previously made in the Applicable Conversion Price that became effective on such
record date shall be cancelled as of the close of business on such record date,
and thereafter the Applicable Conversion Price shall be adjusted pursuant to
this Section IV.C.3(d)(iii) as of the time of actual payment of such dividend.
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(iv) Adjustment of Applicable Conversion Price of Additional Shares
of Common Stock. If the Corporation shall issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to Section IV.C.3(d)(iii)(1), but excluding Additional Shares of Common Stock
deemed to be issued pursuant to Section IV.C.3(d)(iii)(2), which is dealt with
in Section IV.C.3(d)(vi) hereof) without consideration or for a consideration
per share less than the Applicable Conversion Price in effect on the date of and
immediately before such issue, then such Applicable Conversion Price shall be
reduced, concurrently with such issue, to a price equal to the price at which
such Additional Shares of Common Stock are so issued.
(v) Determination of Consideration. For purposes of this Section
IV.C.3(d)(v), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall:
(A) insofar as it consists of cash, be the aggregate amount
of cash received by the Corporation excluding amounts paid or payable for
accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such issue, as determined in
good faith by the Board of Directors; and
(C) if the event Additional Shares of Common Stock are
issued together with other shares of securities or other assets of the
Corporation for a single undivided consideration, be the proportion of such
consideration so received allocable to such Additional Shares of Common Stock,
computed as provided in clauses (A) and (B) above, as determined in good faith
by the Board of Directors.
(2) Options and Convertible Securities. The consideration per
share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to Section IV.C.3(d)(iii)(1) shall be determined by
dividing
(x) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
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contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such options or the conversion or exchange of such Convertible
Securities.
(vi) Adjustment for Stock Dividends. Stock Distributions.
Subdivision Combinations or Consolidations of Common Stock.
(1) Stock Dividends. Stock Distributions or Subdivisions. In
the event the Corporation shall issue additional shares of Common Stock (or any
options or rights therefor or any securities convertible or exchangeable
therefor) in a stock dividend, other stock distribution or subdivision, the
Applicable Conversion Price in effect immediately before such stock dividend,
stock distribution or subdivision shall, concurrently with the effectiveness of
such stock dividend, stock distribution or subdivision, be proportionately
decreased to adjust equitably for such dividend, distribution or subdivision so
that each share of Series C Convertible Preferred Stock shall thereafter be
convertible into the number of shares of Common Stock that the holder of such
share of Series C Convertible Preferred Stock would have owned and to which the
holder would be entitled had the holder converted such share of Series C
Convertible Preferred Stock immediately before such stock dividend, stock
distribution or subdivision.
(2) Combinations or Consolidations. If the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Applicable
Conversion Price in effect immediately before such combination or consolidation
shall, concurrently with the effectiveness of such combination or consolidation,
be proportionately increased to adjust equitably for such combination or
consolidation so that each share of Series C Convertible Preferred Stock shall
thereafter be convertible into the number of shares of Common Stock which the
holder of such share of Series C Convertible Preferred Stock would have owned
and
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to which the holder would have been entitled had the holder converted such
share of Series C Convertible Preferred Stock immediately before such
combination or consolidation.
(vii) Adjustment for Merger or Reorganization. etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation, or any proposed reorganization or reclassification of the
Corporation (except a transaction for which provision for adjustment is
otherwise made in this Section IV.C.3), each share of Series C Convertible
Preferred Stock shall thereafter be convertible into the number of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Corporation deliverable upon conversion of such Series C
Convertible Preferred Stock would have been entitled upon such consolidation,
merger, conveyance, reorganization or reclassification; and, in any such case,
appropriate adjustment (as reasonably and in good faith determined by the Board
of Directors) shall be made in the application of the provisions herein set
forth with respect to the rights and interest thereafter of the holders of the
Series C Convertible Preferred Stock, to the end that the provisions set forth
herein (including provisions with respect to changes in and other adjustments of
the Applicable Conversion Price) shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Series C Convertible Preferred
Stock. The Corporation shall not effect any such consolidation, merger or sale,
unless before or simultaneously with the consummation thereof, the successor
corporation or purchaser, as the case may be, shall assume by written instrument
the obligation to deliver to the holders of the Series C Convertible Preferred
Stock such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holders are entitled to receive.
(e) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section IV.C.3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series C Convertible Preferred Stock against impairment. Without limiting the
generality of the foregoing, before taking any action that would
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result in any adjustment to the Applicable Conversion Price then in effect below
the par value of the Common Stock, the Corporation will take or cause to be
taken any and all necessary corporate or other action which may be necessary in
order that the Corporation may validly and legally issue fully paid and
nonassessable shares of such Common Stock upon conversion. The taking of such
corporate or other action shall be a condition precedent to the Corporation's
taking the action which would result in such adjustment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Applicable Conversion Price pursuant to this
Section IV.C.3, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series C Convertible Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall upon the written
request at any time of any holder of Series C Convertible Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(i) all such adjustments and readjustments theretofore made, (ii) the Applicable
Conversion Price at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property that at such time would be
received upon the conversion of Series C Convertible Preferred Stock.
(g) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend that is in the same amount per share as
cash dividends paid in previous quarters) or other distribution, the Corporation
shall mail to each holder of Series C Convertible Preferred Stock at least ten
(10) days before the date thereof a notice specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.
(h) Common Stock Reserved. The Corporation shall reserve and at all
times keep available out of its authorized but unissued Common Stock, free from
preemptive or other preferential rights, restrictions, reservations,
dedications, allocations, options, other warrants and other rights under any
stock option, conversion option or similar agreement, such number of shares of
Common Stock as shall from time to time be sufficient to effect conversion of
the Series C Convertible Preferred Stock.
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4. Liquidation Rights.
(a) Rights on Dissolution Liquidation and Winding Up. In the event of
any liquidation, dissolution or winding up of the affairs of the Corporation,
each holder of shares of Series C Convertible Preferred Stock shall be entitled
to receive any declared and unpaid dividends on the Series C Convertible
Preferred Stock and prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of the Common Stock or
any other class of preferred stock that is junior to the Series C Convertible
Preferred Stock, an amount per share of the Series C Convertible Preferred Stock
equal to $4,961.24 per share.
(b) Pro Rata Distribution. If the assets or surplus funds to be
distributed to the holders of Series C Convertible Preferred Stock under
subparagraph (a) of this Section IV.C.4 are insufficient to permit the payment
to such holders of their full preferential amount, the assets and surplus funds
legally available for distribution shall be distributed ratably among the
holders of the Series C Convertible Preferred Stock.
(c) Priority. Except as otherwise set forth in Section IV.C.4(a), all
of the preferential amounts to be paid to (x) the holders of the Series C
Convertible Preferred Stock under this Section IV.C.4 and (y) the holders of any
other class of preferred stock ranking on a parity with the Series C Convertible
Preferred Stock shall be paid or set apart for payment before the payment or
setting apart for payment of any amount for, or the distribution of any assets
of the Corporation to, the holders of the Common Stock or any other class of
preferred stock that is junior to the Series C Convertible Preferred Stock in
connection with such liquidation, dissolution or winding up. After the payment
or the setting apart of payment of cumulative and unpaid dividends due to the
holders of Series C Convertible Preferred Stock pursuant to this Section IV.C
and the preferential amounts payable to the holders of the Series C Convertible
Preferred Stock and the holders of such other class of preferred stock ranking
on a parity with, or superior to, the Series C Convertible Preferred Stock, the
holders of Common Stock shall be entitled to receive all remaining assets of
this Corporation.
FIFTH. The name and mailing address of the sole incorporator are as
follows:
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NAME MAILING ADDRESS
Lewis D. Bakes 969 High Ridge Road
Suite 205
Stamford, Connecticut 06905
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SEVENTH. Except to the extent that the General Corporation Law of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
EIGHTH. 1. Actions, Suits and Proceedings Other than by or in the Right
of the Corporation. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and,
15
<PAGE>
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful. Notwithstanding anything to the contrary
in this Article, except as set forth in Section VIII.7 below, the Corporation
shall not indemnify an Indemnitee seeking indemnification in connection with a
proceeding (or part thereof) initiated by the Indemnitee unless the initiation
thereof was approved by the Board of Directors of the Corporation.
Notwithstanding anything to the contrary in this Article, the Corporation shall
not indemnify an Indemnitee to the extent such Indemnitee is reimbursed from the
proceeds of insurance, and in the event the Corporation makes any
indemnification payments to an Indemnitee and such Indemnitee is subsequently
reimbursed from the proceeds of insurance, such Indemnitee shall promptly refund
such indemnification payments to the Corporation to the extent of such insurance
reimbursement.
2. Actions or Suits by or in the Right of the Corporation. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
16
<PAGE>
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding
the other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. Notification and Defense of Claim. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section VIII.4. The Indemnitee shall have
the right to employ his own counsel in connection with such claim, but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between
17
<PAGE>
the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. Advance of Expenses. Subject to the provisions of Section VIII.6
below, in the event that the Corporation does not assume the defense pursuant to
Section VIII.4 of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter; provided,
however, that the payment of such expenses incurred by an Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such undertaking shall be accepted without reference to the financial ability of
the Indemnitee to make such repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1 or 2 of this
Article, as the case may be. Such determination shall be made in each instance
by (a) a majority vote of the directors of the Corporation consisting of persons
who are not at that time parties to the action, suit or proceeding in question
("disinterested directors"), whether or not a quorum, (b) a majority vote of a
quorum of the outstanding shares of stock
18
<PAGE>
of all classes entitled to vote for directors, voting as a single class, which
quorum shall consist of stockholders who are not at that time parties to the
action, suit or proceeding in question, (c) independent legal counsel (who may,
to the extent permitted by law, be regular legal counsel to the Corporation), or
(d) a court of competent jurisdiction.
7. Remedies. The right to indemnification or advances as granted by
this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section VIII.6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the Corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section VIII.6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to
19
<PAGE>
prohibit, and the Corporation is specifically authorized to enter into,
agreements with officers and directors providing indemnification rights and
procedures different from those set forth in this Article. In addition, the
Corporation may, to the extent authorized from time to time by its Board of
Directors, grant indemnification rights to other employees or agents of the
Corporation or other persons serving the Corporation and such rights may be
equivalent to, or greater or less than, those set forth in this Article.
10. Partial Indemnification. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the General
Corporation Law of Delaware.
12. Merger or Consolidation. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
20
<PAGE>
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. Subsequent Legislation. If the General Corporation Law of Delaware
is amended after adoption of this Article to expand further the indemnification
permitted to Indemnities, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
NINTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
TENTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation and shall become effective
only upon the closing of an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock for the account of the Corporation.
1. Number of Directors. The number of directors of the Corporation
shall not be less than three. The exact number of directors within the
limitations specified in the preceding sentence shall be fixed from time to time
by, or in the manner provided in, the Corporation's By-Laws.
2. Classes of Directors. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
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<PAGE>
3. Election of Directors. Elections of directors need not be by written
ballot except as and to the extent provided in the By-Laws of the Corporation.
4. Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting in 1997; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting in 1998; and each initial director in Class III shall serve for a term
ending on the date of the annual meeting in 1999; and provided further, that the
term of each director shall be subject to the election and qualification of his
successor and to his earlier death, resignation or removal.
5. Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. Quorum; Action at Meeting. A majority of the directors at any time
in office shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each director so
disqualified, provided that in no case shall less than one-third of the number
of directors fixed pursuant to Section VIII.1 above constitute a quorum. If at
any meeting of the Board of Directors there shall be less than such a quorum, a
majority of those present may adjourn the meeting from time to time. Every act
or decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the Board
of Directors unless a greater number is
22
<PAGE>
required by law, by the By-Laws of the Corporation or by this Certificate of
Incorporation.
7. Removal. Directors of the Corporation may be removed only for cause
by the affirmative vote of the holders of at least two-thirds of the shares of
the capital stock of the Corporation issued and outstanding and entitled to
vote.
8. Vacancies. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the board, shall be filled
only by a vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
9. Stockholder Nominations and Introduction of Business, Etc. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
10. Amendments to Article. Notwithstanding any other provisions of law,
this Certificate of Incorporation or the By-Laws of the Corporation, each as
amended, and notwithstanding the fact that a lesser percentage may be specified
by law, the affirmative vote of the holders of at least seventy-five percent
(75%) of the shares of capital stock of the Corporation issued and outstanding
and entitled to vote shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article TENTH.
ELEVENTH. Effective upon a public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock for the account of the Corporation, (i) the
stockholders of the Corporation may not take any action by written consent in
lieu of a meeting and (ii) notwithstanding any other provisions of law, this
Certificate of Incorporation or the By-Laws of the Corporation, each as amended,
and notwithstanding the fact that a lesser percentage may be specified by law,
the affirmative vote of the holders of at least seventy-five percent (75%) of
the shares of capital stock of the Corporation issued and outstanding and
entitled to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article ELEVENTH.
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<PAGE>
TWELFTH. Special meetings of stockholders may be called at any time by
only the Chairman of the Board of Directors, the Chief Executive Officer (or if
there is no Chief Executive Officer, the President) or the Board of Directors.
Business transacted at any special meeting of stockholders shall be limited to
matters relating to the purpose or purposes stated in the notice of meeting.
Notwithstanding any other provision of law, this Certificate of Incorporation or
the By-Laws of the Corporation, each as amended, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of the
holders of at least seventy-five percent (75%) of the shares of capital stock of
the Corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
TWELFTH.
EXECUTED at Stamford, Connecticut, on August 28, 1996.
/s/ Lewis D. Bakes
----------------------------
Lewis D. Bakes
Incorporator
24
HALE AND DORR
60 State Street
Boston, MA 02109
September 30, 1996
International Telecommunication Data Systems, Inc.
969 High Ridge Road
Stamford, CT 06905
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration Statement on
Form S-1, together with Amendment No. 1 thereto (the "Registration
Statement"), filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended, relating to the
public offering of an aggregate of 2,666,667 shares of Common Stock, $.01 par
value per share (the "Shares"), of International Telecommunication Data
Systems, Inc., a Delaware corporation (the "Company"). The Shares are to be
sold by the Company and the selling stockholders pursuant to an underwriting
agreement (the "Underwriting Agreement") among the Company and Lehman
Brothers Inc. and Cowen & Company, as representatives of the several
underwriters named in the Underwriting Agreement (the "Underwriters").
We have examined signed copies of the Registration Statement and all exhibits
thereto, all as filed with the Commission. We have also examined and relied upon
the original or copies of minutes of meetings of the stockholders and Board of
Directors of the Company, stock record books of the Company, a copy of the
By-Laws of the Company, as amended, and a copy of the Certificate of
Incorporation of the Company, as amended.
Based upon the foregoing, we are of the opinion that the Shares have been duly
authorized for issuance and, after payment therefor and the issuance of the
certificates therefor by the Company in accordance with the terms of the
Underwriting Agreement, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name therein and in the related
Prospectus under the caption "Legal Matters."
<PAGE>
September 30, 1996
Page 2
It is understood that this opinion is to be used only in connection with the
offer and sale of the Shares while the Registration Statement is in effect.
Very truly yours,
/s/ HALE AND DORR
HALE AND DORR
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
--------------------
This Amended and Restated Employment Agreement dated as of September 30,
1996 between Barry K. Lewis (the "Employee") and International Telecommunication
Data Systems, Inc., a Delaware corporation, with offices at 969 High Ridge Road,
Suite 205, Stamford, Connecticut 06905 (hereinafter referred to as
"Corporation") amends and restates in its entirety the Employment Agreement
dated June 1994 between the Employee and the Corporation (the "Original
Agreement"). The Original Agreement shall have no further force and effect.
WHEREAS, the Corporation desires to employ the Employee, and the Employee
desires to serve as an employee of Corporation on the terms and conditions
hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and promises of
the parties hereto, the Corporation and the Employee agree as follows:
1. Employment: The Corporation hereby agrees to employ the Employee as
Vice-President of Wireless Services, and the Employee hereby agrees to function
as such Vice-President of Wireless Services for the Corporation on the terms and
conditions hereinafter stated, subject to the directives of the Chief Executive
Officer and Board of Directors of the Corporation.
2. Term of Employment: The term of this Agreement shall continue in
full force and effect until July 4, 1997, unless sooner terminated as
provided herein.
3. Compensation:
------------
(a) During the term of this Agreement, for all services rendered by
the Employee under this Agreement, the Corporation shall pay the Employee an
annual base salary of $135,000.00 per annum, payable in arrears at a rate of
$11,250.00 on the last day of each month. All compensation payable under this
Agreement shall be subject to applicable federal and state withholding tax
requirements and other deductions approved by the Employee. The Employee's base
salary may be increased on an annual basis, in the sole and absolute discretion
of the Board of Directors of the Corporation, on each anniversary date of the
commencement of this Agreement.
(b) In connection with the amendment and restatement of the terms of
the Original Agreement, the Corporation hereby agrees (i) that immediately prior
to a Change of Control of the Corporation (as defined below) or upon completion
of an initial public offering of shares of its Common Stock pursuant to an
effective registration statement filed with the Securities and Exchange
Commission, the
<PAGE>
Corporation shall sell to the Employee 18,333 fully vested shares of Common
Stock of the Corporation at a purchase price of $.01 per share pursuant to the
Corporation's 1996 Stock Incentive Plan and subject to the terms and conditions
of a Restricted Stock Purchase Agreement between Corporation and the Employee,
and (ii) to pay to the Employee $275,000, on or before December 31, 1996.
(c) The Employee may receive an annual year end cash performance
bonus in the sole and absolute discretion of the Board of Directors of the
Corporation.
(d) For purposes hereof a "Change of Control of the Corporation"
shall occur or be deemed to have occurred only if any of the following events
occur: (i) any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (other than
the Corporation, any trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation, or any corporation owned directly or
indirectly by the stockholders of the Corporation in substantially the same
proportion as their ownership of stock of the Corporation) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing 50% or more of the
combined voting power of the Corporation's then outstanding securities; (ii) the
stockholders of the Corporation approve a merger or consolidation of the
Corporation with any other corporation, other than (A) a merger or consolidation
which would result in the voting securities of the Corporation outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the combined voting power of the voting securities of
the Corporation or such surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation effected to implement a
recapitalization of the Corporation (or similar transaction) in which no person
(as hereinabove defined), other than a person holding more than 50% of the
combined voting power of the Corporation"s then outstanding securities
immediately prior to such recapitalization, acquires more than 50% of the
combined voting power of the Corporations then outstanding securities; or (iii)
the stockholders of the Corporation approve a plan of complete liquidation of
the Corporation or an agreement for the sale or disposition by the Corproation
of all or substantiall all of the Corproation's assets.
4. Fringe Benefits:
---------------
(a) During the term hereof, subject to the Employee's insurability,
Corporation shall provide the Employee and his immediate family, at no cost to
the Employee, with medical and hospitalization insurance coverage similar to
that offered to other officers of the Corporation. During the term hereof,
Corporation shall provide the Employee, at no cost to the Employee, with long
term disability insurance coverage similar to that offered to other officers of
the Corporation.
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<PAGE>
(b) During the term hereof, Corporation shall provide the Employee,
at no cost to the Employee, with term life insurance coverage on the Employee's
life. The amount of insurance currently provided by such policies on the
Employee's life equals $95,000. The proceeds of such life insurance policies
shall be payable to the Employee's named beneficiary.
(c) The Employee is authorized to incur on behalf of the Corporation
only reasonable expenses (including travel and entertainment) in connection with
the business of the Corporation. Any such expenses in excess of one thousand
dollars ($1,000) per month, in the aggregate, must be approved in advance by
Corporation, to the extent possible, but in all events written approval shall be
required for any such monthly expense in excess of two thousand five hundred
dollars ($2,500). The Corporation shall reimburse Employee for all such
reasonable expenses incurred in connection with the business of the Corporation
upon the presentation by Employee, from time to time, of an itemized account of
such expenditures, which account shall confirm, in form and substance, to
applicable rules and regulations of the Internal Revenue Service.
5. Duties and Extent of Services: Upon the execution of this
Agreement and throughout its term, the duties of the Employee shall include,
but are not limited to the following:
(a) Provide managerial and executive support to the Corporation;
(b) Provide marketing and sales support for the products of the
Corporation;
(c) Provide a research and development function for the
Corporation with regard to the mobile telecommunications industry;
(d) Develop information to provide support for the development
and distribution of the products of the Corporation;
(e) Support and development of sales leads as directed by the
Corporation; and
(f) Such other duties and responsibilities as may be assigned
by the Board from time to time.
(g) The Employee will work exclusively for the Corporation during
the term of this Agreement. The Employee shall exert his best efforts and shall
devote no less than the greater of: (i) forty (40) hours per week, or (ii) the
amount of time necessary for the Employee to perform his duties with regard to
the business and affairs of the Corporation in accordance with this Agreement.
During the term
-3-
<PAGE>
of this Agreement, the Employee shall not, directly or indirectly, alone or as a
member of a partnership, or as an officer, director, shareholder, owner, agent
or the Employee of any other corporation, be engaged in or concerned with any
other compensable duties or pursuits whatsoever requiring his personal services
without the prior written consent of the Corporation, which consent may be
withheld for any reason or for no reason.
6. Vacation: During the term of this Agreement, the Employee shall be
entitled to two (2) weeks vacation per year, the time of which shall be
determined after consultation with the Chief Executive Officer of the
Corporation. For purposes of this Section 6, the Employee shall be entitled to
carry forward any unused vacation time from one period to another.
7. Termination: The Employee's employment hereunder shall terminate
on the date set forth in Section 2 hereof, or sooner upon the occurrence of
any of the following events:
(a) The Employee's death;
(b) The termination of the Employee's employment hereunder by
Corporation, at its option, to be exercised by written notice from Corporation
to the Employee, upon the Employee's incapacity or inability to perform his
services as contemplated herein for a period of at least seventy-five (75)
consecutive days or an aggregate of one hundred (100) consecutive or
non-consecutive days during any twelve (12) month period during the term hereof
due to the fact that his physical or mental health shall have become impaired so
as to make it impossible or impractical for him to perform the duties and
responsibilities contemplated for him hereunder; or
(c) The termination of the Employee's employment for "cause"
hereunder by Corporation, at its option, to be exercised by written notice from
Corporation to the Employee. The term "cause", as used herein, shall mean: (i)
the Employee's inability or incapacity to perform his duties and/or services in
accordance with the reasonable expectations of the Corporation, (ii) the
Employee's willful misconduct or gross negligence in the performance of his
duties on behalf of the Corporation, or the Employees dishonesty in the
performance of his duties on behalf of the Corporation, (iii) the neglect,
failure or refusal of the Employee to carry out any reasonable request of the
Chief Executive Officer or Board of Directors of the Corporation for the
provision of services hereunder, (iv) the material breach of any provision of
the Agreement by the Employee or (v) the Employee's plea of guilty or nolo
contendere to, or conviction of any crime involving moral turpitude, common law
fraud, dishonesty, theft, or unethical conduct.
(d) Cessation of the Corporation's business.
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<PAGE>
In the event of any such termination, Corporation shall pay to the
Employee such portion of his annual base salary payable to the Employee to the
date such termination becomes effective, and thereafter the Employee shall have
no claim for any further compensation hereunder.
8. Restrictions On the Employee: During the period commencing on the date
hereof and ending two (2) years after the termination of the Employee's
employment by Corporation for any reason, the Employee shall not directly or
indirectly induce or attempt to induce any of the employees of Corporation to
leave the employ, of Corporation.
9. Covenant Not To Compete: During the period commencing on the date
hereof, and ending one (1) year after the termination of the Employee's
employment for any reason, the Employee shall not, except as a passive investor
in publicly held companies, directly or indirectly engage in, associate with, or
own or control any interest in, or act as principal, director, officer, agent,
or the Employee of, or consultant to: (i) CBIS, CSC, EDS, Systematics or their
successors or assigns, or (ii) any person, firm or corporation, located in the
eastern third of the United States, whose activity is (A) a venture or business,
substantially similar to that of Corporation and/or (B) which is in competition
with the Corporation. Notwithstanding anything to the contrary contained herein,
to the extent Corporation (i) makes an absolute assignment of the bulk of its
assets for the benefit of creditors, (ii) consents to the appointment of a
bankruptcy trustee, (iii) institutes bankruptcy proceedings or (iv) experiences
a cessation, the provisions of this Section 9 shall lapse.
10. Proprietary Information:
-----------------------
(a) For purposes of this Agreement, "proprietary information" shall
mean any information relating to the business of Corporation or any entity in
which Corporation has an ownership interest that has not previously been
publicly released by duly authorized representatives of Corporation and shall
include (but shall not be limited to) information encompassed in all proposals,
marketing and sales plans, financial information, costs, pricing information,
computer programs, customer information, customer lists, and all methods,
concepts or ideas in or reasonably related to the business of Corporation or any
entity in which Corporation has an interest. The Employee agrees to regard and
preserve as confidential all proprietary information, whether he has such
information in his memory or in writing or other physical form. The Employee
will not, without written authority from Corporation to do so, directly or
indirectly use for his benefit or purposes, nor disclose to others, either
during the term of his employment hereunder or thereafter, except as required by
the conditions of his employment hereunder, any proprietary information. The
Employee agrees not to remove from the premises of Corporation or any subsidiary
or affiliate of Corporation, except as an employee of Corporation in pursuit of
the
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business of Corporation or any of its subsidiaries, affiliates or any entity
in which Corporation has an ownership interest, or except as specifically
permitted in writing by Corporation, any document or object containing or
reflecting any proprietary information. The Employee recognizes that all such
documents and objects, whether developed by him or by someone else during the
term of his employment with Corporation, are the exclusive property of
Corporation.
(b) All proprietary information and all of the Employee's interest
in trade secrets, trademarks, computer programs, customer information, customer
lists, employee lists, products, procedure, copyrights and developments
hereafter to the end of the period of employment hereunder developed by the
Employee as a result of, or in connection with, his employment hereunder, shall
belong to Corporation; and without further compensation, but at Corporation's
expense, forthwith upon request of Corporation, the Employee shall execute any
and all such assignments and other documents and take any and all such other
action as Corporation may reasonably request in order to vest in Corporation all
the Employee's right, title and interest in and all of the aforesaid items, free
and clear of liens, charges and encumbrances.
(c) The Employee expressly agrees that the covenants set forth in
Sections 8, 9, and 10 of this Agreement are being given to Corporation in
connection with the employment of the Employee by Corporation and that such
covenants are intended to protect Corporation against the competition by the
Employee, within the terms stated, to the fullest extent deemed reasonable and
permitted in law and equity. In the event that the foregoing limitations upon
the conduct of the Employee are beyond those permitted by law, such limitations,
both as to time and geographical area, shall be, and be deemed to be, reduced in
scope and effect to the maximum extent permitted by law.
11. Injunctive Relief: The Employee acknowledges that the injury to
Corporation resulting from any violation by him of any of the covenants
contained in this Agreement will be of such a character that it cannot be
adequately compensated by money damages, and, accordingly, Corporation may, in
addition to pursuing its other remedies, obtain an injunction from any court
having jurisdiction of the matter restraining any such violation; and no bond or
other security shall be required in connection with such injunction.
12. Representation of the Employee: The Employee represents and warrants
that neither the execution and delivery of this Agreement nor the performance of
his duties hereunder violates the provisions of any other agreement to which he
is a party or by which he is bound, including, but not limited to, any
Cincinnati Bell Information Systems, Inc. employment agreement or covenant not
to compete.
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13. Parties; Non-Assignability: As used herein, the term "Corporation"
shall mean and include Corporation and any subsidiary or affiliate thereof and
any successor thereto unless the context indicates otherwise. This Agreement and
all rights hereunder are personal to the Employee and shall not be assignable by
him and any purported assignment shall be null and void and shall not be binding
on Corporation.
14. Entire Agreement: This Agreement contains the entire agreement
between the parties hereto with respect to the transactions contemplated
herein and supersedes all previous representations, negotiations,
commitments, and writing with respect thereto.
15. Amendment or Alteration: No amendment or alteration of the terms
of this Agreement shall be valid unless made in writing and signed by all of
the parties hereto.
16. Choice of Law: This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut, except a provision of that
law which would refer resolution of any issue to another jurisdiction. The forum
for resolution of any dispute shall be the State of Connecticut.
17. Arbitration: Any controversy, claim, or breach arising out of or
relating to this Agreement or the breach thereof may, in the sole discretion of
the Corporation, be settled by arbitration in Stamford, Connecticut in
accordance with the rules of the American Arbitration Association and the
judgment upon the award rendered shall be entered by consent in any court having
jurisdiction thereof.
18. Waiver of Breach: The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach by any of the parties hereto.
19. Binding Effect: The terms of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
personal representatives, heirs, administrators, successors, and permitted
assigns.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
CORPORATION:
INTERNATIONAL TELECOMMUNICATION DATA
SYSTEMS, INC.
By /s/ Charles L. Bakes
------------------------------------
Charles L. Bakes, President
EMPLOYEE:
By /s/ Barry K. Lewis
------------------------------------
Barry K. Lewis
STOCK PURCHASE AGREEMENT
By and Between
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
AND
CONNECTICUT INNOVATIONS, INCORPORATED
<PAGE>
TABLE OF CONTENTS
SECTION 1. DEFINITIONS 1
SECTION 2. REPRESENTATIONS AND WARRANTIES 3
2.1 Registration Rights 3
2.2 Organization and Standing; Articles and Bylaws 3
2.3 Corporate Power 4
2.4 Subsidiaries 4
2.5 Capitalization 4
2.6 Authorization 5
2.7 Contracts 5
2.8 Financial Information 6
2.9 Absence of Undisclosed Liabilities 6
2.10 Absence of Certain Changes 7
2.11 Taxes 7
2.12 Transactions With Related Parties 7
2.13 Litigation 7
2.14 Consents 8
2.15 Title to Properties; Liens and Encumbrances 8
2.16 Leases 8
2.17 Franchises, Licenses, Trademarks, Patents and Other Rights 8
2.18 Issuance Taxes 10
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2.19 Offering 10
2.20 Compliance with Other Instruments 10
2.21 Employees 10
2.22 Business of the Company 11
2.23 Use of Proceeds 11
2.24 Applicability of, and Compliance With, Other Laws 11
2.25 Disclosure 12
2.26 Warranties and Representations at Closing 13
SECTION 3. REPRESENTATIONS AND WARRANTIES OF HOLDER 13
3.1 Experience 13
3.2 Investment 13
3.3 Rule 144 13
3.4 Access to Data 13
3.5 Accredited Investor 13
SECTION 4. REGISTRATION 14
4.1 Certain Definitions 14
4.2 Demand Registration Rights 14
4.3 Company Registration 17
4.4 Additional Registration Rights 18
4.5 Expenses of Registration 19
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4.6 Registration Procedures 19
4.7 Indemnification 19
4.8 Information by Holder 21
4.9 Rule 144 Reporting 21
SECTION 5. COVENANTS OF THE COMPANY 22
5.1 Basic Financial Information 22
5.2 Additional Information and Rights 23
5.3 Prompt Payment of Taxes, etc. 24
5.4 Maintenance of Properties and Leases 24
5.5 Insurance 24
5.6 Accounts and Records 25
5.7 Compliance with Requirements of Governmental Authorities 25
5.8 Maintenance of Corporate Existence, etc. 25
5.9 Availability of Stock for Conversion 26
5.10 Confidentiality and Non-Competition Agreements 26
5.11 Transactions with Affiliates 26
5.12 Compliance by Subsidiaries 26
5.13 Maintenance of Connecticut Presence 27
5.14 Connecticut Employment 27
5.15 Equal Opportunity 27
5.16 Certain Distributions/Payments 28
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5.17 No Conversion Rights 29
5.18 Constitution of Board of Directors 29
SECTION 6. CLOSING AND CONDITIONS TO CLOSING 29
6.1 Representations and Warranties Correct 29
6.2 Performance 30
6.3 Secretary's Certificate 30
6.4 Opinion of Company Counsel 30
6.5 Legal Investment 30
6.6 Qualifications 30
6.7 Proceedings and Documents 30
6.8 Officers' and Shareholders' Certificates 30
6.9 Stock Put and Call Agreement 30
6.10 Good Standing Certificates 31
6.11 Tax Matters 31
6.12 Commitment Fee 31
SECTION 7. MISCELLANEOUS. 31
7.1 Governing Law 31
7.2 Survival 31
7.3 Successors and Assigns 31
7.4 Entire Agreement; Amendment 31
7.5 Notices, etc. 31
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7.6 Delays or Omissions 32
7.7 Separability 32
7.8 Legal Fees and Expenses 32
7.9 Waiver 33
7.10 Titles and Subtitles 33
7.11 Counterparts 33
Schedules and Exhibits
Schedule I - Schedule of Exceptions/Disclosures
Schedule II - The Plan
Exhibit A - Secretary's Certificate
Exhibit B - Opinion of Counsel
Exhibit C - Officers' Agreement
Exhibit D - Shareholders' Agreement
Exhibit E - Stock Put and Call Agreement
7.7 Separability 32
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") dated as of December
11, 1995, between INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. (the
"Company"), a corporation organized under the laws of the State of Connecticut,
and CONNECTICUT INNOVATIONS, INCORPORATED (the "Holder" or "Holders", which
terms shall include any and all assignees of Connecticut Innovations,
Incorporated, whether one or more).
WHEREAS, the Company has agreed to issue to the Holder shares (the
"Shares") of the Company's Class C Convertible Preferred Stock, $4,961.24 par
value per share ("Preferred Stock") which is convertible into shares of common
stock, without par value, of the Company ("Conversion Stock"), as set forth in
the Amended and Restated Certificate of Incorporation of the Company; and
WHEREAS, the Holder has agreed to purchase the Shares provided that
the Company makes certain representations, warranties and agreements, including
that the Holder shall have the right under certain circumstances to sell the
Shares, and any shares of Common Stock received upon conversion of the Shares,
in whole or in part, to the Company;
NOW THEREFORE, each of the parties hereto, in consideration of the
mutual covenants set forth herein, agrees as follows:
SECTION 1. DEFINITIONS. For all purposes of this Agreement, the following terms
shall have the meanings set forth below or in the Section of this Agreement
following such term.
Affiliate - shall mean a person (other than the Holder) (1) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, the Company, (2) which
beneficially owns or holds 5% or more of any class of the voting stock of the
Company or (3) 5% or more of the voting stock (or in the case of a person which
is not a corporation, 5% or more of the equity interest) of which is
beneficially owned or held by the Company or one of its subsidiaries. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a person, whether
through the ownership of voting securities, by contract or otherwise.
Amended Certificate - Section 2.1.
Change in Control - shall mean any transaction in which the Company
or any Permitted Successor sells all or substantially all its assets or
transfers or exclusively licenses its principal intellectual property to another
person or entity, or merges with or into another entity and the holders of
voting stock of the Company or the
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Permitted Successor prior to such event do not own and continue to own more than
50% of the voting stock of the surviving entity, or the holders of voting stock
of the Company or any Permitted Successor sell a controlling Interest to another
person or entity.
Closing - Section 6.1.
Closing Date - Section 6.1.
Common Stock - the Recitals to this Agreement.
Connecticut Presence - shall mean that the Company or any Permitted
Successor, as the case may be, together with its subsidiaries, (i) maintains its
principal place of business in the State of Connecticut, (ii) bases a majority
of its employees in the State of Connecticut, (iii) conducts a majority of its
operations (including manufacturing and production), directly or through
subcontractors, in the State of Connecticut, and (iv) maintains its principal
bank accounts in the State of Connecticut.
Conversion Shares - the Recitals to this Agreement.
Financing - Section 2.1.
Financing Documents - shall mean this Agreement, the Officers'
Agreement and all other documents and instruments executed by the Company as
part of the investment.
Intellectual Property - Section 2.17(c).
Investment - shall mean the amount of $640,000 invested by the Holder
in the Company.
Key Employees - shall mean those employees that are so identified in
the Schedule of Exceptions/Disclosures.
Listed Rights - Section 2.17(c).
Officers' Agreement - Section 2.1.
Preferred Stock - the Recitals to this Agreement.
Put and Call Agreement - Section 2.1.
Related Party - shall mean any officer, director, significant
employee or
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consultant of the Company or any holder of 5% or more of any class
of capital stock of the Company (other than the Holder) or any member of the
immediate family of any such officer, director, employee, consultant or
shareholder or any entity controlled by any such officer, director, employee,
consultant or shareholder or a member of the immediate family or any such
officer, director, employee, consultant or shareholder.
Securities - shall mean the Shares, the Holder's rights under the
Shares, and any shares of Common Stock received upon conversion of the Shares
(including in each case any securities received upon any stock dividend, stock
split or similar event).
Shareholders' Agreement - Section 2.1.
Shares - the Recitals to this Agreement.
Technology - Section 2.17(c).
SECTION 2. REPRESENTATIONS AND WARRANTIES. Except as expressly set forth (with
reference to a specific section of this Section 2) on Schedule I (the "Schedule
of Exceptions/Disclosures) the Company represents and warrants to the Holder as
follows:
2.1 Registration Rights. This Agreement between the Company and the
Holder; the Officers' Agreement by and between the Holder, the Company, and
Messrs. Charles Bakes, Lewis Bakes, Mark Spitzer and David Wells dated the date
of this Agreement (the "Officers' Agreement"); the Shareholders' Agreement by
and between the Holder, the Company and each of Portia K. Bakes, Sandra L.
Bakes, Mark Spitzer and Anne Wells dated the date of this Agreement (the
"Shareholders' Agreement"); the put and call agreement by and between the Holder
and the Company dated the date of this Agreement (the "Put and Call Agreement");
and the Amended and Restated Certificate of Incorporation of the Company (the
"Amended Certificate") set forth all agreements or understandings regarding the
granting of registration rights to investors in the $640,000 Preferred Stock
purchased by the Holder (the "Financing"); without limiting the foregoing, there
are no other agreements or understandings.
2.2 Organization and Standing; Articles and Bylaws. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Connecticut. The Company has all requisite power to own the
properties owned by it and to conduct the business as it is being conducted by
it and as contemplated by the presentation material (the "Plan") prepared by the
Company, a true and correct copy of which is attached hereto as Schedule II. The
Company is duly qualified and registered to do business in and is in good
standing in every state
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in which the property owned by it and/or the nature of its activities requires
that it be so qualified and registered. The Company has furnished the Holder and
special counsel for the Holder with true, correct and complete copies of the
Company's Amended and Restated Certificate of Incorporation and Bylaws, and all
amendments thereto and including the Closing Date and copies of the minutes of
all Board of Directors, Committees of the Board, and shareholder meetings of the
Company for the most recent two years.
2.3 Corporate Power. The Company has all requisite corporate power
to enter into this Agreement and the Put and Call Agreement and will have on the
Closing Date all requisite corporate power to issue and deliver the Shares to
the Holder and to carry out and perform its obligations under the terms of this
Agreement and the Put and Call Agreement.
2.4 Subsidiaries. The Company has no subsidiaries and does not own
of record or beneficially any capital stock or equity interest or investment in
any other corporation, partnership, association or business entity, or if the
Company has any subsidiary or subsidiaries, each subsidiary is listed on the
Schedule of Exceptions/Disclosures and each of the representations and
warranties set forth in this Section 2 is also made by the Company with respect
to each such subsidiary as if such subsidiary were the "Company" and the
Schedule of Exceptions/Disclosures shall apply to each such subsidiary in the
same manner as if such subsidiary were the "Company".
2.5 Capitalization. The Schedule of Exceptions/Disclosures contains
a true and correct list of all securities of the Company (including the amounts
thereof) outstanding immediately prior to the Closing, and the holders of any
interest in such securities. Immediately prior to the Closing, the Company's
authorized capital stock will consist of (a) 100,000 shares of Common Stock,
without par value, of which 6,094 shares will be issued and outstanding on the
Closing Date, (b) 50 shares of Class A Preferred Stock, having a $25,000 par
value per share (the "Class A Preferred"), 18 shares of which will be issued and
outstanding on the Closing Date, and (c) 2,000 shares of Class B Preferred
Stock, having a $250 par value ("Class B Preferred"), of which 1500 shares will
be issued and outstanding on the Closing Date, and 129 shares of Class C
Convertible Preferred Stock having a $4,961.24 par value per share ("Class C
Convertible Preferred"), of which none will be issued and outstanding prior to
the Closing. Upon consummation of the Closing, all issued and outstanding shares
of capital stock of the Company will have been duly authorized and validly
issued, will be fully paid and nonassessable, will be owned of record and
beneficially by the shareholders and in the amounts set forth in the Schedule of
Exceptions/Disclosures and will have been offered, issued, sold and delivered by
the Company in compliance with applicable federal and state securities laws.
Except as set forth in the Schedule of Exceptions/Disclosures, there are no
outstanding preemptive or other preferential rights, conversion rights or other
rights, options,
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warrants or agreements granted or issued by or binding upon the
Company for the purchase or acquisition of any shares of its capital stock. No
holder of Common Stock has granted any option or other right to purchase from
such shareholder any interest in any share of Common Stock. The Company holds
312 shares of its common stock in its treasury, and no other shares of its
capital stock.
2.6 Authorization. All action on the part of the Company, its
directors and shareholders necessary for the authorization, execution, delivery
and performance by the Company of this Agreement, and the other Financing
Documents and for the consummation of the transactions contemplated herein and
therein, and for the authorization, issuance and delivery of the Shares and of
the Conversion Shares has been taken or will be taken prior to Closing. This
Agreement and the other Financing Documents are each a valid and binding
obligation of the Company, enforceable in accordance with their respective
terms. The execution and delivery by the Company of this Agreement and the other
Financing Documents and compliance herewith and therewith, and the issuance and
sale of the Shares and Conversion Shares will not with or without notice or the
passage of time or both result in any violation of and will not conflict with,
or result in a breach of any of the terms of, or constitute a default under any
provision of, any state or federal law to which the Company is subject, the
Amended Certificate or the Company's Bylaws, as amended, or any mortgage,
indenture, agreement, instrument, judgment, decree, order, rule or regulation or
other restriction to which the Company is a party or by which it or any of its
property is bound, or may be affected, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company pursuant to any such term or give to any other person or
entity the right to accelerate the time for performance of any obligation of the
Company. No shareholder has any preemptive rights or rights of first refusal by
reason of or in connection with the issuance of the Shares or the Conversion
Shares. The Conversion Shares have been duly and validly reserved by action of
the Board of Directors (and are in addition to any other shares reserved for any
other purpose) and are not subject to any preemptive rights or rights of first
refusal, and, upon such issuance, will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances.
2.7 Contracts.
(a) The Schedule of Exceptions/Disclosures sets forth a
true and correct list of the following material contracts,
obligations, commitments, agreements, plans and the like
("Contracts"), whether written or oral, and all administrative,
judicial and similar orders to which the Company is a party or by
which it or any of its properties are bound, or affected:
(i) any agreement evidencing rights to purchase
securities of the Company or any agreement among
shareholders of the Company;
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(ii) any loan or other agreement, note, indenture
or instrument relating to, or evidencing, indebtedness for
borrowed money, or mortgaging, pledging or granting or
creating a lien or security interest or other encumbrance
on any property of the Company or any agreement or
instrument evidencing any guaranty by the Company of
payment or performance by any other party;
(iii) any indenture, agreement or other document
(including private placement brochures) relating to the
future sale or repurchase of securities;
(iv) any agreement to register under the
Securities Act of 1933, as amended (the "Securities Act"),
any of the securities of the Company; and
(v) any agreement providing for disposition of
any line of business, assets or securities of the Company,
or any agreement with respect to the acquisition of any
line of business, assets or shares of any other business,
any agreement of merger or consolidation or letter of
intent with respect to any of the foregoing.
(b) A copy of each of the Contracts has been delivered to
the Holder, together with a summary of each oral agreement that
constitutes a Contract. The Company has complied with all material
provisions of each such Contract. No event has occurred and no
condition exists which with notice or the passage of time or both
would constitute a default under any such Contract. To the Company's
knowledge, no party to any such Contract has threatened to terminate
or has any intentions of terminating its obligations thereunder.
2.8 Financial Information. Copies of the Company's balance sheet
dated June 30, 1995 (the "Balance Sheet"), and the related statement of cash
flows for the quarter then ended (collectively the "Financial Statements") have
been delivered to the Holder and special counsel for the Holder, present fairly
the financial position of the Company as of such date, have been prepared in
accordance with Generally Accepted Accounting Principles, consistently applied,
and show all material liabilities, absolute or contingent, of the Company
required to be recorded thereon in accordance with Generally Accepted Accounting
Principles as of the date thereof, except that the Financial Statements do not
contain footnotes and are subject to year-end adjustment.
2.9 Absence of Undisclosed Liabilities. The Company does not have,
and does not know of, any liabilities (fixed or contingent, including without
limitation any tax liabilities due or to become due), which, either individually
or in the aggregate,
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are material and not disclosed on the Balance Sheet.
2.10 Absence of Certain Changes. Since the date of the Balance
Sheet, there has not been:
(a) any change in the condition, assets, liabilities,
prospects or business of the Company from that shown on the Balance
Sheet or other Financial Statements or as described in or
contemplated by the Plan which, either individually or in the
aggregate, has been or is reasonably likely to be materially adverse;
(b) any damage to, or destruction or loss of, any of the
properties or assets for the Company (whether or not covered by
insurance) materially adversely affecting the business or plans of
the Company or the Technology;
(c) any declaration, setting aside or payment of any
dividend or other distribution in respect of any of the Company's
capital stock, or any direct or indirect redemption, purchase or
other acquisition of any of such stock (or any warrant, option or
other right with respect to such stock) by the Company or any
repayment of Company debt held by any Related Party or by any
Affiliate;
(d) any organizational activity. collective bargaining
activity, labor disputes or labor trouble; or
(e) any event or condition of any character, which, either
individually or in the aggregate, materially adversely affects the
business, operations or plans of the Company.
2.11 Taxes. The Company has filed or will file within the time
prescribed by law (including extensions of time approved by any appropriate
taxing authority) materially complete and accurate tax returns and reports
required to be filed with the United States Internal Revenue Service or with the
State of Connecticut, and (except to the extent that the failure to file would
not have a material adverse effect on the condition or operations of the
Company) with all other jurisdictions where such filling is required by law; and
the Company has paid all taxes, interest, penalties, assessments or deficiencies
due in connection therewith.
2.12 Transactions With Related Parties. There is no loan, lease or
other continuing transactions between the Company and any Related Party or any
Affiliate.
2.13 Litigation. There is neither pending nor threatened any action,
suit, proceeding or claim, whether or not purportedly on behalf of the Company,
to which the Company or any Key Employee of the Company is or may be named as a
party
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or to which the Company's or any such person's property is or may be
subject. To the best of the Company's knowledge and belief, there is no basis
for any such action, suit, proceeding or claim, in which an unfavorable outcome,
ruling or finding in any such matter or for more than one of such matters, taken
together, might have a material adverse effect on the condition, financial or
otherwise, operations or prospects of the Company or on the Technology. The
Company has no knowledge of any unasserted claim, the assertion of which is
likely and which, if asserted, will seek damages, an injunction or other legal,
equitable, monetary or nonmonetary relief which if granted would have a material
adverse effect on the condition, financial or otherwise, operations or prospects
of the Company.
2.14 Consents. No consent, approval or authorization of, or
designation, declaration or filing with, any governmental authority on the part
of the Company, including qualification under applicable state securities laws
of the offer and sale of the Shares or of the issuance of the Conversion Shares
is required in connection with the valid execution and delivery of this
Agreement, or the other Financing Documents, the offer, sale or issuance of the
Shares, the issuance of the Conversion Shares or the consummation of any other
transaction contemplated on the Closing Date or by this Agreement.
2.15 Title to Properties; Liens and Encumbrances. Except as set
forth in the Schedule of Exceptions/Disclosures, the Company has good and
marketable title to all of its properties and assets, free from all mortgages,
pledges, liens, security interests, conditional sale agreements, encumbrances or
charges.
2.16 Leases. Set forth in the Schedule of Exceptions/Disclosures, is
a correct and complete list of all leases (including, with respect to each
lease, the material provisions of such lease, including the term, the amount of
rent called for and a description of the leased property) under which the
Company is a lessee other than leases of personal property requiring rental
payments of less than $10,000 per year. The Company enjoys peaceful and
undisturbed possession under all such leases, all of such leases are valid and
subsisting and none of them are in default in any respect, and no event has
occurred and no condition exists which with notice or the passage of time or
both would constitute such a default.
2.17 Franchises, Licenses, Trademarks, Patents and Other Rights.
(a) All (i) franchises, permits, licenses and other similar
authority, (ii) patents, patent applications, patent rights, service
marks, trademarks, trademark applications, trademark rights, trade
names, trade name rights and copyrights (whether registered or not),
and (iii) know-how, technology and trade secrets, which, in any case,
are owned, possessed or used by any Related Party or which any
Related Party has the right to own, possess or use, and which in any
way are or may be usable now or in the future for the conduct of
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the Company's business as now conducted or as planned to be conducted
have been duly and validly transferred in full to the Company. The
documents and instruments evidencing such transfer are listed in the
Schedule of Exceptions/Disclosures, and a copy thereof has been
delivered to special counsel for the Holder.
(b) The Company has all franchises, permits, licenses and
other similar authority, necessary for the conduct of its business as
now being conducted by it and believes it can obtain any similar
authority necessary for the conduct of its business as planned to be
conducted, and it is not in violation, nor will the transactions
contemplated by this Agreement cause a violation of the terms or
provisions of any such franchise, permit, license or other similar
authority.
(c) The Schedule of Exceptions/Disclosures lists all
patents, patent applications, patent rights, trademarks, trademark
applications, trademark rights, trade names, trade name rights,
service marks and copyrights (whether registered or not) owned or
possessed by the Company (collectively, the "Listed Rights"). The
Listed Rights constitute all the patents, patent applications, patent
rights, trademarks, trademark applications, trademark rights, trade
names, trade name rights, service marks and copyrights (whether
registered or not) necessary to the conduct of the Company's business
as now being conducted, and the Company believes that it can obtain
any such rights necessary for the conduct of its business as planned
to be conducted. The Company has and possesses the know-how,
technology and trade secrets not included in the Listed Rights (such
know-how, technology and trade secrets being collectively called the
"Intellectual Property") which it believes to be necessary (i) to
conduct the Company's business as now being conducted and (ii) with
additional know-how, technology and trade secrets which the Company
plans to develop, for the conduct of its business as planned to be
conducted. (The Listed Rights and the Intellectual Property
collectively constitute the "Technology".) There is neither pending,
nor, to the best of the Company's knowledge and belief, threatened,
any claim or litigation against the Company contesting the validity
or right to use any of the Listed Rights or any of the Intellectual
Property, nor is the Company aware of any basis therefor, and the
Company has received no notice of infringement upon or conflict with
any asserted right of others. To the best of the Company's knowledge
and belief, no person, corporation or other entity is infringing or
violating the Listed Rights or any of the Intellectual Property. The
Company does not have any obligation to compensate others for the use
of any Listed Right or any Intellectual Property, nor has the Company
granted any license or other right to use, in any manner, any of the
Listed Rights or Intellectual Property, whether or not requiring the
payment of royalties.
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2.18 Issuance Taxes. All taxes imposed by any state in connection
with the issuance, sale and delivery of the Shares shall have been fully paid,
and all laws imposing such taxes shall have been fully complied with, prior to
the Closing Date.
2.19 Offering. Within the past six (6) months, the Company has not,
either directly or through any agent, offered any of the Shares or any security
or securities similar to the Shares for sale to, or solicited any offers to buy
the Shares or any part thereof or any such similar security or securities from,
or otherwise approached or negotiated in respect thereof with, any party or
parties other than the Holder or institutional or other sophisticated investors,
each of which was offered all or a portion of the Shares at private sale for
investment. Subject in part to the truth and accuracy of the Holder's
representations set forth in this Agreement, the offer, sale and issuance of the
Shares and Conversion Shares to the Holder as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act and all
applicable state securities laws, and neither the Company nor anyone acting on
its behalf will take any action hereafter that would cause the loss of such
exemption.
2.20 Compliance with Other Instruments. The Company is not in
violation of any term of its Certificate of incorporation or Bylaws, as amended.
Neither the Company nor any of its property is in violation of any term of any
mortgage, indenture, contract, agreement, instrument, judgment, decree, order,
statute, rule or regulation to which the Company or any of such property is
subject.
2.21 Employees.
(a) No employee of the Company and no Related Party is, or
is now expected to be, in violation of any term of any employment
contract, patent disclosure agreement, non-competition agreement, or
any other contract or agreement with any prior employer or any other
person, corporation, or other entity or any restrictive covenant in
such an agreement, or any obligation imposed by common law or
otherwise, relating to the right of any such employee or Related
Party to be employed by the Company or companies similarly situated
because of the nature of the business conducted or to be conducted by
the Company or companies similarly situated or relating to the use of
trade secrets or proprietary information of others, and the continued
employment of the Company's employees and/or Related Parties does not
subject the Company or the Holder to any liability for any such
violation.
(b) Each of the Company's present or former employees who
has had access to proprietary information of the Company has executed
a confidentiality and nondisclosure agreement. To the best of the
Company's knowledge and belief, no employee or former employee of the
Company is, or is now expected to be, in violation of the terms of
the aforesaid agreement or
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of any other obligation relating to the use of confidential or
proprietary information of the Company. Each of such confidentiality
and non-disclosure agreements is in full force and effect.
(c) To the best of the Company's knowledge, no officer or
Key Employee of the Company has any present intent of terminating his
or her employment with the Company.
2.22 Business of the Company. The Company has no knowledge or belief
that (i) there is pending or threatened any claim or litigation against or
affecting the Company contesting its right to manufacture, sell or use any
product or service presently manufactured, sold or used or planned to be
manufactured, sold or used by the Company in connection with its operations,
(ii) there exists, or there is pending or planned, any statute, rule, law,
regulation, standard or code which would materially adversely affect the
condition, financial or otherwise, the operations or the prospects of the
Company, or (iii) there is any other fact which in the future may materially
adversely affect the Company's condition, financial or otherwise, operations or
prospects.
2.23 Use of Proceeds. The Company is a technology-based company
engaged in product innovation. The Company will use the proceeds of the offering
for product marketing, development and operating activities conducted in
Connecticut and for no other purposes. None of the transactions contemplated in
this Agreement (including, without limitation, the use of the proceeds from the
sale of the Shares) will violate or result in a violation of Section 7 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
regulations issued pursuant thereto, including, without limitation, Regulations
G, T and X of the Board of Governors of the Federal Reserve System, 12 C.F.R.,
Chapter 11. The Company does not own or intend to carry or purchase any "margin
security" within the meaning of said Regulation G, including margin securities
originally issued by it. None of the proceeds from the sale of the Shares will
be used to purchase or carry (or refinance any borrowing the proceeds of which
were used to purchase or carry) any "security" within the meaning of the
Exchange Act.
2.24 Applicability of, and Compliance With, Other Laws.
(a) The Company does not have or make contributions to any
pension plans, defined benefit plans or defined contribution plans
for its employees which are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). With respect to such
plans, if any, listed on the Schedule of Exceptions/Disclosures, the
Company is in compliance with the applicable provisions of ERISA. The
Company has not incurred any unremedied accumulated funding
deficiency within the meaning of ERISA or any unsatisfied liability
to the Pension Benefit Guaranty Corporation
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established under ERISA in connection with any employee pension plan
established or maintained by the Company under the jurisdiction of
ERISA. No Reportable Event or Prohibited Transaction (as defined in
Section 4043 of ERISA) has occurred with respect to any plan
administered by the Company.
(b) The Company's employment practices and policies are in
full compliance with (i) all applicable laws of the United States and
each applicable jurisdiction relating to equal employment
opportunity, and any rules, regulations, administrative orders and
Executive Orders relating thereto; and (ii) the applicable terms,
relating to equal opportunity, of any contract, agreement or grant
the Company has with, from or relating (by way of subcontract or
otherwise) to any other contract, agreement or grant of, any federal
or state governmental unit. The Company has not been the subject of
any charge of employment discrimination made against it by the United
States Equal Employment Opportunity Commission or any other
governmental unit, and is not presently subject to any formal or
informal proceedings before, or investigations by, such Commission or
governmental unit. To the Company's knowledge, neither the Company
nor any of its employees nor any Related Parties are presently under
investigation by any commission or governmental agency for purposes
of security clearance or otherwise.
(c) Neither the Company nor any property owned or occupied
by the Company is, nor to the Company's knowledge has been, in
violation of any Federal or State environmental law of any sort of in
violation of any applicable federal or state law relating to
occupational health or safety. The Schedule of Exceptions/Disclosures
contains a list of all environmental permits held by the Company.
2.25 Disclosure. Neither this Agreement, the Schedule of
Exceptions/Disclosures, the Balance Sheet, the Financial Statements, the Put and
Call Agreement, nor any other written statement furnished to the Holder or its
counsel in connection with the offer and sale of the Shares, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein or herein not misleading in the
light of the circumstances under which they were made. There is no fact which
the Company has not disclosed to the Holder in writing that materially adversely
affects or, so far as the Company can now foresee, will materially adversely
affect the properties, business, prospects, profits or condition (financial or
otherwise) of the Company or the ability of the Company to perform this
Agreement and the other Financing Documents. The forecasts, projections,
estimates and other forward-looking matters furnished to the Holder were
prepared on the basis of the Company's best estimates. The Company does not have
any reason to believe that any assumptions or statements of opinion contained in
such forecasts, projections, estimates or other forward-looking matters
furnished to the Holder were prepared on the basis of the
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Company's best estimates. The Company does not have any reason to believe
that any assumptions or statements of opinion contained in such forecasts,
projections, estimates or other forward-looking matters are unreasonable or
false, and the Company believes that the Holder may reasonably rely thereon.
2.26 Warranties and Representations at Closing. All of the foregoing
warranties and representations are true, complete and correct as of the date
hereof and will be true, complete and correct at the Closing Date as if made at
the time thereof and with respect thereto.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF HOLDER. The Holder represents
and warrants to the Company as follows:
3.1 Experience. It is experienced in evaluating and investing in
companies such as the Company.
3.2 Investment. It is acquiring the Shares for investment for its
own account and not with the view to, or for resale in connection with, any
distribution thereof. It understands that the Shares have not been registered
under the Securities Act by reason of an exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of its investment intent as expressed herein.
3.3 Rule 144. It acknowledges that the Shares and the Conversion
Shares must be held indefinitely unless they are subsequently registered under
the Act or an exemption from such registration is available. It has been advised
or is aware of the provisions of Rule 144 promulgated under the Securities Act,
which permits limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions (which conditions cannot presently be,
and may never be, satisfied).
3.4 Access to Data. It has had an opportunity to ask questions of
and receive answers from, the Company's officers regarding the Company's
business, management and financial affairs with the Company's management, and it
has been furnished with copies of documents which it has requested.
3.5 Accredited Investor. It is an "accredited investor" within the
meaning of Regulation D promulgated under the Securities Act.
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SECTION 4. REGISTRATION.
4.1 Certain Definitions. As used in this Section 4, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean the Conversion Shares into which
the Shares are convertible, less any Shares (or Conversion Shares into which
such Shares shall have been converted) theretofore sold to the public or in a
private placement.
The terms "register, registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
hereunder, and the effectiveness of such registration statement.
"Registration Expenses shall mean all expenses incurred by the
Company in compliance with Sections 4.2, 4.3 and 4.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, all fees and
disbursements of counsel for any Holder and any blue sky fees and expenses
excluded from the definition of "Registration Expenses."
"Holder" shall mean any holder of outstanding Shares or Registrable
Securities which (except for purposes of determining "Holders" under Section 4.7
hereof) have not been sold to the public.
"Other Shareholders" shall mean holders of securities of the Company
who are entitled by contract with the Company or who are permitted by the
Company to have securities included in a registration of the Company's
securities.
4.2 Demand Registration Rights. Immediately upon the registration
of any class of the Company's securities pursuant to the federal securities
laws, the Holder shall have the following demand registration rights:
(a) Request for Registration. If at any time the Company
shall receive from any Holder a written request that the Company
effect a
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registration involving an underwriting with respect to all or a part
of the Registrable Securities, the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its diligent
best efforts to effect such registration (including,
without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued
under the Securities Act) as may be so requested and as
would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are
specified in such request, together with all or such
portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a
written request given by such Holder or Holders within
thirty (30) days after receipt of such written notice from
the Company; provided that the Company shall not be
obligated to effect, or to take any action to effect, any
such registration pursuant to this Section 4.2;
(A) after the Company has effected two (2)
such registrations pursuant to this
Section 4.2(a) and such registrations
have been declared or ordered
effective and sales of such
Registrable Securities shall have
closed, provided, however, that any
such registration shall not be counted
as a registration for purposes of this
clause (A) if the securities of
directors, officers or Other
Shareholders, if any, included therein
comprise greater than fifty percent
(50%) of all securities included in
such registration; or
(B) prior to the date the Company becomes
subject to the reporting requirements
of the Exchange Act; or
(C) if the request for registration does
not request the registration of either
(i) 50% or more of the Registrable
Securities or (ii) Registrable
Securities with a proposed public
offering price of $5,000,000 or more;
or
(D) if, in the opinion of counsel for the
Company, which opinion shall be
reasonably satisfactory to the Holder,
the Holder has the right to sell the
Registrable Securities immediately
under Rule 144(k) of the Securities
Act.
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Subject to the foregoing clauses (A), (B), (C) and (D), the
Company shall file a registration statement covering the
Registrable Securities so requested to be registered as
soon as practicable after receipt of the request or
requests of the Holder. The registration statement filed
pursuant to the request of the Holder may, subject to the
provisions of Section 4.2(b) below, include other
securities of the Company which are held by officers or
directors of the Company or which are held by parties who,
by virtue of agreements with the Company, are entitled to
include their securities in any such registration.
(b) Underwriting. If the Holder intends to distribute the
Registrable Securities covered by its request by means of an
underwriting, it shall so advise the Company as a part of its request
made pursuant to this Section 4.2 and the Company shall include such
information in the written notice referred to in Section 4.2(a)(i)
above. The right of any Holder to registration pursuant to this
Section 4.2 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent provided herein.
If officers or directors of the Company holding other
securities of the Company shall request inclusion in any registration
pursuant to this Section 4.2, or if holders of securities of the
Company who are entitled, by contract with the Company, to have
securities included in such registration (the "Other Shareholders")
request such inclusion, the Holder shall, on behalf of all Holders,
offer to include the securities of such officers, directors and Other
Shareholders in the underwriting and may condition such offer on
their acceptance of all applicable provisions of this Section 4. The
Company shall (together with all Holders, officers, directors and
Other Shareholders proposing to distribute their securities through
such underwriting) enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters
selected for such underwriting by the Holder and reasonably
acceptable to the Company.
Notwithstanding any other provision of this Section 4.2, if
the representative of the underwriter or underwriters advises the
Holder in writing that marketing factors make it advisable to impose
a limitation on the number of shares to be underwritten, the
securities of the Company (other than Registrable Securities) held by
officers or directors of the Company and by Other Shareholders shall
be excluded from such registration to the extent so required by such
limitation and if a limitation of the number of shares is still
required, the Holder shall so advise all Holders of Registrable
Securities whose securities would otherwise be underwritten pursuant
hereto, and the number
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of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all such
Holders, directors, officers and Other Shareholders in proportion, as
nearly as practicable, to the respective amounts of Registrable
Securities held by such persons at the time of filing the
registration statement. No Registrable Securities or any other
securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such
registration.
If any Holder of Registrable Securities, officer, director
or Other Shareholder above disapproves of the terms of the
underwriting, such party may elect to withdraw therefrom by written
notice to the Company, the underwriter and the Holder. The securities
so withdrawn shall also be withdrawn from registration.
If the underwriter has not limited the number of
Registrable Securities or other securities to be underwritten, the
Company may include its securities for its own account in such
registration if the underwriter so agrees and if the number of
Registrable Securities and other securities which would otherwise
have been included in such registration and underwriting will not
thereby be limited.
4.3 Company Registration.
(a) Notice of Registration. If the Company shall determine
to register any of its securities either for its own account or the
account of a security holder or holders, other than a registration
relating solely to employee benefit plans, or a registration relating
solely to a Commission Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales, the Company
will:
(i) promptly give to each Holder written notice
thereof (which shall include a list of the jurisdictions in
which the Company intends to attempt to qualify such
securities under the applicable blue sky or other. state
securities laws); and
(ii) include in such registration (and any
related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all
the Registrable Securities specified in a written request
or requests, made by any Holder within fifteen (15) days
after receipt of the written notice from the Company
described in clause (i) above, subject to any limitations
on the number of shares as set forth in Section 4.3(b)
below.
(b) Underwriting. If the registration of which the Company
gives
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notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as part of the
written notice given pursuant to Section 4.3(a)(i). In such event,
the right of any Holder to registration pursuant to Section 4.3 shall
be conditioned upon such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together
with the Company, directors and officers and the Other Shareholders
distributing their securities through such underwriting) enter into
an underwriting agreement in customary form with the underwriter or
underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 4.3, if
the underwriter determines that marketing factors require a
limitation on the number of shares to be underwritten, the
underwriter may (subject to the allocation priority set forth below)
exclude from such registration and underwriting some or all of the
Registrable Securities which would otherwise be underwritten pursuant
hereto. The Company shall so advise all holders of securities
requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting
shall be allocated in the following manner. The number of shares that
may be included in the registration and underwriting on behalf of
such Holders, directors and officers and Other Shareholders shall be
allocated among such Holders, directors and officers and Other
Shareholders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities and other securities
which they had requested to be included in such registration at the
time of filing the registration statement.
If any Holder of Registrable Securities or any officer,
director or Other Shareholder disapproves of the terms of any such
underwriting, it, he or she may elect to withdraw therefrom by
written notice to the Company and the underwriter. Any Registrable
Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
4.4 Additional Registration Rights. In the event that the Company
grants registration rights, including demand registration rights, to any other
holder of securities of the Company, the Company will promptly give to the
Holder written notice thereof and, if in the opinion of the Holder such
registration rights are more favorable than the registration rights provided
under this Agreement, the Holder shall so notify the Company within thirty (30)
days of receipt of the foregoing notice from the Company, whereupon such
registration rights shall automatically be deemed to be incorporated in this
Agreement.
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4.5 Expenses of Registration. The Company shall bear all
Registration Expenses incurred in connection with any registration,
qualification and compliance by the Company pursuant to Sections 4.2, 4.3 and
4.4 hereof. All Selling Expenses shall be borne by the holders of the securities
so registered pro rata on the basis of the number of their shares so registered.
4.6 Registration Procedures. In the case of each registration
effected by the Company pursuant to this Section 4, the Company will keep each
Holder advised in writing as to the initiation of each registration and as to
the completion thereof. The Company will, at its expense:
(a) keep such registration effective for a period of one
hundred twenty (120) days or until the Holder or Holders have
completed the distribution described in the registration statement
relating thereto, whichever first occurs;
(b) furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably
request; and
(c) use its best efforts to register or qualify the
Registrable Securities under the securities laws or blue-sky laws of
such jurisdictions as any Holder may request; provided, however, that
the Company shall not be obligated to register or qualify such
Registrable Securities in any particular jurisdiction in which the
Company would be required to execute a general consent to service of
process in order to effect such registration, qualification or
compliance, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act or
applicable rules or regulations thereunder.
4.7 Indemnification.
(a) The Company, with respect to each registration,
qualification and compliance effected pursuant to this Section 4,
will indemnify and hold harmless each Holder, each of its officers,
directors, partners, and agents, and each party controlling such
Holder, and each underwriter, if any, and each party who controls any
underwriter, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained
in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to
any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the
Company
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<PAGE>
and relating to action or inaction required by the Company in
connection with any such registration, qualification or compliance,
and will reimburse each such Holder, each of its officers, directors,
partners, and agents, and each party controlling such Holder, each
such underwriter and each party who controls any such underwriter,
for any legal and any other expenses incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case
to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based
solely upon written information furnished to the Company by such
Holder or underwriter, as the case may be, and stated to be
specifically for use in any prospectus, offering circular or other
document (including any related registration statement, notification
of the like) incident to any such registration, qualification or
compliance.
(b) Each Holder and Other Shareholder will, if Registrable
Securities held by it, him or her are included in the securities as
to which such registration, qualification or compliance is being
effected, indemnify and hold harmless the Company, each of its
directors and officers and each underwriter, if any, of the Company's
securities covered by such a registration statement, each party who
controls the Company or such underwriter, each other such Holder and
Other Shareholder and each of their respective officers, directors,
partners, and agents, and each party controlling such Holder or Other
Shareholder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse the
Company and such Holders, Other Shareholders, directors, officers,
partners, agents, parties, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus,
offering circular or other document solely in reliance upon and in
conformity with written information furnished to the Company by such
Holder or Other Shareholder and stated to be specifically for use in
any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to
any such registration, qualification or compliance; provided,
however, that the obligations of such Holders and Other Shareholders
hereunder shall be limited to an amount equal to the proceeds to each
such Holder or Other Shareholder of securities sold as contemplated
herein.
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(c) Each party entitled to indemnification under this
Section 4.7 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of any
claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense
at such party's expense (unless the Indemnified Party shall have been
advised by counsel that actual or potential differing interests or
defenses exist or may exist between the Indemnifying Party and the
Indemnified Party, in which case such expense shall be paid by the
Indemnifying Party), and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Section 4. No
Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant
or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified
Party shall provide such information as may be reasonably requested
by an Indemnifying Party in order to enable such Indemnifying Party
to defend a claim as to which indemnity is sought.
4.8 Information by Holder. Each Holder of Registrable Securities,
and each Other Shareholder holding securities included in any registration,
shall furnish to the Company such information regarding such Holder or Other
Shareholder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 4.
4.9 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may permit the sale of
the Registrable Securities to the public without registration, the Company
agrees to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities
Act, at all times from and after ninety (90) days following the
effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general
public;
(b) File with the Commission in a timely manner all reports
and
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other documents required of the Company under the Securities Act
and the Securities Exchange Act of 1934, as amended (the "Exchange
Act") at any time after it has become subject to such reporting
requirements; and
(c) So long as the Holder owns any Registrable Securities,
furnish to the Holder forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of
Rule 144 (at any time from and after ninety (90) days following the
effective date of the first registration statement in connection with
an offering of its Securities to the general public), and of the
Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and
documents so filed as the Holder may reasonably request in availing
itself of any rule or regulation of the Commission allowing the
Holder to sell any such securities without registration.
SECTION 5. COVENANTS OF THE COMPANY. The Company covenants and agrees as
follows for so long as the Holder owns the Shares or any Conversion shares.
5.1 Basic Financial Information. The Company will furnish the
following reports to the Holder:
(a) As soon as practicable after the end of each fiscal
year of the Company, and in any event within one hundred twenty (120)
days thereafter, a consolidated (and consolidating) balance sheet of
the Company and its subsidiaries, if any, as at the end of such
fiscal year, and consolidated (and consolidating) statements of
income and cash flow of the Company and its subsidiaries, if any, for
such year, prepared in accordance with generally accepted accounting
principles consistently applied and setting forth in each case in
comparative form the figures of the previous fiscal year, all in
reasonable detail and reviewed (without scope limitations imposed by
the Company) by independent public accountants of recognized standing
selected by the Company and satisfactory to the Holder;
(b) As soon as practicable after the end of each quarterly
accounting period in each fiscal year of the Company, and in any
event within thirty (30) days thereafter, a consolidated (and
consolidating) balance sheet of the Company and its subsidiaries, if
any, as of the end of each such quarterly period, and consolidated
(and consolidating) statements of income and cash flow of the Company
and its subsidiaries, if any, for such period and for the current
fiscal year to date, prepared in accordance with generally accepted
accounting principles consistently applied and setting forth in
comparative form the figures for the corresponding periods of the
previous fiscal year,
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subject to changes resulting from year-end audit adjustments, and
setting forth any events which could reasonably be expected to have
an adverse effect upon the Company's finances or the results of its
operations, all in reasonable detail and certified by the principal
financial or accounting officer of the Company;
(c) From the date the Company becomes subject to the
reporting requirements of the Exchange Act, and in lieu of the
financial information required pursuant to Sections 5.1(a) and (b),
but within the time periods required for the furnishing thereof,
copies of its reports filed on Form 10-K, Form 10-Q, Form 8-K, or any
substantially equivalent or successor form or forms that the Company
is required to file;
(d) Each set of financial statements delivered to the
Holder pursuant to Section 5.1 will be accompanied by a certificate
of the President or a Vice President and the Treasurer or an
Assistant Treasurer of the Company setting forth:
(i) Covenant Compliance - any information
required in order to establish whether the Company was in
compliance with the requirements of this Section 5 during
the period covered by the income statement then being
furnished; and
(ii) Event of Default - that the signers have
reviewed the relevant terms of this Agreement and the other
Financing Documents and have made, or caused to be made,
under their supervision, a review of the transactions and
conditions of the Company and its subsidiaries, if any,
from the beginning of the accounting period covered by the
income statements being delivered therewith to the date of
the certificate and that such review has not disclosed the
existence during such period of any condition or event
which constitutes a breach or default under this Agreement
or any of the other Financing Documents or give the Holder
the right to redeem the Shares under the Certificate or, if
any such condition or event existed or exists, specifying
the nature and period of existence thereof and what action
the Company has taken or proposes to take with respect
thereto.
5.22 Additional Information and Rights. The Company will:
(a) Permit the Holder (or its designated representative) to
visit and inspect any of the properties of the Company, including its
books of account, and to discuss its affairs, finances and accounts
with the Company's officers and its independent public accountants,
all at such reasonable times and as often as any such party may
reasonably request;
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(b) Deliver to the Holder the reports and data described
below:
(i) As soon as available, information and data on
any material adverse changes in or any event or condition
which materially adversely affects the business, operations
or plans of the Company;
(ii) Immediately upon becoming aware of any
condition or event which constitutes a breach of this
Agreement, written notice specifying the nature and period
of existence thereof and what action the Company is taking
or proposes to take with respect thereto; and
(iii) With reasonable promptness, such other
information and data with respect to the Company and its
subsidiaries as the Holder may from time to time reasonably
request;
(c) Not hold any meetings of its Directors on fewer than
five (5) days' written notice and will permit the Holder to send a
representative (without voting rights) to each meeting of the Board
of Directors of the Company; the Holder may also send a
representative (without voting rights) to each meeting of the
Executive Committee of Directors at which action is to be taken upon
other than routine corporate or business matters, and will give the
Holder reasonable notice thereof. The Company shall give the Holder
notice of each such meeting in the form and manner such notice is
given to the Company's directors. The Company will not permit its
directors or shareholders to conduct any material business by written
consent without giving at least five (5) days' written notice to the
Holder, which notice shall contain an exact copy of the consent
resolution proposed to be adopted.
5.3 Prompt Payment of Taxes, etc. The Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company or any subsidiary.
5.4 Maintenance of Properties and Leases. The Company will keep its
properties in good repair, working order and condition, and from time to time
make all needful and proper, or legally required, repairs, renewals,
replacements, additions and improvements thereto; and the Company and its
subsidiaries, if any, will at all times comply with each provision of all leases
to which any of them is a party or under which any of them occupies, or has
possession of, any property.
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5.5 Insurance. The Company will keep its assets and those of its
subsidiaries which are of an insurable character insured by financially sound
and reputable insurers, which are licensed to provide such insurance in the
State of Connecticut, against loss or damage by fire, extended coverage and
explosion in amounts sufficient to prevent the Company or any subsidiary from
becoming a co-insurer and not in any event less than the replacement value of
the property insured. The Company will maintain, with financially sound and
reputable insurers, which are licensed to provide such insurance in the State of
Connecticut, insurance against other hazards and risks and liability to persons
and property to the extent and in the manner customary for companies in similar
businesses similarly situated. All such policies of insurance shall be
occurrence policies with "tail coverage" so-called respecting all prior "claims
made" policies, all in a form satisfactory to the Holder. The Company shall give
immediate written notice to insurers of loss or damage to the property and shall
promptly file proof of loss with insurers.
5.6 Accounts and Records. The Company will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.
5.7 Compliance with Requirements of Governmental Authorities. The
Company shall duly observe and conform to all requirements of governmental
authorities relating to the conduct of its business or to its property or
assets. Without limiting the generality of the foregoing, the Company will:
(a) Comply with all minimum funding requirements applicable
to any pension plans, employee benefit plans or employee contribution
plans which are subject to ERISA or to the Internal Revenue Code of
1986, as amended (the "Code"), and comply in all other respects with
the provisions of ERISA and the provisions of the Code applicable to
such plans; and
(b) Comply with all applicable laws of the United States
and of each applicable jurisdiction relating to equal employment
opportunity, any rules, regulations, administrative orders and
Executive orders relating thereto and the applicable terms, relating
to equal employment opportunity, of any contract, agreement or grant
the Company has with, from or relating (by way of subcontract or
otherwise) to any other contract, agreement or grant of, any federal
or state governmental unit; and keep all records required to be kept,
and file all reports, affirmative action plans and forms required to
be filed, pursuant to any such applicable law or the terms of any
such government contract.
(c) So conduct its business that neither the Company nor
any property owned or occupied by the Company is in violation of any
Federal or
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State Environmental Law of any sort or in violation of any applicable
federal or state law relating to occupational health or safety.
5.8 Maintenance of Corporate Existence, etc. The Company shall
maintain in full force and effect its corporate existence, rights, government
approvals and franchises and all licenses and all Listed Rights and other rights
to use patents, processes, licenses, trademarks, trade names or copyrights owned
or possessed by it. The Company will not transfer, assign or license any of its
Listed Rights, know-how, technology, trade secrets or Intellectual Property now
owned or hereafter acquired by it without the written consent of the Holder,
which consent the Holder may withhold in its discretion.
5.9 Availability of Stock for Conversion. The Company will, from
time to time, in accordance with the laws of the State of Connecticut, increase
the authorized number of shares of the class of Stock into which the Shares are
convertible if at any time the number of shares remaining unissued and available
for issuance shall be insufficient to permit conversion in full of the Shares
(or the unconverted portion thereof).
5.10 Confidentiality and Non-Competition Agreements.
(a) The Company will require (i) all officers, department
heads and those performing similar functions, (ii) all employees who
make or have made a material contribution to the Technology or its
marketing or management, and (iii) all other employees who otherwise
might be deemed by the Company to be Key Employees to execute a
non-competition agreement, and all employees, officers and
consultants of the Company to execute a proprietary information and
non-disclosure agreement, in favor of the Company, all in form and
substance satisfactory to the Board of Directors of the Company, in
each case as a condition precedent to the employment of such
individuals and to induce the Holder to enter into this Agreement.
(b) The Company will cause all technological developments,
inventions, discoveries or improvements made by employees of the
Company and its subsidiaries to be fully documented in engineering
notebooks in accordance with the best prevailing industrial
professional standards, and where possible and appropriate, cause all
employees to file and prosecute United States and foreign patent
applications relating to and protecting such developments.
5.11 Transactions with Affiliates. The Company will not enter into
any transaction, including, without limitation, the purchase, sale or exchange
of property or the rendering of any service, with any Affiliate except in the
ordinary course of and pursuant to the reasonable requirements of the Company's
business and upon
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<PAGE>
fair and reasonable terms no less favorable to the Company than would obtain in
a comparable arm's-length transaction with a person not an Affiliate.
5.12 Compliance by Subsidiaries. The Company will cause any
subsidiary which it may now have and/or which it may organize or acquire in the
future to comply fully with all terms and provisions of Section 5 to the same
extent as if such subsidiary or subsidiaries were the "Company" herein.
5.13 Maintenance of Connecticut Presence. The Company shall not
relocate (as that term is defined in Section 32-5a of the Connecticut General
Statutes) outside of the State of Connecticut and shall maintain a "Connecticut
Presence" so long as the Holder owns any Shares or Conversion Shares. A
Connecticut Presence shall mean, (a) maintaining the Company's principal place
of business (including its executive offices and officers) in the State of
Connecticut; (b) basing a majority of its employees and those of its
subsidiaries in the State of Connecticut; (c) conducting a majority of its
operations and those of its subsidiaries, including manufacturing activities
conducted directly or through subcontractors and vendors, in the State of
Connecticut; and (d) maintaining the Company's and each subsidiary's principal
bank accounts in the State of Connecticut.
5.14 Connecticut Employment.
(a) The Company shall create jobs in the State of
Connecticut and shall use its best efforts to employ residents of
Connecticut in these jobs.
(b) If the Company is located in an enterprise zone
designated pursuant to Section 32-70 of the Connecticut General
Statutes, the Company shall not relocate (as that term is defined in
Section 32-5a of the Connecticut General Statutes) within the State
of Connecticut without first obtaining the express written consent of
the Holder, which consent will not be unreasonably withheld. If the
Company relocates within the State of Connecticut, it will offer
employment at its new location to its employees from the original
location if such employment is available.
(c) The Company shall furnish to the Holder copies of the
quarterly reports filed by the Company and any of its subsidiaries
with the Connecticut Department of Labor and upon request, employment
records and such other personnel records to the extent permitted by
law as the Holder may reasonably request to verify the creation or
retention of Connecticut employment.
(d) The Company hereby authorizes the Holder to examine,
and will at any time at the request of the Holder provide Holder with
such additional authorization satisfactory to the Connecticut
Department of Labor as may be
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<PAGE>
necessary to enable the Holder to examine all records of such
Department relating to the Company and/or any of its subsidiaries.
5.15 Equal Opportunity. The Company agrees and warrants that it is
an equal opportunity employer and that it does not discriminate. The Company
further agrees and warrants that:
(a) The Company will not discriminate or permit
discrimination against any employee or applicant for employment
because of sex, sexual orientation, race, color, religious creed,
age, marital status, mental retardation, physical disability,
national origin, or ancestry. Such action shall include, but not be
limited to, the following: Employment upgrading, demotion or
transfer; recruitment advertising; lay-off or termination; rates of
pay or other forms of compensation; and selection for training,
including apprenticeship.
(b) The Company will take affirmative action to insure that
applicants with job-related qualifications are employed.
(c) The Company will, in its solicitations for employees,
state that it is an "affirmative action-equal opportunity employer."
(d) The Company will provide each labor union or
representative of workers with which the Company has a collective
bargaining agreement or other contract or understanding and each
vendor with which the Company has a contract or understanding, a
notice to be provided by the Commission of Human Rights and
Opportunities (the "CHRO") and to post copies of the notice in
conspicuous places available to employees and applicants for
employment.
(e) The Company will cooperate with the Holder, the State
of Connecticut and/or any of its agencies and the CHRO to insure that
the purpose of this equal opportunity clause is being carried out.
(f) The Company will comply with all relevant regulations
and orders issued by the CHRO, to provide the CHRO with such
information as it may request, and to permit the CHRO access to
pertinent books, records, and accounts concerning the contractor's
employment practices and procedures.
(g) The Company will comply with all of the requirements
set out by Section 4a-60 of the Connecticut General Statutes, as it
may be amended.
(h) The Company will post a clearly visible notice of its
acceptance of the foregoing equal employment opportunity provisions
at its place of business.
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5.16 Certain Distributions/Payments. The Company will not and will
not permit any subsidiary (except a 100% subsidiary) to make any direct or
indirect redemption, purchase or other acquisition of any of the Company's
capital stock (or any warrant, option or other right with respect to such stock)
except in any case stock, warrants, options or other rights owned by the Holder
or purchased from employees of the Company.
5.17 No Conversion Rights. The Company shall not issue any shares of
stock in the Company that have conversion rights without obtaining the written
consent in advance of a majority of the Holders.
5.18 Constitution of Board of Directors. Not later than March 15,
1996, the Company will expand its Board of Directors (the "Board") to include
two additional members and will maintain two such additional members on its
Board, each of whom shall be an individual having no financial relationship with
the Company or any of Charles Bakes, Lewis Bakes, Bessie Spitzer, Mark Spitzer
or David Wells (collectively, the "Founders"), other than stock ownership or
rights to acquire equity ownership in the Company, and who, in the reasonable
judgment of the Founders, are knowledgeable about the Company's industry or
technology, or both.
SECTION 6. CLOSING AND CONDITIONS TO CLOSING. The closing (the "Closing") of the
purchase and sale of the Shares shall be held at such date (the "Closing Date")
that the Company fulfills the conditions of closing set forth in this Section 6.
The Company has, or before the Closing will have, authorized the issuance and
sale of the Shares. Subject to the terms and conditions of this Agreement and in
reliance upon the representations, warranties and agreements contained herein,
the Company will issue and sell the Shares to the Holder, and the Holder will
purchase the Shares from the Company at the Closing, for the aggregate price of
$640,000. The place of the Closing, including the place of delivery to the
Holder by the Company of the Shares and the place of payment to the Company by
the Holder of the purchase price for the Shares, shall be at the offices of
Pullman & Comley, LLC, 850 Main Street, Bridgeport, Connecticut 06604, or such
other place as shall have been agreed to by the Company and the Holder. At the
Closing, the Holder shall pay the Company the purchase price by cash, check or
wire transfer, and the Company shall deliver the Holder a certificate
representing the Shares, registered in the Holder's name (or in such name or
names as Holder shall request before the Closing). Notwithstanding any other
provisions of this Agreement, if the conditions to the Closing set forth in this
Section 6 are not satisfied on or before January 1, 1996, the Holder may in its
absolute discretion at any time thereafter terminate its obligations under this
Agreement and have not further responsibilities hereunder. The obligation of the
Holder to purchase the Shares to be purchased by it at the Closing is subject to
the fulfillment to its satisfaction on or prior to the Closing Date of each of
the following conditions:
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6.1 Representations and Warranties Correct. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct
when made, and shall be true and correct in all respects at the Closing as if
made at and as of the Closing and with respect thereto, after giving effect to
the sale and issuance of the Shares at the Closing.
6.2 Performance. All covenants, agreements and conditions contained
in this Agreement to be performed or complied with by the Company on or prior to
the Closing Date shall have been so performed or complied with in all respects.
6.3 Secretary's Certificate. The Holder shall have received a
certificate from the Secretary of the Company, substantially in the form of
Exhibit A to this Agreement, dated the Closing Date, with respect to the matters
therein set forth.
6.4 Opinion of Company Counsel. The Holder shall have received from
Kleban & Samor, P.C., counsel to the Company, an opinion addressed to it, dated
the Closing Date, to the effect and in substantially the form set forth in
Exhibit B hereto.
6.5 Legal Investment. At the time of the Closing, the purchase of
the Shares to be purchased by the Holder hereunder and of the Conversion Shares
shall be legally permitted by all laws and regulations to which it and the
Company are subject.
6.6 Qualifications. All authorizations, approvals, consents or
permits of any governmental authority, regulatory body or third party that are
required in connection with the lawful issuance and sale of the Shares pursuant
to this Agreement, the conversion of the Shares or the issuance of the
Conversion Shares upon such conversion shall have been duly obtained and shall
be effective on and as of the Closing Date, including, if necessary, permits
from applicable state securities authorities, qualifying the offer and sale of
the Shares.
6.7 Proceedings and Documents. All corporate and other proceedings
taken by the Company in connection with the transactions contemplated hereby and
all documents and instruments incident to such transactions shall be
satisfactory in substance and form to the Holder and special counsel for the
Holder.
6.8 Officers' and Shareholders' Certificates. The Holder shall have
received the Officers' Agreement, executed by certain designated officers of the
Company, to the effect and substantially in the form set forth in Exhibit C to
this Agreement, and the Shareholders' Agreement, executed by certain designated
Shareholders of the Company, to the effect and substantially in the form set
forth in Exhibit D to this Agreement.
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6.9 Stock Put and Call Agreement. The Holder shall have received the
Stock Put and Call Agreement executed and delivered by the Company to the effect
and substantially in the form set forth in Exhibit E to this Agreement.
6.10 Good Standing Certificates. The Company shall have delivered to
the Holder a certificate of recent date from the Secretary of State of the State
of Connecticut with respect to the Company's due incorporation, good standing,
legal corporate existence, due authorization to conduct business and the payment
of all franchise taxes, and, certificates from the Secretary of State in each
jurisdiction in which the Company or any subsidiary is required to be qualified
to do business with respect to the Company's or such subsidiary's good standing
and due authorization to conduct business therein and payment of all
qualification fees.
6.11 Tax Matters. The Company shall have delivered to the Holder tax
clearance letters to Connecticut Department of Revenue Services with respect to
the corporation business and sales and use tax respecting the Company and each
subsidiary.
6.12 Commitment Fee. The Company shall have paid to the Holder a
commitment fee of $6,400, which will be non-refundable if the Company does not
satisfy all of its conditions precedent to the Closing set forth in this Section
6 and the Closing does not occur.
SECTION 7. MISCELLANEOUS.
7.1 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Connecticut.
7.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive the Closing and any investigation made by
the Holder.
7.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
7.4 Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subject hereof. Except as otherwise expressly provided herein, neither this
Agreement nor any term hereof may be amended, waive, discharged or terminated,
except by a written instrument signed by the Company and the Holder.
7.5 Notices, etc.
(a) All notices and other communications required or
permitted
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hereunder shall be in writing and shall be mailed by
first-class, registered or certified mail, postage prepaid, or
delivered either by hand or by messenger, or sent via telex,
telecopier, computer mail or other electronic mean, addressed (a) if
to the Holder, at 40 Cold Spring Road, Rocky Mill, Connecticut 06067,
Attention: Executive Director, or at such other address as the Holder
shall have furnished to the Company in writing, or (b) if to the
Company, at 969 High Ridge Road, Suite 205, Stamford, Connecticut
06905, or at such other address as the Company shall have furnished
to the Holder and each such other holder in writing.
(b) Any notice or other communications so addressed and
mailed, postage prepaid, by registered or certified mail (in each
case, with return receipt requested) shall be deemed to be given when
so mailed. Any notice so addressed and otherwise delivered shall be
deemed to be given when actually received by the addressee.
7.6 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Holder upon any breach or default of the Company
under this Agreement or any other documents delivered pursuant to this Agreement
shall impair any such right, power or remedy of the Holder, nor shall it be
construed to be a waiver of any such breach or default, or any acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of the Holder of any
breach or default under this Agreement, or any waiver on the part of the Holder
of any provisions or conditions of this Agreement must be made in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement or any of such other documents or by
law or otherwise afforded to the holder, shall be cumulative and not
alternative.
7.7 Separability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
7.8 Legal Fees and Expenses.
(a) The Company will pay the reasonable legal fees and
out-of-pocket expenses of special counsel to the Holder with respect
to this Agreement and the transactions contemplated hereby, whether
or not the Investment closes. The Company shall also pay the
reasonable legal fees and the fees of experts and consultants engaged
by the Holder incurred with respect to the enforcement of any of the
Financing Documents and/or with respect to responding to any request
made by the Company for the consent of
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the Holders to any action that the Company wishes to take that is
either barred under terms of any Financing Documents or requires the
consent of the Holder therefor.
7.9 Waiver. THE COMPANY ACKNOWLEDGES THAT THE TRANSACTION OF WHICH
THIS AGREEMENT IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED
UNDER CONNECTICUT GENERAL STATUTES SECTION 52-278a TO 52-278g INCLUSIVE, OR BY
ANY OTHER APPLICABLE LAW, STATE OR FEDERAL, HEREBY WAIVES ITS RIGHTS TO NOTICE
AND HEARING WITH RESPECT TO ANY PREJUDGEMENT REMEDY WHICH THE HOLDER, AND/OR
THE SUCCESSORS OR ASSIGNS OF THE HOLDER MAY DESIRE TO USE.
7.10 Titles and Subtitles. The titles of the section and subsections
of this Agreement are for convenience or reference only and are not to be
considered in construing this Agreement.
7.11 Counterparts. This Agreement may be executed in counterparts,
each of which when so executed and delivered shall constitute a complete and
original instrument but all of which together shall constitute one and the same
agreement, and it shall not be necessary when making proof of this Agreement or
any counterpart thereof to account for any other counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on their behalf as of the date written above.
INTERNATIONAL
TELECOMMUNICATION DATA
SYSTEMS, INC.
By: /s/ Lewis D. Bakes
---------------------------------
Title: VP
------------------------------
CONNECTICUT INNOVATIONS,
INCORPORATED
By: /s/ Victor R. Budnick
---------------------------------
Title: President & Executive Director
------------------------------
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INTERNATIONAL TELECOMMUNICATION
DATA SYSTEMS, INC.
AMENDMENT TO STOCK PURCHASE AGREEMENT
Connecticut Innovations, Incorporated ("CII") and ITDS hereby amend the
Class C Preferred Stock Purchase Agreement (the "Stock Purchase Agreement")
by and between ITDS (Connecticut) and CII dated December 11, 1995, by (i)
deleting Section 5.8 effective as of the date hereof, (ii) deleting Sections
5.13, 5.14, 5.16, 5.17 and 5.18 effective upon the closing of an initial
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
common stock of ITDS (the "Offering") and the repayment of indebtedness of ITDS
to CII pursuant to a Promissory Note dated December 1994 in the original
principal amount of $389,472 and a Promissory Note dated June 1995 in the
original principal amount of $1,485,000 and (iii) deleting the definition of
"Registrable Securities" in Section 4.1 and replacing it with the following:
"Registrable Securities" shall mean any shares of Common Stock of the Company
issuable upon exercise of warrants held by the Holder on September 27, 1996 and
the Conversion Shares into which the Shares are convertible, less any Shares (or
Conversion Shares into which such Shares shall have been converted) theretofore
sold to the public or in a private placement.
STANDARD FORM
OF LEASE AGREEMENT
LEASE AGREEMENT, made as of the day of , 199 , between "Landlord"
(as hereinafter defined) and . (hereinafter called the "Tenant"), a ( )
corporation, ( ) general partnership or ( ) limited partnership, organized
under the laws of the State of having its principal office at
Connecticut
or ( ) an individual or ( ) individuals (jointly
or severally) residing at
ARTICLE 1
Definitions and Certain Terms
1.01 The following terms shall have the meanings set forth opposite
each of them, provided that if "None" is set forth opposite any term then the
provisions of the Lease applicable to such term shall be considered deleted and
of no force and effect. Where alternative definitions are set forth, only the
definition following the marked set of parenthesis shall apply.
"After Hours Air-Conditioning Charge":
$40.00 per hour for additional air conditioning purposes pursuant
to Section 7.01 hereof.
"After Hours Heating Charge":
$40.00 per hour for additional heating pursuant to Section 7.01
hereof.
"After Hours Ventilating Charge":
$40.00 per hour for ventilating purposes pursuant to Section 7.01
hereof.
"Base Rent": See Page 1A
"Building":
The building erected at 969 High Ridge Road, in Stamford,
Connecticut.
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"Commencement Date":
( ) or ( x ) the date on which the Demised Premises are ready for
occupancy as provided in Article 5 hereof.
"Demised Premises":
That space on the second floor of the Building delineated on the
floor plan(s) attached hereto as Exhibit "A", the total area of which
is the Leased Floor Space
"Expiration Date":
The last day of the calendar month in which occurs the end of a
five year period from the Commencement Date (if the Commencement Date
shall occur on a day other than the first day of a calendar month such
period shall run and be measured from the first day of the calendar
month following the Commencement Date) or ending on an earlier date on
which this Lease may expire or be cancelled or terminated pursuant to
the terms of this Lease.
"Guarantor":
"Landlord":
969 Associates, a Connecticut limited partnership having an
address at 707 Summer Street, P.O. Box 3580, Stamford, Connecticut
06905.
"Landlord's Managing Agent":
Hoffman Brothers
707 Summer Street
Stamford, Connecticut 06901
"Leased Floor Space":
The total number of rentable square feet of space in the Demised
Premises, which for purposes of this Lease, the parties agree and
stipulate is 3208 square feet.
"Leasing Broker":
"Number of Common Parking Spaces":
3 parking spaces per 1,000 square feet of rentable Building floor
space for use in common by
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all tenants of the Building.
"Permitted Use":
Only as general offices and assembly work in conjunction with the
wholesale jewelry business. .
"Prepayment":
$ to be applied toward the first full month's installment of Base
Rent and Electric Energy Charge due under this Lease, as specified in
Section 3.03 hereof.
"Proportionate Share":
%, which is the percentage resulting from dividing the Leased
Floor Space by ninety-five (95%) percent of the Total Floor Space.
"Rent Year":
The period commencing on the first day of the Term and ending
with the day preceding the first anniversary of such day, and each
twelve-month period thereafter measured from each anniversary date,
except that if the period between the last such anniversary and the
Expiration Date is less than twelve months, then the last Rent Year
shall be such lesser period.
"Security Deposit":
$ deposited pursuant to Article 23 hereof.
"Standard Business Hours":
8:00 a.m. to 6:00 p.m. on business days, i.e., every day except
Saturdays, Sundays and the days observed by the Federal or Connecticut
State government as legal holidays.
"Tenant's Parking Spaces":
parking spaces for use in common with other tenants of the
Building.
"Term":
The ending period beginning on the Commencement Date and ending
at noon on the Expiration Date.
"Total Floor Space":
The total number of square feet of space in the Building which,
for purposes of this Lease, the parties agree and stipulate is 58,680
square feet.
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1.02 Electrical energy consumed by Tenant in the Demised Premises
shall be ( ) as measured by a sub-meter, furnished and installed at Tenant's
cost and expense, and as otherwise provided in Section 12.04 hereof, or ( )
purchased by Tenant from Landlord at the "Electric Energy Charge", as defined in
Section 1.02A hereof, and provided in Section 12.03 hereof.
A. Where electricity is to be purchased by Tenant from Landlord
at an "Electric Energy Charge", such charge shall be $1.62 per square foot
of Leased Floor Space per year (as the same may be adjusted pursuant to
Section 12.03 hereof); the Electric Energy Charge shall be paid by Tenant
to Landlord as provided in Section 12.03 hereof for Landlord's supplying of
electricity to the Demised Premises.
B. Charges for excess electricity pursuant to Section 12.03B
hereof:
1. For each watt in excess of five (5) watts per square
foot of Leased Floor Space connected load, during
Standard Business Hours at the rate of $ .30 per watt
per square foot of the Leased Floor Space per year.
2. Where the connected load per square foot of the Leased
Floor Space is less than five (5) watts during other
than Standard Business Hours, at the rate of $ .60 per
hour per one thousand (1,000) square feet of the Leased
Floor Space.
3. For each watt in excess of five (5) watts per square
foot of the Leased Floor Space connected load, during
other than Standard Business Hours, at the rate of $
.12 per hour per one thousand (1,000) square feet of
the Leased Floor Space.
C. "Base Electric Rate" is ( ) , or ( ) that provided in
Section 12.03C hereof.
1.03 The following shall be applicable only if the Lease does not
pertain to the initial occupancy by any tenant of the Demised Premises: ( )
Landlord shall deliver the Demised Premises to Tenant "as is"; or ( ) Landlord
shall perform the work set forth in Exhibit "D-2" attached hereto and made a
part hereof at ( ) Landlord's cost and expense to the extent hereinafter set
forth, at ( ) Tenant's cost and expense, or ( ) partly at Landlord's and partly
at Tenant's cost and expense, all as provided in Exhibit "D-2".
ARTICLE 2
Demise and Premises
2.01 The general location, size and layout of the Demised Premises are
outlined on Exhibit "A".
2.02 Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, the Demised Premises for the Term, for the rents hereinafter reserved
and upon and subject to the conditions (including limitations, restrictions, and
reservations) and covenants hereinafter provided. Each party hereto agrees to
observe and perform all of the conditions and covenants herein contained on its
part to be observed and performed.
2.03 Nothing herein contained shall be construed as a grant or demise by
Landlord to Tenant of the roof or exterior walls of the Building of the space
above and below the Demised Premises, of the parcel of
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land on which the Demised Premises are located, and/or of any parking or other
areas adjacent to the Building.
ARTICLE 3
Base Rent and Additional Rent
3.01 Whenever used in this Lease, the term (insofar as it pertains to
this Lease) "fixed rent", "minimum rent", "base rent" or "basic rent", or any
such term using the word "rental", "rents" or "rentals" in lieu of "rent", shall
mean Base Rent; and whenever used in this Lease, the term (insofar as it
pertains to this Lease) "rent", "rentals", "Rent", or the plural of any of them,
shall mean Base Rent and additional rent.
3.02 Tenant shall pay to Landlord without notice or demand and without
abatement, deduction or set-off, in lawful money of the United States of
America, at the office of the Landlord as specified in Article 1 hereof or at
such other place as Landlord may designate, the Base Rent reserved under this
Lease for each year of the Term, payable in equal monthly installments in
advance on the first day of each and every calendar month during the Term; and
additional rent consisting of all such other sums of money as shall become due
from and payable by Tenant to Landlord hereunder (for default in payment of
which Landlord shall have the same remedies as for a default in payment of Base
Rent).
3.03 Tenant shall pay the Base Rent and additional rent herein reserved
promptly as and when the same shall become due and payable under this Lease. If
the Commencement Date shall occur on a day other than the first day of a
calendar month the Base Rent and additional rent shall be prorated for the
period from the Commencement Date to the last day of the said calendar month and
shall be due and payable on the Commencement Date. Notwithstanding the
provisions of the next preceding sentence, Tenant shall pay on account toward
the first full calendar monthly installment of Base Rent and the first full
monthly installment of the Electric Energy Charge, if any, on the execution of
this Lease, the Prepayment specified in Article 1 hereof.
3.04 If the Base Rent or any additional rent shall be or become
uncollectible, reduced or required to be refunded by virtue of any law,
governmental order or regulation, or direction of any public officer or body
pursuant to law, (of the nature of a rent freeze or rent restriction) Tenant
shall enter into such agreement(s) and take such other action (without
additional expense to Landlord) as Landlord may reasonably request, and as may
be legally permissible, to permit Landlord to collect the maximum Base Rent and
additional rent which may from time to time during the continuance of such legal
rent restriction be legally permissible, but not in excess of the amounts of
Base Rent or additional rent payable under this Lease. Upon the termination or
such rent restriction prior to the Expiration Date, (a) the Base Rent and
additional rent shall become and thereafter be payable under this Lease in the
amount of the Base Rent and additional rent set forth in this Lease for the
period following such termination, and (b) Tenant shall pay to Landlord, to the
maximum extent legally permissible, an amount equal to (1) the Base Rent and
additional rent which would have been payable pursuant to this Lease, but for
such legal rent restriction, less (2) the Base Rent and additional rent paid by
Tenant during the period that such legal rent restriction was in effect.
3.05 If Tenant shall fail to pay when due any installment or payment of
Base Rent or additional rent, Tenant shall be required to pay a late charge of
$.06 for each $1.00 which remains so unpaid. Such late charge is intended to
compensate Landlord for additional expenses incurred by Landlord in processing
such late payments. Nothing herein shall be intended to violate any applicable
law, code or regulation, and in all
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instances all such charges shall be automatically reduced to any maximum
applicable legal rate or charge. Such charge shall be imposed monthly for each
late payment.
3.06 The receipt or acceptance by Landlord of Base Rent and/or
additional rent with knowledge of breach by Tenant of any term, agreement,
covenant, condition or obligation of this Lease shall not be deemed a waiver of
such breach.
3.07 No payment by Tenant or receipt by Landlord of a lesser amount than
the correct Base Rent or additional rent due hereunder shall be deemed to be
other than a payment on account, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment be deemed to effect or
evidence an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance or pursue
any other remedy in this Lease or at law provided.
ARTICLE 4
Preparing the Demised Premises
4.01 Intentionally omitted.
4.02 In the event that Tenant is to accept the Demised Premises "as is",
such term shall mean in the same condition and repair in which the prior tenant
vacated such space, and Tenant shall be responsible for any demolition or
removal of any improvements existing in the Demised Premises in connection with
the prior tenant's occupancy, and all other work as may be necessary to convert
the Demised Premises to Tenant's requirements. Landlord shall not be responsible
for performing any work with respect to such space, whether or not included in
the Work Letter. Any work, changes or improvements made to such space shall be
performed at Tenant's expense in accordance with the terms of this Lease,
including, without limitation, Article 17 hereof.
4.03 In the event Landlord is to perform any work in the Demised
Premises pursuant to Exhibit "D" or "D-2", unless Tenant's final plans,
specifications and drawings covering all such work are attached hereto as
Exhibit "A-1", Tenant shall furnish to Landlord, by registered or certified
mail, complete detailed layout plans and architectural working drawings and
specifications ("Tenant's Plans") for demolition and Tenant's partition layout,
reflected ceiling and other installations required in the performance of all of
the work hereunder in adequate time to allow Landlord to acknowledge receipt of
the same not later than ten (10) days from the date of this Lease. Landlord
shall not be required to commence any work referred to in Exhibit "D" or "D-2"
until Tenant's Plans have been received, receipted and approved as provided
herein.
4.04 If Tenant shall employ or use any contractor or subcontractor other
than Landlord in the performance of any work in connection with Tenant's initial
occupancy, which work Tenant shall not commence until after the Commencement
Date, all of Tenant's duties and obligations set forth in Article 17 (relating
to Tenant's duties and obligations in making Tenant's Changes) shall be
applicable to and bind upon Tenant with respect to any such work.
4.05 Landlord's agreement to do any work in the Demised Premises as set
forth herein shall not require it to incur overtime costs and expenses and shall
be subject to any delays due to acts of God,
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governmental restrictions or guidelines, strikes, labor disturbances, shortages
or materials and supplies and for any other causes or events whatsoever beyond
Landlord's reasonable control ("Events of Force Majeure"). Landlord has made,
and makes, no representations as to the date when the Demised Premises will be
ready for Tenant's occupancy, and notwithstanding any date specified in Section
1.01 or elsewhere in this Lease as the Commencement Date it is understood that
the same is merely an estimate.
4.06 A. If Landlord is to perform any work hereunder, Landlord at
Landlord's expense shall cause to be prepared all final engineering drawings
based upon Tenant's Plans and such information and data submitted by the Tenant
for engineering purposes, all of which shall be in conformity with the Work
Letter.
B. Tenant shall, with reasonable speed and diligence and at its own
cost and expense, file Tenant's Plans and any plans prepared by Landlord's
architects and engineers for air-conditioning, mechanical and electrical work
forming a part of the finish work with the appropriate department of the
municipality where the Building is located and shall take whatever action shall
be necessary (including modification of Tenant's Plans) to obtain and maintain
all necessary approvals and permits from said department (or other governmental
authorities having jurisdiction) with respect to such plans, the completion of
the work reflected therein or having any modification of the Building's
Certificate of Occupancy (temporary or permanent) which may be required, and
Tenant shall deliver copies of all of the same to Landlord. Landlord shall
cooperate with Tenant in connection with the aforesaid and shall cause
Landlord's architects and engineers to make any changes in such plans as
prepared by them which may be necessary for Tenant to comply with its
obligations hereunder.
4.07 With respect to any materials and/or work shown on Tenant's Plans
(including, without limitation, any demolition work), Landlord may, at its
option, supply such materials and perform such work and supply and perform any
other materials and work not set forth in Tenant's Plans (all of which materials
and work shall be considered and sometimes called "extra materials and work")
which Tenant may want completed for Tenant's account at cost plus fifteen (15%)
percent for General Conditions (indirect job costs), which shall mean the amount
charged for on-the-job services performed by Landlord's contractors for the
Tenant, his employees, or contractors (such as cleanup, removal of waste and
debris, protection of work in progress or completed, temporary maintenance and
services, utilities, and use of elevators and hoists); to this total amount
shall be added ten (10%) percent for Landlord's overhead and profit. Said
percentages shall also apply to specific unit prices quoted or referred to
elsewhere in the Work Letter or in any separate unit price lists or schedules
attached to this Lease insofar as both extra materials and work and basis
building standard work is concerned. Before proceeding with any such extra work
or supplying any such extra materials, Landlord shall notify Tenant in writing
as to the respective costs of each extra item involved, and unless Landlord is
notified otherwise by Tenant within three (3) business days of such notification
by Landlord, it shall be deemed the approval by Tenant for Landlord to proceed
with the extras so itemized. If Tenant notifies Landlord within such period that
Landlord's estimate is not competitive in price or quality and submits to
Landlord the specific reasons therefor together with another estimate from a
reputable contractor confirming such reasons, then Landlord shall have the right
to meet such other estimate by notice to Tenant given three (3) business days
after receipt of such submission. If Landlord does not submit an estimate within
three (3) days of receipt thereof, then Tenant may have such work performed or
materials supplied by others (provided that the same are included in Tenant's
Plans approved by Landlord) in accordance with the terms of this Lease,
including, without limitation, Exhibit "D". In the event that Tenant disapproves
or is deemed to have disapproved Landlord's estimate and does not timely submit
another such other estimate showing that Landlord's estimate is not competitive
in price or quality, then no other party shall perform such extra work or supply
such extra materials until Tenant has complied with the foregoing procedure.
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4.08 All of Tenant's Plans are subject to the Landlord's approval,
which the Landlord agrees shall not be unreasonably withheld, but no approval
shall be deemed an agreement by Landlord that the work included herein is in
compliance with any legal requirements.
4.09 All charges for extra materials and work as provided in Section
4.07 or elsewhere in the Work Letter shall be deemed additional rent and shall
be paid by Tenant to Landlord within ten (10) days after being billed therefor.
4.10 All materials and workmanship provided or performed by Landlord
shall be building standard quality unless otherwise specified, and the maximum
obligation of Landlord shall be for the work required to be performed by
Landlord in the Work Letter, which shall be performed in a good and workmanlike
manner. In the event that after the date of execution of this Lease, any
building codes or standards change and thereby impose additional or more
extensive requirements in completing the Building or related improvements, or,
after completion of the Building require changes in the Building, then the cost
of complying with such requirements shall be amortized over the useful lives
thereof, and Tenant shall pay the Proportionate Share of such cost applicable to
that portion (or all, as the case may be) of the useful lives falling within the
Term of the Lease.
4.11 Tenant shall be responsible for all damage caused by trades
employed by Tenant.
4.12 If by reason of (a) Tenant's failure to submit Tenant's Plans on
their due date, (b) any special materials or work in Tenant's Plans or otherwise
requested by Tenant in excess of the building standard shown on Exhibit D, (c)
any changes in the material or work on Tenant's Plans or otherwise requested by
Tenant, (d) the occurrence of any delays for which Tenant is responsible under
the terms of the Lease, including, without limitation, Articles 4 and 5 thereof
("Delay Conditions"), Landlord is delayed in supplying the materials or
completing the work to be performed by Landlord in accordance with the
provisions of this Lease and/or the Work Letter, then the Commencement Date of
the Lease and the obligations of Tenant to pay Base Rent and additional rent
shall be accelerated by the number of days equal to the length of the applicable
Delay Conditions, whether or not Landlord has completed such work at the time of
such accelerated date, and the Term of this Lease shall commence as though none
of such Delay Conditions has occurred. Landlord's time to complete the work to
be performed by Landlord shall be extended by the number of days necessary for
Landlord to complete such work as a result of the occurrences of any of the
Delay Conditions.
4.13 Notwithstanding the commencement of rent as aforesaid, work on the
Demised Premises whether performed by Landlord or by Tenant shall be performed
only during regular time union working hours. If Tenant requires Landlord to
perform work during other hours, or if Tenant desires to perform work through
its contractors, agents, or employees, Tenant shall pay as additional rent, the
cost of employing such additional union help as shall be required under the
rules and regulations of the unions employed in connection with the construction
of the Building. Payment shall be made by Tenant to Landlord within ten (10)
days after being billed therefor.
ARTICLE 5
Commencement Date
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5.01 The Demised Premises shall be deemed ready for occupancy on the
following date:
A. If the Demised Premises are to be delivered "as is" (or if
Tenant, as opposed to Landlord, is to perform building standard work therein),
and (i) if no prior tenant is occupying the Demised Premises, on the day
specified (by reciting an exact day, month and year in the definition of
"Commencement Date"), or (ii) if a prior tenant is occupying the Demised
Premises, on the day following the day on which the prior tenant vacates the
Demised Premises, provided that Landlord shall have given Tenant at least five
(5) days prior written notice estimating when such vacation will occur and
provided such vacation does occur by such estimated vacation date, or in the
event Landlord's estimate was inaccurate, on the date when such vacation
actually occurs; or
B. If the Demised Premises are not to be delivered "as is", and if
the work described in Exhibit "D-2" (to the extent it is building standard in
nature as provided in Exhibit D) is to be performed by Landlord when such
building standard work shall have been substantially completed.
5.02 Intentionally omitted.
5.03 In addition to those specific "Delay Conditions" set forth in
Section 4.12 hereof, if the occurrence of any of the conditions listed in
Article 4 or in Section 5.01 and thereby making of the Demised Premises ready
for occupancy, shall be delayed due to any act or omission of Tenant or any of
its employees, agents, or contractors, including but not limited to failure by
Tenant to act promptly when any consent or approval may be requested by
Landlord, or to plan or execute work to be performed by Tenant diligently and
expeditiously, or due to any special requirements of Tenant in connection with
the preparation of the Demised Premises for occupancy over and above the
quantity of building standard work specified in Exhibit "D" and Exhibit "D-2",
as applicable, (if Landlord is to perform such work hereunder) then the Demised
Premises shall be deemed ready for occupancy on the date when they would have
been ready but for any such delay whether or not a certificate of occupancy or
other permission to occupy shall have issued.
5.04 Unless the Commencement Date is a date certain specified in Article
1 hereof, when the Commencement Date shall have been determined, Landlord and
Tenant shall, upon the request of either of them, execute and deliver to each
other duplicate originals of a Commencement Date Statement prepared by Landlord
in recordable form, which shall specify the Commencement and Expiration Dates of
the Term. Upon execution and delivery of the Commencement Date Statement it
shall be deemed a part of this Lease. Any failure of Tenant to execute such
statement shall not affect Landlord's determination of the Commencement Date,
and such statement shall be deemed approved and accepted if not received back by
Landlord within fifteen (15) days of submission by Landlord.
5.05 On the Commencement Date or at such time as Tenant shall take
actual possession of the whole or part of the Demised Premises, whichever shall
be earlier, it shall be conclusively presumed that the same were as of the
Commencement Date or the date or dates of such taking of possession, in the
condition in which Landlord was required to deliver the Demised Premises under
this Lease, unless within twenty (20) days after such date Tenant shall have
given Landlord notice specifying in which respects the Demised Premises were not
in satisfactory condition. However, nothing contained in this Section shall be
deemed to relieve Landlord from, and Landlord shall perform its obligation to
complete, with reasonable speed and diligence, such details of construction,
mechanical adjustment and decoration, if any, as Landlord shall be required to
perform under this Lease and as shall have been unperformed at the time Tenant
took actual possession, but Tenant shall not be entitled to any rent abatement
on account of any such incomplete work.
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5.06 Notwithstanding any date, Tenant expressly waives any right to
recover any damages which may result from Landlord's failure to deliver
possession of the Demised Premises on such date or at any time thereafter,
provided that Landlord has used due diligence to comply with its obligations
under this Lease.
ARTICLE 6
Rent Adjustments Based Upon Costs of Operation
6.01 Regarding increases in the Costs of Operation, the following shall
be applicable:
A. "Costs of Operation" shall mean all costs and expenses in
connection with the operation, maintenance, and repair (whether structural or
non-structural, and whether capital or non-capital in nature) of any and all
parts of the "Real Property" (as defined in Section 10.01B, hereof) and of the
Building and the improvements thereon and therein, including, without
limitation, the following: all materials, supplies and equipment, purchased or
hired therefor; service contracts for any of the foregoing (including, without
limitation, elevator, electric, heating, air-conditioning and plumbing);
maintenance and repair of grounds (including, without limitation, all lawns,
gardens, shrubbery, trees, planters, containers, statuary, exhibits, displays,
walks, parking and other vehicle ways and areas and common areas); maintenance
and repairs in and to Building systems including, without limitation, the
heating and ventilating and air-conditioning systems; maintenance and repair of
underground pipes, lines, equipment and systems; repaving; resurfacing;
resealing and blacktopping; painting (including parking lot line painting);
maintenance and repairs of any and all roofs, rooftops, and all parts thereof,
whether decorative or otherwise; lighting; removal of snow, ice, trash, garbage
and other refuse; fuel, including, without limitation, oil or gas used in
connection with heating the Building; electricity used in connection with the
Building (other than at the Demised Premises and other portions leased to
tenants), including, without limitation, that used in air conditioning,
ventilating and heating and for interior and exterior common areas; water;
telephone and other utilities; cleaning and sanitary; refurbishing;
extermination; the cost of personnel engaged in the operation, maintenance or
repair of the Building (including, without limitation, salaries, wages, medical,
surgical and general welfare benefits, group insurance, savings and retirement
benefits, payroll taxes, worker's compensation insurance, disability insurance,
the maintenance and repair to the custodian's office (which "custodian" as used
herein shall mean a person who entirely devotes all of or a portion of his
working time to the maintenance and operation of all or a portion of the
Building), the custodian's telephone charges pertaining to the operation of the
Building and the custodian's utilities, and all other fringe benefits); fire
protection; all insurance carried by Landlord applicable to the Building
(including, without limitation, primary and excess liability, and further
including vehicle insurance, fire and extended coverage, vandalism and all broad
form coverages (including what is commonly known as "all risk" coverage)
including, without limitation, riot, strike, and war risk insurance, flood
insurance, boiler insurance, plate glass insurance, rent insurance and sign
insurance); management fees, legal (other than those for preparation of this and
other leases) and accounting fees, commissions and charges; damages and other
losses; taxes (including, without limitation, sales and use taxes); energy;
security systems, security personnel, traffic systems, and traffic personnel; at
Landlord's option, depreciation reserves for capital expenditures (determined by
using reasonably estimated costs and useful lives), the cost of Capital
Improvements designed to protect the health and safety of the tenants in the
Building, any other costs and expenses in connection with the operation,
maintenance and repair of the Building; a pro rata portion of any costs and
expenses in connection with the operation maintenance and repair of any part of
the following:
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1. the "Related Facilities" (as defined in Section 10.01
hereof) used or available for use by buildings other than the Building, and
2. any part of those roads, ways, walks, and other areas
whether forming part of the Real Property or used in connection with the Real
Property and whether dedicated to any municipal authority or used in common with
others (sometimes collectively called "Real Property Common Areas"), it being
understood that pro-ration shall be based upon the respective number of square
feet of the buildings involved;and 15% of all of the foregoing costs and
expenses referred to in this Section 6.01A to cover Landlord's administrative
supervision, overhead and general conditions. Excluded from the foregoing,
nevertheless, shall be the following:
(i) any expense to the extent to which Landlord is
compensated by proceeds of insurance or of manufacturer's warranty;
(ii) Taxes, (as defined in Article 10);
(iii) any executive salary above the grade of
superintendent;
(iv) advertising and promotional expenditures;
(v) capital expenditures made to prepare any space in the
Building for any certain tenant;
(vi) interest or amortization on any mortgage on the Real
Property; and
(vii) taxes on rent.
If a cost or expense permissibly shall be included under more than one
category of Costs of Operation, such cost or expense, of course, shall only be
included once where to do so more than once would cause a duplication of, and a
concomitant increase in Costs of Operation. Notwithstanding various provisions
of this Lease which provide that Landlord shall do or perform certain
obligations or services at Landlord's cost and/or expense, the same shall be
included in "Costs of Operation" to the extent that they otherwise would be
pursuant to this Section 6.02A; and this shall be so notwithstanding that in
certain instances throughout this Lease there is specification that a certain
expense shall be a Cost of Operation, while in other instances there is no such
specification.
B. "Base Year" shall mean the calendar year in which this Lease is
executed (or other fiscal period as may be requested by the holder of any
mortgage on the Demised Premises).
C. "Operating Year" shall mean each calendar year after the Base
Year (or other fiscal period as may be requested by the holder of any mortgage
on the Demised Premises), all or part of which falls within the Term.
D. After the end of the Base Year and each Operating Year, Landlord
shall furnish to Tenant a written statement of the Costs of Operation for such
year and shall also show the amount of
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estimated payments, if any, made by Tenant for Costs of Operation during such
year. In the event the Costs of Operation for any Operating Year exceed the
Costs of Operation for the Base Year, within 10 days of submission of such a
written statement, Tenant shall pay Landlord, as additional rent, the
Proportionate Share of such excess; there shall be credited against such excess
any estimated payments made by Tenant with respect to such year, and if such
estimated payments are greater than such excess, then Landlord may credit the
difference against rent next becoming due under this Lease. Every statement
furnished by Landlord pursuant to this Section 6.01(D) hereof shall be
conclusive and binding upon Tenant,
1. unless within thirty (30) days after the receipt of such
statement Tenant shall notify Landlord that it disputes the correctness of the
statement, specifying in detail the respects in which the statement is claimed
to be incorrect; and
2. if such dispute shall not have been settled by agreement
within thirty (30) days after receipt by Landlord of such notice from Tenant,
the dispute shall have been submitted within that time to an independent
certified public accountant chosen by Landlord and Tenant or failing agreement
as to such accountant, either party may request the Chairman of the Real Estate
Section of the Fairfield County Bar Association to so choose such accountant,
whose decision (and where reasonably necessary such decision shall be based upon
the opinion of experts whom such accountant may retain, and, subject to the
reasonable mutual approval of the parties, they shall equally share the cost of
such experts) shall be made within twenty (20) days of such submission and whose
decision shall be final and binding on the parties; and the cost of such
accountant shall be shared equally between the parties.
Pending the determination of such dispute Tenant shall, within ten (10)
days after receipt of such statement, pay additional rent in accordance with
Landlord's statement, but such payment shall be without prejudice. If the
dispute shall be determined in Tenant's favor, Landlord shall, within five (5)
days after notice of such determination, pay Tenant the amount of Tenant's
overpayment of Costs of Operation. Landlord shall promptly submit to Tenant
copies of back-up documentation reasonably necessary to confirm Costs of
Operation and reasonably and specifically requested by Tenant.
E. Landlord shall not cause to be deferred from the Base Year into
an Operating Year Costs of Operation which have been incurred during, and are
properly attributable to, the Base Year primarily in order to reduce Costs of
Operation for the Base Year. Notwithstanding any contrary provision of this
Article 6, Landlord shall extrapolate or adjust Costs of Operation for the Base
Year to 95% occupancy, and if the Building is less than 95% occupied during any
Operating Year, Landlord similarly shall extrapolate the 95% for such Operating
Year.
F. Landlord may submit to Tenant Landlord's estimate, reasonably
determined, of Costs of Operation due and payable or to become due and payable
during any Operating Year, together with the computation thereof and the basis
therefor, in which event on the first day of each month thereafter Tenant shall
pay to Landlord one-twelfth of such estimated sum (plus, if such statement is
submitted after the commencement of the Base Year or any Operating Year, then
one-twelfth of such sum times the number of months, or partial months, which
have elapsed since such commencement). Such payments shall be subject to
adjustment in the same manner as provided in Section 10.07 applicable to Taxes.
G. Landlord's failure to render a statement with respect to
increases in Costs of Operation for any Operating Year shall not prejudice
Landlord's right to thereafter render a statement with respect thereto or with
respect to any subsequent Operating Year.
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6.02 Notwithstanding any contrary provisions of Section 6.01 hereof,
Landlord, at Landlord's option, may, at any time and from time to time,
calculate applicable sums under Section 6.01 of this Lease on a fiscal year
basis rather than on a calendar year basis. In such event, if less than a full
fiscal year is involved, appropriate adjustments and prorations shall be made.
In the event of such fiscal year calculations, if the Expiration Date shall not
be coterminous with the end of the calendar year, then such prorations shall be
based upon Landlord's estimate as provided in Section 6.01G hereof.
ARTICLE 7
Heat, Ventilating and Air Conditioning
7.01 As long as Tenant is not in default under any of the terms,
covenants or conditions of this Lease on Tenant's part to be observed or
performed, but subject to Section 11.06 hereof, Landlord shall furnish to the
Demised Premises through the Building heating, ventilating and air conditioning
system(s) heated, outside and conditioned air, at reasonable temperatures,
pressures and degrees of humidity and in reasonable volumes and velocity, during
Standard Business Hours. If Tenant shall require ventilating and air
conditioning service or heating service at any time other than Standard Business
Hours (hereinafter called "after hours"), Landlord shall furnish after hours
ventilating and air conditioning service or heating service upon reasonable
advance notice from Tenant, and Tenant shall pay Landlord therefor, as
additional rent, and upon rendition of a bill therefor, the After Hours
Ventilating Charge, After Hours Air Conditioning Charge or After Hours Heat
Charge, as applicable. The After Hours Ventilating Charge, After Hours Air
Conditioning Charge and After Hours Heat Charge shall be subject to adjustment
upward from time to time by the same percentage as the increase in the rates of
the applicable utilities or other energy sources (or, if a combination thereof,
then of the weighted average of the components) used to provide the respective
service.
7.02 Any damage caused to the heating, air conditioning, and ventilating
equipment, appliances or appurtenances as a result of the negligence of, or
careless operation of the same by, Tenant or its agents, servants, employees,
licensees, invitees, or visitors shall be repaired by Landlord, and the cost and
expense thereof shall be paid by Tenant, as additional rent, within ten (10)
days after being billed therefor.
7.03 Landlord will not be responsible for the failure of the
air-conditioning systems to adequately cool and dehumidify the Demised Premises
if such failure result from the occupancy of the Demised Premises with more than
an average or one person for each one hundred fifty (150) square feet of the
Leased Floor Space or if Tenant installs and operates machines and appliances ,
the installed electrical load of which when combined with the load of all
lighting fixtures exceeds five (5) watts per square foot of the Leased Floor
Space in any one room or other area. If due to use of the Demised Premises in a
manner exceeding the aforementioned occupancy and electrical load criteria, or
due to rearrangement of partitioning after the initial preparation of the
Demised Premises, interference with normal operation of the air conditioning in
the Demised Premises results, necessitating changes in the air conditioning
system servicing the Demised Premises, such changes shall be made by Landlord
upon written notice to Tenant at Tenant's sole cost and expense. Tenant agrees
to keep all windows closed, and to lower and close window coverings when
necessary because of the sun's position whenever the said air conditioning
system is in operation, and Tenant agrees at all times to cooperate fully with
Landlord and to abide by all the regulations and requirements which Landlord may
prescribe for the proper functioning and protection of the said air conditioning
system. Landlord, throughout the Term, shall have free and unrestricted access
to any and all air conditioning facilities in the Demised Premises. Landlord
shall not be required to furnish, and Tenant shall not be entitled
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to receive any air conditioning during any period wherein Tenant shall be in
default in any material provision of this Lease.
ARTICLE 8
Use, Building Name and Tenant Identification
8.01 Tenant shall not suffer or permit the Demised Premises or any part
thereof to be used in any manner, or anything to be done therein, or suffer or
permit anything to be brought into or kept therein which would in any way
A. violate any of the provisions of any grant, lease, or mortgage
to which this Lease is subordinate,
B. violate any laws or requirements of public authorities,
C. make void or voidable any fire or liability insurance policy
then in force with respect to the Building,
D. make unobtainable from reputable insurance companies authorized
to do business in Connecticut at standard rates any fire insurance with extended
coverage, or liability, elevator or boiler or other insurance required to be
furnished by Landlord under the terms of any lease or mortgage to which this
Lease is subordinate,
E. cause or in Landlord's reasonable opinion be likely to cause
physical damage to the Building or any part thereof,
F. constitute a public or private nuisance,
G. impair in the reasonable opinion of the Landlord the appearance,
character or reputation of the Building,
H. result in members of the general public loitering in, on or
about the Building or the Real Property,
I. discharge objectionable fumes, vapors or odors into the Building
air conditioning system or into Building flues or vents not designed to receive
them or otherwise in such manner as may unreasonably offend other occupants,
J. impair or interfere with any of the Building services or the
proper economic heating, cleaning, air conditioning or other servicing of the
Building or the Demised Premises or impair or interfere with or tend to impair
or interfere with or tend to impair or interfere with the use of any of the
other areas of the Building by, or occasion discomfort, annoyance or
inconvenience to, Landlord or any of the other tenants or occupants of the
Building, or
K. cause Tenant to default in any of its other obligations under
this Lease.
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The provisions of this Section, and the application thereof, shall not
be deemed to be limited in any way to or by the provisions of any of the other
Sections of this Article or any of the Rules and Regulations referred to in
Article 28 or Exhibit "B" attached hereto, except as may therein be expressly
otherwise provided.
8.02 The "Permitted Use" of the Demised Premises for the purposes
specified in Article 1 hereof shall not in any event be deemed to include, and
Tenant shall not use, or permit the use of, the Demised Premises or any part
thereof for
A. sale of, or traffic in, any spirituous liquors, wines, ales or
beer kept in the Demised Premises;
B. sale at retail or any other products or materials kept in the
Demised Premises, by vending machines or otherwise, or demonstrations to the
public, except as may be specifically agreed to by Landlord in writing;
C. manufacturing, printing, or electronic data processing, except
for the operation of normal business office reproducing and printing equipment,
business machines and electronic data processing equipment incidental to the
conduct of Tenant's business and for Tenant's own requirements at the Demised
Premises; provided that, such use shall not exceed that portion of the
mechanical or electrical capabilities of the Building equipment allocable to the
Demised Premises;
D. the rendition of medical, dental or other diagnostic or
therapeutic services;
E. the conduct of a public auction of any kind;
F. the conduct of a banking, trust company, savings bank, safe
deposit, savings and loan association or loan company business;
G. the issuance and sale of traveller's checks, foreign drafts,
letters of credit, foreign exchange or domestic money orders (except as is
incidentally required in conduct of Tenant's normal business activity);
H. the receipt of money for transmission (except as is incidentally
required in conduct of Tenant's normal business activity); or
I. a restaurant, bar, or the sale of confectionery, tobacco,
newspapers, magazines, soda, beverages, sandwiches, ice cream, baked goods or
similar items, or the preparation, dispensing or consumption of food and
beverages in any manner whatsoever. 8.03 If any governmental license or permit,
other than a certificate of occupancy, shall be required for the proper and
lawful conduct of Tenant's business in the Demised Premises, or any part
thereof, and if failure to secure such license or permit would in any way affect
Landlord, then Tenant, at its expense, shall duly procure and thereafter
maintain such license or permit, but in no event shall failure to procure and
maintain same by Tenant affect Tenant's obligations hereunder. Tenant shall not
at any time use or occupy, or suffer or permit anyone to use or occupy the
Demised Premises, or do or permit anything to be done in the Demised Premises,
in violation of the certificate of occupancy for the Demised Premises or for the
Building.
8.04 Tenant shall not place a load upon any floor of the Demised
Premises exceeding the floor load
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per square foot which such floor was designed to carry and which is allowed by
certificate, rule, regulation, permit or law. Landlord reserves the right to
prescribe the weight and position of all safes and vaults which must be placed
by Tenant, at Tenant's expense. Business machines and mechanical equipment shall
be placed and maintained by Tenant, at Tenant's expense, in such manner as shall
be sufficient in Landlord's judgment to absorb and prevent vibration, noise and
annoyance.
8.05 Landlord reserves the right to select a name for the Building and
to make such a change or changes of name as it may deem appropriate during
Tenant's occupancy, and Tenant agrees not to refer to the Building by any other
name than (a) the name as selected by the Landlord, or (b) the postal address
approved by the U.S. Post Office.
8.05 A. At any time during the pendency of this Lease, Landlord may at
its cost, relocate the Tenant into another comparable space in the Building.
8.06 A. Landlord shall furnish and install a Building directory for
tenants' listings in the ground floor lobby. Tenant shall submit its Building
directory listings with its final plans, which listings shall be limited to one
(1) per one thousand (1,000) square feet of Leased Floor Space.
B. Landlord shall furnish and install all such initial listings at
its sole cost and expense. Any changes or additional listings shall be furnished
and installed at Tenant's cost and expense.
C. Tenant, at its sole cost and expense, shall furnish and install
its identification on its entrance door. The design of such identification must
conform to the Building standard, be approved by Landlord and shall be
fabricated and installed by a contractor that meets Landlord's approval.
D. Should Landlord provide an exterior directory, Tenant may be
represented with its business name on said directory at Tenant's cost and
expense.
ARTICLE 9
Changes in the Building and Access
9.01 All walls, windows, and doors bounding the Demised Premises
(including exterior Building walls, core corridor walls and doors and any core
corridor entrance), except the inside surface thereof, any terraces or roofs
adjacent to the Demised Premises, and space in or adjacent to the Demised
Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or
other utilities, sinks or other Building facilities, and the use thereof, as
well as access thereto through the Demised Premises for the purposes of
operation, maintenance, decoration and repair, are reserved to Landlord.
9.02 Tenant shall permit Landlord to install, use and maintain pipes,
ducts and conduits within or through the Demised Premises, or through the walls,
columns and ceilings therein, provided that the installation work is performed
at such times and by such methods as will not unreasonably interfere with
Tenant's use and occupancy of the Demised Premises, or damage the appearance
thereof, reduce the Leased Floor Space by more than two (2%) percent (without an
appropriate adjustment in rent) or materially affect Tenant's layout. Where
access doors are required for mechanical trades in or adjacent to the Demised
Premises, Landlord shall furnish and install such access doors and confine their
location wherever practical to closets, coat rooms, toilet rooms, corridors, and
kitchen or pantry rooms. Landlord and Tenant shall
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cooperate with each other in the location of Landlord's and Tenant's facilities
requiring such access doors.
9.03 Landlord reserves the right, at any time after completion of the
Building, without incurring any liability to Tenant therefor, to make such
changes in or to the Building and the fixtures and equipment thereof, as well as
in or to the street entrances, halls, passages, elevators, and stairways
thereof, as it may deemed necessary or desirable; provided that there be no
unreasonably lengthy interference with the use of the Demised Premises or in the
services furnished to the Demised Premises, and no reduction in the Leased Floor
Space in excess of two (2%) percent without an appropriate adjustment of rent.
9.04 Landlord or Landlord's agents or employees shall have the right
upon request made on reasonable advance notice to Tenant, or to an authorized
employee of Tenant at the Demised Premises, to enter and/or pass through the
Demised Premises or any part thereof, at reasonable times during reasonable
hours, (a) to examine the Demised Premises or to show them to lessors of
superior leases, holders of mortgages, insurance carriers, or prospective
purchasers, mortgagees, or lessees of the land or the Building, or prospective
tenants, and (b) for the purpose of making such repairs or changes in or to the
Demised Premises or in or to the Building or its facilities as may be provided
for by this Lease or as Landlord may deem necessary or as Landlord maybe
required to make by law or in order to repair and maintain the Building or its
fixtures or facilities. Landlord shall be allowed to take into and store upon
the Demised Premises all materials which may be required for such repairs,
changes, or maintenance. However, Landlord's rights under this Section shall be
exercised in such a manner as will not unreasonably interfere with Tenant's use
and occupancy of the Demised Premises. Landlord, its agents, or employees, shall
also have the right to enter on and/or pass through the Demised Premises, or any
part thereof without notice at such times as such entry shall be required by
circumstances of emergency affecting the Demised Premises or the Building,
included among the foregoing emergencies shall be a situation where water has
entered the Demised Premises, in which event upon Landlord learning thereof
Landlord may enter the Demised Premises and remove such water, and unless caused
by Landlord's negligence, Tenant shall pay Landlord for the cost of such removal
as additional rent.
9.05 Landlord may limit and restrict, as provided in the Rules and
Regulations attached hereto as Exhibit "B", the means of access to the Demised
Premises outside of Standard Business Hours, so long as Tenant's employees and
authorized agents have reasonable access to all parts of the Demised Premises.
Tenant, and its agents, employees and visitors shall be entitled to access from
the Demised premises to, and the right to use, the toilets, lavatories, and
powder rooms only on the floor (or floors) on which the Demised Premises are
located.
ARTICLE 10
Real Estate Tax Changes and Resulting Rent Adjustments
10.01 As used herein:
A. "Taxes" shall mean all real estate taxes, school taxes, sewer
rates and charges, assessed, levied or imposed upon the Real Property, as
hereinafter defined, and, if any, the facilities, whether or not located on the
Real Property, used in connection with and for the benefit of the Building and
any other building or buildings (such as but not limited to, chilled water,
heating and air conditioning facilities), which facilities are sometimes called
"Related Facilities", and all assessments (other than those specified in Section
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10.03 hereof), transit taxes or other Governmental charges, general, specific,
ordinary or extraordinary, foreseen or unforeseen, assessed, levied or imposed
upon the Real Property and Related Facilities, and "Tax" shall be any of such
taxes.
B. "Real Property" shall be the land upon which the Building
stands, the Building, and the land, and the improvements thereon, adjoining the
Building, and used in connection with the Building for parking or other
purposes. Excluded from the Real Property is the building adjoining the Building
and know as 999 High Ridge Road ("999 Building") (unless the same is not
separately assessed, in which event Section 10.06 shall pertain), but included
in the Real Property is the land on which the 999 Building stands forming part
of the same tax lot or lots as those of the land on which the Building stands.
C. "Tax Rates" shall be the levy per $1,000 of assessed valuation
as imposed by each of the taxing authorities affecting the Real Property and
Related Facilities; and "Base Tax Rate" with respect to each Tax, shall mean the
respective Tax Rates in effect on the date of this Lease.
D. "Base Assessment" shall mean the assessment by each of the
taxing authorities affecting the Real Property and the Related Facilities in
effect on the date of this Lease as the same may be adjusted pursuant to Section
10.02.C.2 hereof.
E. "Tax Year" shall mean any calendar year all or a portion of
which falls within the Term.
10.02 Tenant shall pay Landlord, as additional rent, increases in Taxes,
which additional rent shall be computed and paid as follows:
A. The respective "Base Taxes" shall mean the respective Base Tax
Rate multiplied by the respective Base Assessment.
B. If any of the respective Taxes payable during and attributable
to any Tax Year shall exceed the respective Base Taxes, Tenant shall pay to
Landlord as additional rent (1) insofar as the Real Property is concerned, the
Proportionate Share of such excess, and (2) insofar as the Related Facilities
are concerned, the Proportionate Share of that portion of such excess which the
square footage of the Building bears to the total square footage of all
buildings benefiting from the Related Facilities. In determining Base Year Taxes
there shall be deducted from the Base Assessment and subsequent assessments of
the Real Property that percentage of the assessed valuation of the land
comprising the Real Property as the number of rentable square feet in the 999
Building bears to the Total Floor Space, to wit, 7.28%. Such payment shall be
made on the first day of the month following rendition of a statement therefor
by Landlord to Tenant setting forth the amount of additional rent due.
C. Notwithstanding the foregoing, in determining Base Taxes, and
Taxes for any Tax Year:
1. any tax abatement or partial assessment granted by any
taxing authority as a tax inducement shall be disregarded;
2. in the event of any partial assessment(s) of the Building
based upon less than full completion thereof, then the Base Assessment and any
other partial assessment (and Base Taxes and Taxes)
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shall be projected to assessment as a fully-completed building for purposes of
determining the excess, if any, payable by Tenant under Section 10.02 hereof
until full assessment actually occurs. Upon such full assessment, appropriate
adjustments shall be made, if necessary, to any projections so made and any
excess paid or payable based thereon; and any amounts payable as a result of
such adjustments from Landlord to Tenant or Tenant to Landlord, as the case may
be, shall be paid in accordance with the provisions of Section 10.07 hereof. In
the event that at any time under this Lease the Base Assessment is based upon
other than a fully completed building, then once such full assessment occurs,
the Base Assessment shall be revised and adjusted accordingly to reflect such
full assessment.
3. if the Commencement Date or Expiration Date shall occur on
a date other than January 1 or December 31, respectively, any additional rent
under Section 10.02 for the Tax Year in which the Commencement Date or
Expiration Date shall occur, as the case may be, shall be appropriately
prorated. In the event of a termination of this Lease, any additional rent under
this Article 10 shall be paid or adjusted within 20 days after submission of a
Landlord's Statement. In the event the Taxes for such Tax Year have not been
determined as of the Expiration Date, then, at Landlord's option, such
prorations shall be based upon Taxes in effect during the immediately preceding
last full Tax Year or upon Landlord's estimate as provided in Section 10.07
hereof. In no event shall Base Rent ever be reduced by operation of this Article
10. The rights and obligations of Landlord and Tenant under the provisions of
this Article with respect to any additional rent shall survive the Expiration
Date or any sooner termination of the Term.
10.03 Tenant shall pay to Landlord, as additional rent, an amount equal
to the Proportionate Share (or lesser share as computed under Section 10.02B
hereof if applicable) of any assessments or installments thereof for public
betterments or improvements which may hereafter be levied upon or be payable
with respect to, the Real Property or Related Facilities. If any such assessment
is payable in installments over a period of time, Tenant shall be obligated to
pay only that percentage of the installments of any such assessments, together
with interest thereon, which shall become due and payable during the Term.
Payment shall be made by Tenant to Landlord on the rent payment date next
following the issuance of a bill therefor by Landlord to Tenant.
10.04 Tenant shall pay as additional rent all increases in Taxes which
may be attributable to additions or improvements to the Demised Premises made by
Tenant or on Tenant's behalf (exclusive of the building standard improvements or
additions to be provided by Landlord, at Landlord's cost and expense
contemplated by Exhibit D2). Payment shall be made by Tenant to Landlord on the
rent payment day next following the issuance of a bill therefor by Landlord to
Tenant.
10.05 If at any time prior to the establishment of the Base Taxes the
taxing authorities change the standards or methods utilized in arriving at
Taxes, then and in such event calculations under Section 10.02 shall be made by
applying such factor or factors to the new standards or methods as may be
necessary to make the calculation of increases under Section 10.02 on the same
basis as that in effect on the date of execution of this Lease.
10.06 In the event that, at any time, the Real Property is assessed for
Tax purposes with other property owned by Landlord, and the taxing authorities
are unwilling to separately assess or tax the properties, the tax ascribable to
the Real Property shall be such portion of the Tax on the entire properties as
the value of the Real Property bears to the value of the entire properties, as
such values are determined by the Assessor of the municipality in which the Real
Property is located. An informal apportionment by such Assessor of the total
assessment of such Real Property shall be binding upon the parties hereto.
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10.07 Notwithstanding the provisions of Section 10.02, Landlord may
submit to Tenant Landlord's estimate, reasonably determined, of any increase in
Taxes due and payable during the immediately succeeding Tax Year over the Base
Taxes, together with the computation thereof and the basis therefor. If an
increase is so estimated, then on the first day of each month during the
immediately succeeding Tax Year Tenant shall pay to Landlord one-twelfth of such
estimated increase (plus, if such statement is submitted after the commencement
date of any other Tax Year, one-twelfth of such estimated increase times the
number of months, or parts thereof, which have elapsed since said commencement
date). Within 30 days following the end of the Tax Year, Landlord shall submit
to Tenant a statement showing the Base Taxes and the aggregate amount of such
estimated payments made by Tenant during such Tax Year. To the extent that such
estimated payments are less than the amount of such actual increase in Taxes
over the Base Taxes, Tenant shall pay to Landlord the difference within 10 days
next following rendition by Landlord of an invoice therefor; to the extent that
such estimated payments are greater than such actual excess of Taxes over Base
Taxes, the difference shall be credited against the next monthly installment or
installments of Base Rent until paid, or if the last lease year is involved,
such difference shall be paid to Tenant within 10 days of rendition of such
Landlord's statement. In the event that the holder of any "superior mortgage"
(as defined in Article 24 hereof) shall notify Tenant and Landlord that such
holder requires that anyexcess owing by Landlord be paid by Landlord rather than
so applied against Base Rent, then the foregoing provision shall be deemed
amended accordingly. Such holder shall not be liable for payment of any excess
except to the extent that it has received monies, either from Landlord or
directly from Tenant, representing such excess.
10.08 Landlord's failure to render a statement with respect to increases
in Taxes for any Tax Year shall not prejudice Landlord's right to thereafter
render a statement with respect thereto or with respect to any subsequent Tax
year.
10.09 At Landlord's option, Landlord may, at any time and from time to
time, commence a protest, action or proceeding (a) to reduce the Base
Assessment, (b) for a refund of Taxes and/or (c) for a reduction in Taxes
applicable to any Tax Year. In the event that any such action is successful in
reducing the Base Assessment or in reducing the assessment of the Real Property
below the Base Assessment, then notwithstanding Section 10.01 hereof, (i) such
reduced Base Assessment or assessment below the Base Assessment thereafter shall
be deemed the new Base Assessment for purposes of computations under Section
10.02 and for refunds as hereinafter provided, and (ii) Tenant shall pay to
Landlord, as additional rent, the Proportionate Share of the amount of such
decrease with respect to any Tax Years for which Tenant was responsible to pay
increases in Tax pursuant to Section 10.02 hereof. If Landlord shall receive a
refund for any Tax Year, Tenant shall be entitled to that portion of any refund
applicable to increases in Taxes over Base Taxes, payment for which shall have
been made by Tenant as additional rent (including any interest paid on such
refund by the taxing authorities), but not in excess of the amount of additional
rent paid by Tenant for the respective Section 10.02 increase on account of such
Tax Year, after deducting from such refund and interest that portion (or all, as
the case may be) of the costs and expenses (including experts' and attorneys'
fees) of obtaining such refund; and Landlord shall be entitled to any refund
applicable to the Base Taxes, and any reduction thereof, (including any interest
paid on such refund by the taxing authorities) after deducting from such refund
and interest that portion (or all, as the case may be) of the costs and expenses
(including experts' and attorneys' fees) attributable to such refund or
reduction benefiting Landlord. With respect to costs and expenses (including
experts' and attorneys' fees) attributable to any such protest, action or
proceeding referred to in this Section 10.09 (other than where Landlord receives
a refund, from which such costs and expenses shall be deducted, as hereinabove
provided) Tenant shall pay to Landlord the Proportionate Share of such costs and
expenses, as additional rent, unless such protest, action or proceeding pertains
solely to a reduction in Base Taxes paid or to be paid by Landlord, in which
event Landlord shall be responsible for such costs and expenses.
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ARTICLE 11
Landlord's Services
11.01 Landlord, as a Cost of Operation, shall furnish adequate hot and
cold water to the floor or floors on which the Demised Premises are located for
drinking, lavatory, toilet and ordinary cleaning purposes.
11.02 Landlord shall, as a Cost of Operation, keep clean, and in good
order and repair, the public areas and the public facilities of the Building.
11.03 Landlord, as a Cost of Operation, shall provide public elevator
services to the floor(s) on which the Demised Premises are situated during
Standard Business Hours, and shall have a least one (1) elevator subject to call
at all other times. The elevator(s), or any or all of them, if more than one,
may be operated by automatic control, and/or by manual control, as Landlord
shall determine at any time or from time to time. Landlord shall not be
obligated to furnish an operate for any automatic elevator and shall have no
liability to Tenant for discontinuing the service of any operator theretofore
furnished. If Tenant shall require Saturday or after hours service of
elevator(s) or of the loading area in the Building under such circumstances as,
in Landlord's reasonable judgment, will require service or attention by
Landlord's personnel, Tenant shall pay Landlord, on demand, a reasonable charge
attributable to such service or attention.
11.04 Provided that Tenant shall keep the Demised Premises in good
order, Landlord, as a Cost of Operation, shall cause the Demised Premises,
including the exterior and the interior of the windows thereof (subject to
Tenant maintaining unrestricted access to such windows), to be cleaned in
accordance with the standards set forth in Exhibit "C" annexed hereto and hereby
made a part hereof. Tenant will not clean, nor require, permit, suffer or allow
any window in the premises to be cleaned from the outside. Tenant shall pay to
Landlord on demand the costs incurred by Landlord for (a) cleaning work in the
Demised Premises or the Building or otherwise on or about the Building required
because of (1) misuse or neglect on the part of Tenant or its employees or
visitors, (2) use of portions of the Demised Premises for preparation, serving
or consumption of food or beverages, reproducing operations, private lavatories
or toilets or other special purposes requiring greater or more difficult
cleaning work other than office area, (3) interior glass surfaces, (4)
non-building standard materials or finishes installed by Tenant or at its
request, (5) increases in frequency or scope in any of the items set forth in
Exhibit "C" as shall have been requested by Tenant, and (b) removal from the
Demised Premises and the Building of (1) so much of any refuse and rubbish of
Tenant as shall exceed that normally accumulated daily in the routine or
ordinary business office occupancy and (2) all of the refuse and rubbish of
Tenant's machines and the refuse and rubbish of any other eating facilities
requiring special handling (known as "wet garbage"). Landlord and its cleaning
contractor and their employees shall have after hours access to the Demised
Premises and the use of Tenant's light, power and water in the Demised Premises
as may be reasonably required for the purpose of cleaning the Demised Premises.
Extraordinary waste (such as crates, cartons, boxes, etc., and used furniture or
equipment) shall be removed from the Building by Tenant at Tenant's own cost and
expense. At no time shall Tenant place any waste of any kind in any public
areas. If Tenant does so, the parties agree that everything so placed shall be
deemed abandoned and of no value to Tenant and Landlord may have the same
removed and disposed of at Tenant's expense.Such expense shall be deemed
additional rent payable by Tenant within ten (10) days after being billed
therefor. This remedy is in addition to any other remedies Landlord may have
under this Lease.
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11.05 With respect to parking of vehicles:
A. Landlord represents that throughout the Term there will be a
paved, illuminated parking area for the Building with the number of Common
Parking Spaces specified in Article 1. Tenant shall require its personnel and
visitors to park their vehicles only in Common Parking Spaces designated by
Landlord for Tenant's use for its personnel and visitors on a "first come, first
served" basis. Landlord reserves the right at all times to redesignate such
Common Parking Spaces. Tenant, its personnel and visitors shall not at any time
park any trucks or delivery vehicles in any of the parking areas. Common Parking
Spaces shall be provided at no additional cost to Tenant.
B. There shall not be overnight parking except in that portion, if
any, of the parking area designated by Landlord for overnight parking
("overnight parking area"), and Tenant shall, and shall cause its personnel and
visitors to, remove their automobiles from the parking area except any overnight
parking area at the end of the working day. If any automobile owned by Tenant or
by its personnel or visitors remains in the parking area overnight except any
overnight parking area and the same interferes with the cleaning or maintenance
of said areas (snow or otherwise,) any costs or liabilities incurred by Landlord
in removing said automobile to effectuate cleaning or maintenance, or any
damages resulting to said automobile or to Landlord's equipment or equipment
owned by others by reason of the presence of or removal of said automobile
during such cleaning or maintenance shall be paid by Tenant to Landlord, as
additional rent on the rent payment date next following the submission of a bill
therefor.
C. All Common Parking Spaces and any other parking areas, roadways,
and driveways used by Tenant, its personnel and visitors will be at their own
risk, and Landlord shall not be liable for any injury to person or property, or
for loss or damage to any automobile or its contents, resulting from theft,
collision, vandalism, or any other cause whatsoever. Landlord shall have no
obligation whatsoever to provide a guard or any other personnel or device to
patrol, monitor, guard or secure any parking areas; if Landlord does so provide,
it shall be solely for Landlord's convenience, and Landlord shall in no way
whatsoever be liable for any acts or omissions of such personnel or device in
failing to prevent any such theft, vandalism, or loss or damage by other cause.
11.06 Landlord reserves the right, without any liability to Tenant,
except as otherwise expressly provided in this Lease, and without being in
breach of any covenant of this Lease, to stop, interrupt, or suspend service of
any of the heating, ventilating, air conditioning, electric, sanitary, elevator
or other Building systems serving the Demised Premises, or the rendition of any
other services required of Landlord under this Lease, whenever and for so long
as may be necessary, by reason of accidents, emergencies, the making of repairs
or changes which Landlord is required by this Lease or by law to make or in good
faith deems advisable, or by reason of difficulty in securing proper supplies of
fuel, steam, water, electricity, labor or supplies, or by reason of Events of
Force Majeure. In each instance Landlord shall exercise reasonable diligence to
eliminate the cause of stoppage and to effect restoration of service and shall
give Tenant reasonable notice, when practicable, of the commencement and
anticipated duration of such stoppage, and if any work is required to be
performed in or about the Demised Premises for such purpose, the provisions of
Section 14.03 shall apply. Tenant shall not be entitled to any diminution or
abatement of rent or other compensation nor shall this Lease or any of the
obligations of Tenant be affected or reduced by reason of the interruption,
stoppage, or suspense of any of the Building systems or services arising out of
the causes set forth in this Section.
ARTICLE 12
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Energy
12.01 Landlord agrees to bear the cost of electrical energy involved in
furnishing to Tenant the services described in Article 11, except that Tenant
shall be responsible for providing electricity for lighting and power, at
Tenant's expense, for cleaning the Demised Premises as provided in Section 11.04
hereof.
12.02 Tenant covenants and agrees that at all times its use of
electrical current shall not exceed the capacity of existing feeders to the
Building or the risers, conduits, or wiring installation in the Building, and
Tenant shall not use any electrical equipment which, in Landlord's opinion
reasonably exercised, will overload such installations or interfere with the use
thereof by other tenants of the Building.
12.03 If pursuant to Article 1 hereof, Tenant shall purchase from
Landlord at the Electric Energy Charge all electrical energy consumed or used by
Tenant in the Demised Premises:
A. Landlord agrees to supply electric energy to the Demised
Premises during Standard Business Hours at the Electric Energy Charge, as
specified in Article 1 hereof, and as adjusted pursuant to Section 12.03C
hereof, which shall be added to the Base Rent hereunder and paid in accordance
with Section 3.02 hereof. Such supply of electric energy under this Section
12.03A shall, in the absence of Landlord's written consent to a greater load, be
limited to a total electrical connected load of five (5) watts per square foot
of the Leased Floor Space for Tenant's ordinary lighting and ordinary electric
office equipment, and no individual piece of equipment or any type of fixture
requiring electric power in excess of one thousand eight hundred (1,800) watts
shall be installed, maintained, or operated by Tenant without Landlord's prior
written consent.
B. Upon receipt of Tenant's request to exceed the five (5) watts
limitation aforementioned, Landlord shall retain a licensed professional
engineer, at Tenant's expense, to inspect the proposed equipment and/or fixtures
and calculate the connected load. The finding and calculations shall be deemed
conclusive between the parties.
For such excess electricity provided in this Section 12.03B, and
for the use of electricity during other than Standard Business Hours on business
days, Tenant shall pay to Landlord monthly, as additional rent, the amounts
provided in Section 1.02B, as said amounts may be adjusted to reflect any
increases in the "Utility Year Electric Rate" over the "Base Electric Rate" as
provided in Section 12.03C hereof.
C. In the event that the average kilowatt hour rate of electricity
("Utility Year Electric Rate") during any "utility year" (which shall mean the
twelve month period commencing with the end of the month in which the
Commencement Date occurs and each subsequent period of twelve months) exceeds
the kilowatt hour rate of electricity which (1) is specified in Section 1.02C
hereof, or (2) if not so specified, then, if the Building has been occupied
(adjusted for ninety-five (95%) percent or full occupancy, at Landlord's
option), during the twelve months immediately preceding the month in which this
Lease is fully executed, is the average kilowatt hour rate ofelectricity during
such period ("Base Electric Rate"), then Tenant shall pay Landlord, as
additional rent, within ten (10) days after notice thereof, a sum computed by
multiplying the percentage of such excess by the Electric Energy Charge and then
multiplying the product of such calculation by the Leased Floor Space. The Base
Electric Rate (unless specified in Section 1.02C hereof) and the Utility Year
Electric Rate shall be computed by dividing the total number of kilowatt hours
consumed by or through Landlord at the Real Property during each respective
period into the total cost of such consumption
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during each respective period, all as shown on the bills (or if more than one
meter is included on such bills then that portion of such bills applicable to
the appropriate measuring meter) of the utility company supplying electrical
energy to the Real Property. The cost of such consumption shall include demand
charges, consumption charges, fuel adjustments, applicable taxes and all other
costs and charges included on said utility company bills. If the last period of
the Term does not include a full Lease Year, the additional rent due under this
Section 12.03C for such period shall be prorated to the Expiration Date and
shall be computed based upon (i) electric utility bill or bills, if any, issued
to Landlord for such last period up to and including the last full month of the
Term, and/or (ii) if less than a full month is involved, the electric utility
bill issued to Landlord for the month immediately preceding that in which
occurs, and projected to, the Expiration Date.
Notwithstanding the foregoing, in the event that the Base Electric
Rate is not specified in Section 1.02C hereof, and the Building has not been
occupied for a twelve month period, then the Base Electric Rate shall mean the
kilowatt hour rate of electricity applicable at the time of execution of this
Lease, which rate shall be determined at the end of such twelve month period
based upon (x) the average number of kilowatt hours of electricity consumed
during such period (adjusted for ninety-five (95%) percent or full occupancy, at
Landlord's option), which quantity it is expected will remain relatively
constant during each subsequent twelve month period, and (y) those charges,
taxes, costs and other items, which are included in arriving at the cost of
consumption, as hereinabove provided, at the rates which were applicable at the
time of execution of this Lease.
D. All electric charges and adjustments under Section 12.03 and
12.04 hereof shall be set forth in written notices by Landlord to Tenant.
12.04 If, pursuant to Article 1 hereof, Tenant shall purchase from
Landlord, as measured by a sub-meter, all electrical energy consumed or used by
Tenant in the Demised Premises, then Landlord shall supply electric energy to
the Demised Premises. No individual piece of equipment or any type of fixture
requiring electric power in excess of one thousand eight hundred (1,800)
volt-amperes shall be installed, maintained, or operated by Tenant without
Landlord's prior writtenconsent. Such electricity shall be measured by a
sub-meter or check meter to be installed by Landlord at Tenant's cost and
expense. Landlord shall cause Tenant's electric sub-meter to be read at regular
intervals. Upon receipt by Landlord of an invoice from the utility company
supplying electricity to the Building, Landlord shall bill Tenant for the number
of kilowatt hours shown on the latest reading of Tenant's sub-meter at the
kilowatt charge reflected on the applicable utility rate schedule for such
number of kilowatts. Such charge shall include demand charges, consumption
charges, fuel adjustment, taxes and all other cost and charges which would be
included if a bill were sent by such utility directly to Tenant based
exclusively upon Tenant's consumption. In the event that periods covered by the
utility company meter reading and Landlord's reading of Tenant's sub-meter are
not the same and any change in the average per kilowatt hour charge should occur
during that time when the periods are not the same, then Landlord shall make an
appropriate adjustment on its bill to Tenant. Tenant shall pay the amount of
Landlord's bill, as additional rent, within ten (10) days of submission thereof
by Landlord.
12.05 Notwithstanding any contrary provision of this Article 12,
Landlord, at Landlord's option, may, at any time or from time to time, submit to
Tenant Landlord's estimate, reasonably determined, of any or all sums due and
payable or to become due and payable pursuant to this Article 12 during any
utility year, together with the basis therefor, in which event on the first day
of each month thereafter Tenant shall pay to Landlord one-twelfth (1/12) of such
estimated sums (plus, if such statement is submitted after the commencement of
any Lease Year, then have elapsed since such commencement). Such estimated sums
shall be credited against the amounts otherwise due under this Article 12; any
deficiency shall be paid by
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Tenant in accordance with the terms of the applicable Section under which such
sum was computed, and any excess sums shall be credited again rent next becoming
due under this Lease.
12.06 Notwithstanding any contrary provisions of this Article 12,
Landlord, at Landlord's option, may, at any time and from time to time,
calculate applicable sums under Article 12 of this Lease on a calendar year
basis rather than on a utility year basis. In such event, if less than a full
calendar year is involved, appropriate adjustments and pro rations shall be
made.
12.07 At the inception of this Lease, Landlord shall supply, at
Landlord's own cost and expense, all electric fluorescent tubing. Thereafter
Tenant may purchase from Landlord, at Landlord's option, all replacements of
electric fluorescent tubing and shall pay Landlord for installing same.
ARTICLE 13
Eminent Domain
13.01 In the event that the land, Building or any part thereof, or the
Demised Premises or any part thereof, shall be taken on condemnation proceedings
or by the exercise of any right of eminent domain or by agreement between any
superior lessors and lessees and/or Landlord on the one hand and any
governmental authority authorized to exercise such right on the other hand,
Landlord shall be entitled to collect from any condemnor the entire award or
awards that may be made in any such proceeding without deduction therefrom for
any estate hereby vested in or owned by Tenant, to be paid out as in this
Article provided. Tenant hereby expressly assigns to Landlord all of its right,
title and interest in or to every such award and also agrees to execute any and
all further documents that may be required in order to facilitate the collection
thereof by Landlord.
13.02 At any time during the Term if title to the whole or substantially
all of the land, Building and/or Demised Premises shall be taken in condemnation
proceedings or by the exercise of any right or eminent domain or by agreement
between any superior lessors and lessees and/or Landlord on the one hand and any
governmental authority authorized to exercise such right on the other hand, this
Lease shall terminate and expire on the date of such taking and the Base Rent
and additional rent provided to be paid by Tenant shall be apportioned and paid
to the date of such taking.
13.03 However, if substantially all of the land or Building is not taken
and if only a part of the entire Demised Premises shall be so taken, this Lease
nevertheless shall continue in full force and effect, except that either party
may elect to terminate this Lease if that portion of the Demised Premises then
occupied by Tenant shall be reduced by more than twenty-five (25%) percent by
notice of such election to the other party given not later than thirty (30) days
after (a) notice of such taking is given by the condemning authority, or (b) the
date of such taking, whichever occurs later. Upon the giving of such notice this
Lease shall terminate on the date of service of such notice and the Base Rent
and additional rent due and to become due, shall be prorated and adjusted as of
the date of the taking. If both parties fail to give such notice upon such
partial taking, and this Lease continues in force as to any part of the Demised
Premises not taken, the rents apportioned to the part taken shall be prorated
and adjusted as of the date of taking and from such date the Base Rent and
additional rent shall be reduced to the amount apportioned to the remainder of
the Demised Premises, and the Proportionate Share shall be recomputed to reflect
the number of square feet of Leased Floor Space remaining in the Demised
Premises in relation to the number of square feet of Total Floor Space remaining
in the Building.
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13.04 Notwithstanding the foregoing provisions of this Article and
subject to the interests of any mortgagee or lessor or grantor under any
superior mortgage or superior lease, Tenant shall be entitled to appear, claim,
prove and receive in the proceedings relating to any taking mentioned in the
preceding Sections of this Article, such portion of each award made therein as
represents the then value of Tenant's Property.
13.05 In the event of any such taking of less than the whole of the
Building which does not result in a termination of this Lease, or in the event
of such a taking of all or any part of the Demised Premises which does not
result in a termination of this Lease, Landlord, at its expense, shall proceed
with reasonable diligence to repair, alter and restore the remaining part of the
Building and the Demised Premises to substantially the same condition as it was
immediately prior to such taking to the extent that the same may be feasible, so
as to constitute a tenantable Building and Demised Premises, provided that
Landlord's liability under this Section shall be limited to the amount received
by Landlord as an award arising out of such taking.
ARTICLE 14
Repairs and Maintenance
14.01 Landlord shall, as a Cost of Operation, keep and maintain the
Building and its fixtures, appurtenances, systems and facilities (including the
central heating, ventilating and air conditioning systems and the central or
core elevator and plumbing systems), serving the Demised Premises, in good
working order, condition and repair (but any auxiliary or supplementary heating,
ventilating or air conditioning units or equipment, plumbing fixtures, serving
only the Demised Premises shall be Tenant's responsibility under Section 14.02
hereof), and Landlord shall, as a Cost of Operation make all repairs to preserve
the strength of the structural components of the Building, interior and
exterior, as and when needed in the Building, except as indicated in the second
sentence of Section 14.02, except further for those repairs for which Tenant is
responsible pursuant to any other provisions of this Lease, and subject to all
other provisions of this Lease, including but not limited to the provisions of
Article 15.
14.02 Tenant shall take good care of the Demised Premises and the
fixtures and appurtenances therein and thereto (including, without limitation,
windows and doors adjoining, or used exclusively in connection with, the Demised
Premises), and at its sole cost and expense shall pay for all repairs thereto,
as and when needed to preserve them in good working order and condition except
as otherwiseprovided in Section 14.01 hereof. In addition, Tenant, at its sole
cost and expense, shall pay for all repairs, ordinary or extraordinary, interior
or exterior, structural or otherwise, in and about the Demised Premises and the
Building as shall be required by reason of (a) the performance or existence of
work by Tenant necessary to suit the Demised Premises to Tenant's initial
occupancy or in connection with Tenant's Changes, (b) the installation, use or
operation of Tenant's Property in the Demised Premises, (c) the moving of
Tenant's Property in or out of the Building, or (d) the misuse or neglect of
Tenant or any of its employees, agents, or contractors. As soon as any such
repair is required, Tenant shall notify Landlord, who shall, in turn, at its
option, either make such repair (at charges computed under Section 4.07 as
though such repairs were "extra materials and work", and Tenant shall pay
Landlord therefor pursuant to Section 4.09) or notify Tenant to make such
repairs. Tenant shall not be responsible, and the Landlord shall be responsible,
for any repairs to the Demised Premises as are required by reason of the
negligence of the Landlord, its employees, agents or contractors.
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14.03 Except as expressly otherwise provided in this Lease, Landlord
shall have no liability to Tenant by reason of any inconvenience, annoyance,
interruption or injury to business arising from Landlord or any tenant making
repairs or changes or performing maintenance services, whether or not Landlord
is required or permitted by this Lease or by law to make such repairs or changes
or to perform such services in or to any portion of the Building or Demised
Premises, or in or to the fixtures, equipment, or appurtenances of the Building
or the Demised Premises, provided that Landlord shall be reasonably diligent
with respect thereto and shall perform such work, except in case of emergency,
at times reasonably convenient to Tenant and otherwise in such manner and to the
extent practical as will not unreasonably interfere with Tenant's use and
occupancy of the Demised Premises.
14.04 When used in this Lease the term "repair" shall be deemed to
include restoration and replacement as may be necessary to achieve and/or
maintain good working order and condition.
ARTICLE 15
Damage and Destruction
15.01 If the Demised Premises and/or access thereto shall be partially
or totally damaged or destroyed by fire or other casualty, then, Landlord shall,
subject to its rights under Section 15.03 hereof, repair the damage and restore
and rebuild the Demised Premises and/or access thereto as nearly as may be
reasonably practical to its condition and character immediately prior to such
damage or destruction, with reasonable diligence after notice to it of the
damage or destruction.
15.02 If the Demised Premises and/or access thereto shall be partially
or totally damaged or destroyed by fire or other casualty not attributable to
the fault, negligence or misuse of the Demised Premises by the Tenant, its
agents or employees under the provisions of this Lease, the rents payable
hereunder shall be abated to the extent that the Demised Premises shall have
been rendered untenantable from the date of such damage or destruction to the
date the damage shall be substantially repaired or restored or rebuilt. Should
Tenant reoccupy a portion of the Demised Premises during the period that the
repair, restoration or rebuilding is in progress and prior to the date that the
same are made completely tenantable, rents allocable to such portion shall be
payable by Tenant from the date of such occupancy to the date the Demised
Premises are made tenantable.
15.03 In case of substantial damage or destruction of the Demised
Premises, Tenant may terminate this Lease by notice to Landlord, if Landlord has
not completed the making of the required repairs and restored and rebuilt the
Demised Premises and/or access thereto within twelve (12) months from the date
of such damage or destruction, and such additional time after such date (but not
to exceed nine {9} months) as shall equal the aggregate period Landlord may have
been delayed in doing so by adjustment of insurance or Events of Force Majeure.
In case the Building shall be so damaged by such fire or other
casualty that substantial renovation, reconstruction or demolition of the
Building shall, in Landlord's opinion, be required (whether or not the Demised
Premises shall have been damaged by such fire or other casualty), then Landlord
may, at its option, terminate this Lease and the Term and estate hereby granted,
by notifying Tenant in writing of such termination, within sixty (60) days after
the date of such damage. If at any time prior to Landlord giving Tenant the
aforesaid notice of termination or commencing the repair and restoration
pursuant to Section 15.01, the holder of a superior mortgage or the lessor of a
superior lease or any person claiming under or
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through the holder of such superior mortgage or the lessor of such superior
lease takes possession of the Building through the foreclosure or otherwise,
such holder, lessor, or person shall have a further period of sixty (60) days
from the date of so taking possession to terminate this Lease by appropriate
written notice to Tenant. In the event that such a notice of termination shall
be given pursuant to either of the next two (2) preceding sentences, this Lease
and the Term and estate hereby granted shall expire as of the date of such
termination with the same effect as if that were the date hereinbefore set for
the expiration of the Term, and the Base Rent and additional rent due and to
become due hereunder shall be apportioned as of such date if not earlier abated
pursuant to Section 15.02. Nothing contained in this Section 15.03 shall relieve
Tenant from any liability to Landlord or to its insurers in connection with any
damage to the Demised Premises or the Building by fire or other casualty if
Tenant shall be legally liable in such respect.
15.04 No damages, compensation or claim shall be payable by Landlord for
inconvenience, loss of business or annoyance arising from any repair or
restoration of any portion of the Demised Premises or of the Building pursuant
to this Article. Landlord shall use its best efforts to effect such repair or
restoration promptly and in such manner as not unreasonably to interfere with
Tenant's use and occupancy.
15.05 Landlord will not carry insurance of any kind on Tenant's Property
or on any work in excess of that amount and kind of building standard work
referred to in Exhibit "D", and, except as provided by law or its breach of any
of its obligations hereunder, shall not be obligated to repair any damage
thereto or replace the same. For purposes of this Article 15 the term casualty
damage, to the extent Landlord is responsible under this Article 15, shall not
be deemed to include damage caused by vandalism, unknown cause or other act not
normally covered under fire and extended coverage insurance policies applicable
to office buildings in the area in which the Building is located, if such causes
are included in the repair obligations under Article 15 hereof for which Tenant
is responsible to pay.
15.06 The provisions of this Article shall be considered an express
agreement governing any case of damage or destruction of the Demised Premises by
fire or other casualty, and the provision of any law providing for such a
contingency in the absence of an express agreement, and any other law of like
import, now or hereafter in force, shall have no application in such case.
15.07 Notwithstanding any of the foregoing provisions of this Article,
if Landlord or the lessor of any superior lease or the holder of any superior
mortgage shall be unable to collect all of the insurance proceeds (including
rent insurance proceeds) applicable to damage or destruction of the Demised
Premises or the Building by fire or other cause, by reason of some action or
inaction on the part of Tenant or any of its employees, agents or contractors,
then, without prejudice to any other remedies which may be available against
Tenant, the abatement of Tenant's rents provided for in this Article shall not
be effective to the extent of the uncollected insurance proceeds.
ARTICLE 16
Insurance
16.01 Tenant shall obtain and keep in full force and effect during the
Term at its own cost and expense, comprehensive general public liability
insurance, such insurance to afford protection initially in an amount of not
less than $3,500,000.00 combined single limit of liability for bodily injury,
death and property damage arising out of any one occurrence under an
occurrence-basis policy, protecting Landlord, Landlord's Managing Agent, the
holder of any superior lease,if any, and Tenant as named insureds against
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any and all claims for personal injury, death or property damage occurring in,
upon, adjacent, or connected with the Demised Premises and any part thereof and
from time to time during the Term for such higher limits, if any, as are
currently carried with respect to similar properties in the area where the
Building is located. There shall be added to or included within said
comprehensive general liability insurance (upon the same terms and conditions as
above specified) all other coverages as may be usual to Tenant's use of the
Demised Premises, including , without limitation (if applicable to Tenant's
use), products liability, liquor law legal liability and host liability
coverages. Said insurance is to be written by insurance companies admitted and
licensed to do business in the State of Connecticut, authorized to issue the
relevant insurance, having a rating of no less than "A" in the most current
edition of Bests Key Rating Guide, and which insurance companies shall be
reasonably satisfactory to Landlord. The original insurance policies or
appropriate certificates shall be deposited with Landlord together with any
renewals, replacements or endorsements to the end that said insurance shall be
in full force and effect for the benefit of the Landlord during the Term. In the
event Tenant shall fail to procure and place such insurance, the Landlord may,
but shall not be obligated to, procure and place same, in which event the amount
of the premium paid shall be refunded by Tenant to Landlord upon demand and
shall in each instance be collectible on the first day of the month or any
subsequent month following the date of payment by Landlord, in the same manner
as though said sums were additional rent reserved hereunder. Each policy which
shall so name Landlord and/or Landlord's Managing Agent and/or the holder of any
superior lease as an additional insured shall contain agreements by the insurer
that the policy will not be cancelled without at least twenty (20) days prior
notice to said additional insureds and that the act or omission of any insured
will not invalidate the policy as to any other insured. Any failure by Tenant,
if named as an additional insured, promptly to endorse to the order of Landlord,
without recourse any instrument for the payment of money under or with respect
to the policy of which Landlord is the owner or original or primary insured,
shall be deemed a default under this Lease.
16.02 Tenant shall not violate, or permit the violation of, any
condition imposed by the standard fire insurance policy then issued for office
buildings in the municipality in which the Building is located and shall not do,
or permit anything to be done, or keep or permit anything to be kept in the
Demised Premises which would increase the fire or other casualty insurance rate
on the Building or the property therein over the rate which would otherwise then
be in effect (unless Tenant pays the resulting increased amount of premium) or
which would result in insurance companies of good standing refusing to insure
the Building or any of such property in amounts and at normal rates reasonably
satisfactory to Landlord. However, Tenant shall not be subject to liability or
obligation under this Section by reason of the proper use of the Demised
Premises for standard executive and administrative offices.
16.03 Tenant hereby releases Landlord and/or Landlord's Managing Agent
and/or the holder of any superior lease with respect to any claim (including a
claim for negligence) which it might otherwise have against Landlord and/or
Landlord's Managing Agent and/or the holder of any superior lease for loss,
damage or destruction with respect to its property (including business
interruption) occurring during the Term and with respect and to the extent to
which Landlord and/or Landlord's Managing Agent is insured under a policy or
policies naming Landlord and/or Landlord's Managing Agent and/or the holder of
any superior lease as an additional insured as provided in Section 16.01. If
notwithstanding the recovery of insurance proceeds by Tenant for loss, damage or
destruction of its property (or rental value or business interruption) the
Landlord and/or Landlord's Managing Agent is liable to the Tenant with respect
thereto or is obligated under this Lease to make replacement, repair or
restoration or payment, then provided the Tenant's right of full recovery under
its insurance policies is not hereby prejudiced or otherwise adversely affected,
the amount of the net proceeds of the Tenant's insurance against such loss,
damage or destruction shall be offset against the obligation of Landlord and/or
Landlord's Managing Agent and/or the holder of any superior lease to pay for
replacement, repair or restoration, as the case may be.
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16.04 The release provided for in Section 16.03 shall extend to the
agents and employees of Landlord and/or Landlord's Managing Agent and/or the
holder of any superior lease. Nothing contained in Section 16.03 shall be deemed
to relieve either party of any duty imposed elsewhere in this Lease to repair,
restore or rebuild or to nullify any abatement of rents provided for elsewhere
in this Lease.
ARTICLE 17
Tenant's Changes
17.01 After completion of the initial preparation of the Demised
Premises, as provided for in Article 4, prior to Tenant's occupancy thereof,
Tenant may not, at any time or from time to time during the Term, without
Landlord's prior approval, make any alterations, additions, installations,
substitutions, improvements, and decorations (hereinafter collectively called
"changes" and, as applied to changes provided for in this Article, "Tenant's
Changes") in and to the Demised Premises. If Landlord, in Landlord's sole and
absolute discretion, shall approve such changes, such changes shall be performed
on the following conditions, provided that in no event shall such changes result
in a violation of or require a change in the certificate of occupancy applicable
to the Demised Premises: A. The outside appearance, character or use of the
Building shall not be affected, and no Tenant's Changes shall weaken or impair
the structural strength or, in the opinion of the Landlord, lessen the value of
the Building;
B. No part of the Building outside of the Demised Premises shall be
physically affected;
C. The proper functioning of any of the mechanical, electrical,
sanitary and other services systems of the Building shall not be adversely
affected;
D. In performing the work involved in making such changes, Tenant
shall be bound by and observe all of the conditions and covenants contained in
this Article;
E. At the Expiration Date, Tenant shall on Landlord's written
request restore the Demised Premises to their condition prior to the making of
any changes permitted by this Article, reasonable wear and tear excepted;
F. With respect to each change Tenant shall pay to Landlord, as
additional rent, upon demand, ten (10%) percent of the cost of such improvement
for supervision, indirect job costs and coordination of the work performed in
connection with such improvement;
G. Before proceeding with any change (exclusive of changes in items
constituting "Tenant's Property" as defined in Article 18) Tenant shall submit
to Landlord plans and specifications for the work to be done, for Landlord's
approval in writing, and, if such change requires approval by or notice to the
lessor of a superior lease or the holder of a superior mortgage, Tenant shall
not proceed with the change until such approval has been received, or such
notice has been given, as the case may be, and all applicable conditions and
provisions of said superior lease or superior mortgage with respect to the
proposed change or alteration have been met or complied with at Tenant's
expense; and Landlord, if it approves the change, will request such approval or
give such notice, as the case may be; any change for which approval has been
received shall be performed strictly in accordance with the approved plans and
specifications, and no amendments or additions to such plans and specifications
shall be made without the prior written consent of
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Landlord. Tenant shall not be permitted to install and make part of the Demised
Premises any materials, fixtures or articles which are subject to liens,
conditional sales contracts, security agreements or chattel mortgages; and
H. Tenant shall comply with all other terms and conditions of this
Lease in connection with Tenant's Changes, including, without limitation,
Section 10.03 hereof. Notwithstanding the foregoing, Landlord shall have the
option of performing Tenant's Changes pursuant to the provisions of Section 4.07
as though extra materials and work were involved. 17.02 All Tenant's Changes
shall at all times comply with laws, order and regulations or governmental
authorities having jurisdiction thereof, and all rules and regulations of
Landlord, and Tenant, at its expense, shall obtain all necessary governmental
permits and certificates for the commencement and prosecution of Tenant's
Changes and for final approval thereof upon completion, and shall cause Tenant's
Changes to be performed in compliance therewith and with all applicable
requirements of insurance bodies, and in good and first class workmanlike
manner, using materials and equipment at least equal in quality and class to the
original installations of the Building. Tenant's Changes shall be performed in
such a manner as not to interfere with the occupancy of any other tenant in the
Building nor delay, or impose any additional expense upon Landlord in the
construction, maintenance, or operation of the Building, and shall be performed
by union contractors or mechanics approved by Landlord. Throughout the
performance of Tenant's Changes, Tenant, at its expense, shall carry, or cause
to be carried, workmen's compensation insurance in statutory limits, and general
liability insurance for any occurrence on, in or about the Building, of which
Landlord and its Managing Agent shall be named as parties insured, in such
limits as Landlord may reasonably prescribe (but not less than those specified
in Section 16.01), with insurers reasonably satisfactory to Landlord. Tenant
shall furnish Landlord with reasonably satisfactory evidence that such insurance
is in effect at or before the commencement of Tenant's Changes and, on request,
at reasonable intervals thereafter during the continuance of Tenant's Changes.
No Tenant's Changes shall involve the removal of any fixtures, equipment or
other property in the Demised Premises which are not "Tenant's Property" (as
defined in Article 18), unless Landlord's prior written consent is first
obtained and unless such fixtures, equipment or other property shall be promptly
replaced, at Tenant's expense and free of superior title, liens and claims, with
fixtures, equipment or other property (as the case may be) of like utility and
at least equal value (which replaced fixtures, equipment or other property shall
thereupon become the property of the Landlord), unless Landlord shall otherwise
expressly consent in writing.
17.03 Tenant, at its expense, and with diligence and dispatch, shall
procure the cancellation or discharge of all notices of violation arising from
or otherwise connected with Tenant's Changes which shall be issued by the
appropriate department of the municipality where the Building is located or any
other public authority having or asserting jurisdiction. Tenant shall defend,
indemnify and save harmless Landlord against any and all mechanics and other
liens in connection with Tenant's Changes, repairs, or installations, including
but not limited to the liens of any conditional sales of, or chattel mortgages
upon, any materials, fixtures, or articles so installed in and constituting part
of the Demised Premises and against all costs, attorneys' fees, fines expenses
and liabilities reasonably incurred in connection with any such lien,
conditional sale or chattel mortgage or any action or proceeding brought
thereon. Tenant, at its expense, shall procure the satisfaction or discharge of
all such liens within ten (10) days of the filing of such lien against the
Demised Premises or the Building. If Tenant shall fail to cause such lien to be
discharged within the period aforesaid, then, in addition to any other right or
remedy, Landlord may, but shall not be obligated to, discharge the same either
by paying the amount claimed to be due or by procuring the discharge of such
lien by deposit or by bonding proceedings, and in any such event Landlord shall
be entitled, if Landlord so elects, to compel the prosecution of an action for
the foreclosure of such lien by the lienor and to pay the amount of the judgment
in favor of the lienor with interest, costs and allowances. Any amount so
paid by
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Landlord and all costs and expenses incurred by Landlord in connection
therewith, together with interest thereon at the lesser of the maximum permitted
by law or three (3%) percent per month or portion thereof from the respective
dates of Landlord's making of the payment or incurring of the cost and expense
shall constitute additional rent payable by Tenant under this Lease and shall be
paid by Tenant on demand. If Tenant makes any such payment it shall not be
entitled to any set-off against rent due hereunder. Tenant agrees that it will
not at any time prior to or during the Term, either directly or indirectly, use
any contractors, labor or materials in the Demised Premises, if the use of such
contractors, labor or materials would, in the Landlord's opinion, create any
difficulty with other contractors or labor engaged by Tenant or Landlord or
other or would in any way disturb harmonious labor relations in the
construction, maintenance or operation of the Building or any part thereof or
any other building owned or operated by Landlord or any affiliate of Landlord.
17.04 All of Tenant's Changes, whether performed by Landlord or by
Tenant shall be performed only during regular time union working hours. If
Tenant requires Landlord to perform work during other hours, or if Tenant
desires to perform work through its contractors, agents or employees, Tenant
shall pay as additional rent, the cost of employing such additional union help
as shall be required under the rules and regulations of the unions employed in
connection with the Building. Payment shall be made by Tenant to Landlord within
ten (10) days after being billed therefor.
ARTICLE 18
Tenant's Property
18.01 All fixtures, equipment, improvements and appurtenances attached
to or built into the Demised Premises at the Commencement Date or during the
Term, whether or not by or at the expense of the Tenant, shall be and remain a
part of the Demised Premises, shall be deemed the property of Landlord and shall
not be removed by Tenant except as hereinafter in this Article expressly
provided.
18.02 All fixtures, furnishings, and equipment, exclusive of work
performed by Landlord at Landlord's cost and expense pursuant to the provisions
of Article 4 hereof and exclusive of any electric meter and related wiring and
parts, whether or not attached to or built into the Demised Premises, which are
installed in the Demised Premises by or for the account of Tenant, without
expense to the Landlord, and can be removed without structural damage to or
defacement of the Building (all of which are herein called "Tenant's Property"),
shall be and shall remain the property of Tenant and may be removed by it at any
time during the Term; provided that if any of the Tenant's Property is removed,
Tenant shall repair or pay the cost of repairing any damage to the Demised
Premises or to the Building or the Real Property resulting from such removal.
Any fixtures, equipment or other property for which Landlord shall have granted
any allowance to the Tenant as a credit or substitution in kind shall not be
deemed to have been installed by or for the account of the Tenant without
expense to Landlord, and shall not be considered as Tenant's Property. Any
partitions installed by Landlord, whether movable or not, shall not be
considered Tenant's Property. Landlord shall not be obligated to return and/or
reinstall any partitions supplied to Tenant which are returned by Tenant to
Landlord due to enlargement, reduction or change in the Demised Premises.
18.03 At or before the expiration of this Lease, Tenant shall remove, at
its expense, from the Demised Premises, all of Tenant's Property and shall
repair any damage and make any replacements to the Demised Premises or the
Building resulting from or necessitated by such removal, and shall pay all other
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costs of such removal.
18.04 Any items of Tenant's Property which shall remain in the Demised
Premises after the expiration of this Lease, may, at the option of the Landlord,
be deemed to have been abandoned, and in such case either may be retained by
Landlord as its property or may be disposed of, without accountability, in such
manner as Landlord may see fit. Tenant agrees to reimburse Landlord for the
costs of removal and for the cost of repairing any damage to the Demised
Premises or the Building arising out of Tenant's failure to remove Tenant's
Property pursuant to the terms of this Lease.
ARTICLE 19
Surrender
19.01 On the last day of the Term, or upon any earlier termination of
this Lease, or upon any re-entry by Landlord upon the Demised Premises, Tenant
shall quit and surrender the Demised Premises to Landlord broom clean, in good
order, condition and repair except for ordinary wear and tear and damage by fire
or other insured casualty, restored as provided in Section 17.01, if applicable.
19.02 Prior to such surrender Tenant shall (a) remove Tenant's Property subject
to the provisions of Article 18 hereof, (b) at Landlord's request remove from
the Demised Premises all improvements, alterations, additions, fixtures and
equipment (sometimes herein called "additional work") other than the standard
quality and quantity of building standard work provided by Landlord under
Landlord's standard, unmodified, printed form of Work Letter (attached hereto as
Exhibit "D" as though unmodified by the parties), whether such additional work
was performed by Tenant or by Landlord on Tenant's behalf, and whether such
additional work consisted of extra or special work, or additional items or
quantities of building standard work, and (c) at Landlord's request, repair any
damage and made any replacements to the Real Property resulting from or
necessitated by such removal, and restore those parts of the Demised Premises
from which the removal referred to in subparagraphs "a" and "b" above occurred,
to a condition which will blend with and be comparable to and compatible with
adjacent areas. Tenant's removal and repair obligations hereunder with respect
to the Demised Premises shall extend to the core area or any other part of the
Building where any additional work was performed by or on behalf of Tenant. If
Tenant shall fail to perform as provided in this Section 19.02, Landlord shall
have the right to do so at Tenant's cost and expense, without further notice or
demand upon Tenant, and Tenant shall indemnify Landlord against all loss or
liability resulting therefrom, including, without limitation, any delay in
granting occupancy of the Demised Premises to a future occupant.
19.03 In the event Tenant remains in possession of the Demised Premises
after the termination of this Lease without the execution by Landlord and Tenant
of a new Lease, Tenant, at the option of Landlord, shall be deemed to be
occupying the Demised Premises as a Tenant from month to month, at a monthly
rental equal to three (3) times the Base Rent and additional rent payable during
the last month of the Term, subject to all of the other terms of this Lease
insofar as the same are applicable to a month to month tenancy.
19.04 Tenant hereby indemnifies and agrees to hold Landlord harmless
from and against any loss, cost, liability, claim, damage, fine, penalty, and
expense, including reasonable attorneys' fees and disbursements, resulting from
delay by Tenant in surrendering the Demised Premises upon the termination of
this Lease as provided in this Article 19, including without limitation, any
claims made by any succeeding
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tenant or prospective tenant based upon such delay.
ARTICLE 20
Recording and Estoppel Certificate
20.01 Tenant agrees not to record this Lease. At the request of either
party, Landlord and Tenant shall promptly execute, acknowledge and deliver a
memorandum with respect to this Lease sufficient for recording, which Tenant may
record. Such memorandum shall not in any circumstance be deemed to change or
otherwise affect any of the obligations or provisions of this Lease.
20.02 Tenant agrees, at any time and from time to time, as requested by
Landlord, or the holder of any superior lease or superior mortgage, upon not
less than ten (10) days prior notice, to execute and deliver without cost or
expense to the Landlord a statement certifying that this Lease is unmodified and
in full force and effect (or if there have been modifications, that the same is
in full force and effect as modified and stating the modifications), certifying
the dates to which the Base Rent and additional rent have been paid, and stating
whether or not, to the best knowledge of the Tenant, the Landlord is in default
in performance of any of its obligations under this Lease, and, if so,
specifying each such default of which the Tenant may have knowledge, and
specifying as to such other matters as may be reasonably requested and as are
part of the standard form or request of such holder of any superior lease or
superior mortgage, it being intended that any such statement delivered pursuant
thereto may be relied upon by any other person with whom the Landlord, or the
holder or any superior lease or superior mortgage, may be dealing.
ARTICLE 21
Events of Default and Termination
21.01 This Lease and the Term and estate hereby granted are subject
inter alia to the limitation that whenever Tenant shall make an assignment for
the benefit of creditors, or shall file a voluntary petition under any
bankruptcy or insolvency law, or an involuntary petition alleging an act of
bankruptcy or insolvency is filed against Tenant, or whenever a petition shall
be filed by or against Tenant seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or any future federal bankruptcy act or any other present or future
applicable federal, state or other statute or law, or shall seek or consent to
or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant
or of all or any substantial part of its properties, or whenever a permanent or
temporary receiver of Tenant or of, or for, the property of Tenant shall be
appointed, or if Tenant shall plead bankruptcy orinsolvency as a defense in any
action or proceeding, then, Landlord, (a) at any time after receipt of notice of
the occurrence of any such event, or (b) if such event occurs without the
acquiescence of Tenant, at any time after the event continues for sixty (60)
days may give Tenant a notice of intention to end the Term at the expiration of
five (5) days from the service of such notice of intention, and upon the
expiration of said five (5) day period this Lease and the Term and estate hereby
granted, whether or not the Term shall theretofore have commenced, shall
terminate with the same effect as if that day were the Expiration Date, but
Tenant shall remain liable for damages as provided as in Article 30.
21.02 This Lease and the Term and estate hereby granted are subject to
the further limitation that (a) whenever Tenant shall default in the payment of
any installment of Base Rent, or in the payment of any additional rent, on any
day upon which the same shall be due and payable; or (b) whenever Tenant shall
do or permit anything to be done, whether by action or inaction, contrary to any
of Tenant's obligations hereunder, other than the payment of rent, and if such
situation shall continue and shall not be remedied by Tenant within fifteen (15)
days after Landlord shall have given to Tenant a notice specifying the same, or,
in the case of a happening or default which cannot with due diligence be cured
within a period of fifteen (15) days and the continuance of which for the period
required for cure will not subject Landlord to the risk of criminal liability or
termination of any superior lease or foreclosure of any superior mortgage, if
Tenant shall not duly institute within such fifteen (15) day period and promptly
and diligently prosecute to completion all steps necessary to remedy the same;
or, (c) whenever any event shall occur or any contingency shall arise whereby
this Lease or any interest therein or the estate hereby granted or any portion
thereof or the unexpired balance of the Term hereof would, by operation of law
or otherwise, devolve upon or pass to any person, firm or corporation other than
Tenant, except as expressly permitted by Article 22; or (d) whenever Tenant
shall abandon the Demised Premises, or a substantial portion of the Demised
Premises shall remain vacant for a period of ten (10) consecutive days, unless
such vacancy arises as a result of a casualty; then in any such event covered by
subsections "a", "b", "c", or "d" of this Section 21.02, at any time thereafter,
Landlord may give to Tenant a notice of intention to end the Term of this Lease
at the expiration of three (3) days from the date of service of such notice of
intention, and upon the expiration of said three (3) days this Lease and the
Term and estate hereby granted, whether or not the Term shall theretofore have
commenced, shall terminate with the same effect as if that day were the
Expiration Date, but Tenant shall remain liable for damages as provided in
Article 30.
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ARTICLE 22
Assignment, Subletting, Mortgaging
22.01 Neither this Lease nor the Term and estate hereby granted, nor any
part hereof or thereof, nor the interest of Tenant in any sublease or the
rentals thereunder, shall be assigned, mortgage, pledged, encumbered or
otherwise transferred by Tenant by operation of law or otherwise, and neither
the Demised Premises nor any part thereof, shall be encumbered in any manner by
reason of any act or omission on the part of Tenant or anyone claiming under or
through Tenant, or shall be sublet or be used or occupied or permitted to be
used or occupied, or utilized for desk space or for mailing privileges, by
anyone other than Tenant or for any purpose other than as permitted by this
Lease, without the prior written consent of Landlord in every case, except as
expressly otherwise provided in this Article. For purposes of this Article 22,
(i) the transfer of a majority of the issued and outstanding capital stock of
any corporate tenant (including, without limitation, any capital stock issued in
connection with any transfer), or of a corporate subtenant, or the transfer of a
majority of the total interest in any partnership tenant or subtenant, however
accomplished, whether in single transaction or in a series of related or
unrelated transactions, shall be deemed an assignment of this Lease, and (ii) a
takeover agreement shall be deemed a transfer of this Lease.
22.02 If this Lease be assigned, whether or not in violation of the
provisions of this Lease, Landlord may collect rent from the assignee. If the
Demised Premises or any part thereof be sublet or be used or occupied by anybody
other than Tenant, whether or not in violation of this Lease, Landlord may after
default by Tenant, and expiration of Tenant's time to cure such default, collect
rent from the subtenant or occupant. In either event, Landlord may apply the net
amount collected to the rents herein reserved, but no such assignment,
subletting, occupancy or collection shall be deemed a waiver of any of the
provisions of
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Section 22.01, or the acceptance of the assignee, subtenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
Tenant's obligations under this Lease. The consent by Landlord to assignment,
mortgaging, subletting or use or occupancy by others shall not in any wise be
considered to relieve Tenant from obtaining the express written consent of
Landlord to any other or further assignment, mortgaging, or subletting or use or
occupancy by others not expressly permitted by this Article. Tenant agrees to
pay to Landlord reasonable counsel fees incurred by Landlord in connection with
any proposed assignment of Tenant's interest in this Lease or any proposed
subletting of the Demised Premises or any part thereof (including, without
limitation, the exercise by Landlord of any options under Section 22.04B or C,
and the preparation and/or review of any and all documents in connection with
any rights under this Article 22). References in this Lease to use or occupancy
by others, that is anyone other than Tenant, shall not be construed as limited
to subtenants and those claiming under or through subtenants but as including
also licensees and other claiming under or through Tenant, immediately or
remotely.
22.03 Upon at least 20 days prior notice to Landlord, if Tenant is a
corporation, this Lease may be assigned to a corporation into which Tenant
merges or consolidates, or to any other corporation which controls, is
controlled by, or under common control with Tenant, so long as the Demised
Premises continue to be used for the Permitted Use; the transfer is not
principally for the purpose of transferring the leasehold estate created hereby;
the net worth of the assignee is at least equal to or in excess of the net worth
of Tenant immediately prior to such assignment; the assignee assumes by
documents satisfactory to Landlord all of Tenant's obligations to be performed
under this Lease; and subject to all of the other terms and conditions of this
Lease.
22.04 In the event that at any time or from time to time prior to or
during the Term Tenant desires to sublet all or any portion of the Demised
Premises:
A. Tenant shall submit to Landlord a written notice of Tenant's
desire to sublet, which shall contain or be accompanied by the following
information:
1. a description identifying the space to be sublet (which
shall include appropriate means of ingress and egress); and
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2. the terms and conditions (including without limitation the
proposed commencement and termination dates) of the proposed subletting.
Landlord shall have the option to be exercised by notice to Tenant
within thirty (30) days after receipt of such notice either (x) to require a
surrender of the Demised Premises or part thereof involved, as the case may be,
including Tenant's leasehold improvements therein, or (y) to obtain a sublet
from Tenant of the Demised Premises or part thereof involved including Tenant's
leasehold improvements therein, upon the terms and conditions hereinafter set
forth.
B. If Landlord fails to exercise its option as above provided and
Tenant still desires to sublet all or any part of the Demised Premises, Tenant
shall submit to Landlord a written request for Landlord's consent to such
subletting, which request shall contain or be accompanied by the following
information:
1. a description identifying the space to be sublet (which
shall include appropriate means of ingress and egress);
2. the terms and conditions (including without limitation the
proposed commencement and termination dates) of the proposed subletting;
3. the name and address of the proposed subtenant;
4. the nature and character of the business of the proposed
subtenant and of its proposed use of the Demised Premises; and
5. current financial information, and any other information as
Landlord may reasonably request, with respect to the proposed subtenant.
Landlord shall have the option to be exercised by notice given to
Tenant within twenty (20) days after the later of (i) receipt of Tenant's
request for consent or (ii) receipt of such further information as Landlord may
reasonably request pursuant to clause 5 of Section 22.04B above, either (x) to
require a surrender of the Demised Premises or as to the part thereof involved,
as the case may be, or (y) to obtain a sublet from Tenant of the Demised
Premises or part thereof involved, including Tenant's leasehold improvements
therein, upon the terms and conditions hereinafter set forth.
C. If Landlord shall exercise its option to require a surrender of
the Demised Premises as provided in clause (x) of Section 22.04A or 22.04B
hereof, then upon the proposed commencement date of the subletting specified in
Tenant's notice given pursuant to Section 22.04A or 22.04B hereof, the Demised
Premises or the part thereof involved, as the case may be, shall be delivered to
Landlord in accordance with the provisions of the Lease relating to surrender of
the Demised Premises at the expiration of the Term, and this Lease shall cease
and terminate insofar as the Demised Premises or part thereof involved, as the
case may be, is concerned with the same force and effect as though such proposed
commencement date were the date set forth in this Lease as the expiration of the
Term. If only part of the Demised Premises is involved, the terms and conditions
of the Lease shall remain in full force and effect as to the remainder of the
Demised Premises, except that the Base Rent and additional rent shall be
proportionately reduced based upon the number of square feet of such part of the
Demised Premises surrendered, and except further to the extent that appropriate
modifications of other terms or provisions of this Lease should be made to
reflect such elimination of such part of the Demised Premises surrendered.
Notwithstanding the foregoing, in the event that less than all of the Demised
Premises is surrendered,
1. Landlord shall cause to be constructed, at Tenant's sole
cost and expense, such alterations and connections as may be required in order
to physically separate such surrendered part of the Demised from the balance of
the Demised Premises, the cost of which construction shall be computed as an
item of extra materials and work pursuant to Article 4 hereof; and
2. At least thirty (30) days prior to the proposed
commencement date specified above, Landlord shall have free access to enter to
the Demised Premises in order to complete such construction referred to in
clause "1" above, and to the extent that there are less than thirty (30) days
between Landlord's exercise of its option to require a surrender pursuant to
clause (x) above and such proposed commencement date, such proposed commencement
date shall be extended by a like number of days.
D. If Landlord shall exercise its option, as provided in clause (y)
of Section 22.04A or 22.04B hereof, to sublet from Tenant the Demised Premises
or a part thereof involved, as the case may be, together with all leasehold
improvements made by Landlord or Tenant therein (collectively herein called
"Leaseback Area") Tenant automatically shall be deemed to have subleased the
Leaseback Area to Landlord
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for the term ("Backleasing" or "Backlease") for the term ("Backlease Term") of
the proposed sublease referred to in Section 22.04A (2) or 22.04B (2) hereof.
The Base Rent and additional rent shall be the same as specified in this Lease,
except that if less than all of the Demised Premises is involved, such sums
shall be proportionately reduced based upon the number of square feet of the
Leaseback Area. All other terms and conditions of this Lease shall remain
applicable to the Leaseback Area, except such as by their nature or purport are
inapplicable or inappropriate to such Backleasing, or are inconsistent with the
further provisions of the following subsections of this Section, which further
provisions shall be deemed to be part of the terms, covenants, and conditions of
such Backleasing. Notwithstanding the foregoing, in the event that the Leaseback
Area is less than all of the Demised Premises,
1. Landlord shall cause to be constructed, at Tenant's sole
cost and expense, such alterations and connections as may be required in order
to physically separate the Leaseback Area from the balance of the Demised
Premises, the cost of which construction shall be computed as an item of extra
materials and work pursuant to Section 4.07; and
2. At least thirty (30) days prior to the proposed
commencement date specified in Tenant's notice given pursuant to Section 22.04A
or 22.04B hereof, Landlord shall have free access to enter the Demised Premises
in order to complete such construction referred to in clause 1 of this Section
22.04D, and to the extent that there are less than thirty (30) days between
Landlord's exercise of its option to sublet as provided in clause (y) of Section
22.04A or 22.04B hereof and such proposed commencement date, such proposed
commencement date shall be extended by like number of days.
In addition to the foregoing, the following provisions
shall be applicable to any Backleasing:
(i) Landlord shall have the unqualified and unrestricted
right, without Tenant's permission or consent, to underlet the Leaseback Area in
whole or in part to any person or entity, including Tenant's proposed subtenant,
for any period or periods of time not extending beyond one (1) day before the
expiration of the Backlease Term, at such rentals and on such terms and
conditions (including any alterations required to render the Leaseback Area
suitable for occupancy by an undertenant of Landlord) as Landlord shall
determine. Landlord may underlet the Leaseback Area or parts thereof separately
or in combinations, as Landlord sees fit. The Backlease may be assigned by
Landlord to any person, including Tenant's proposed subtenant, without Tenant's
consent but such assignment shall not be effective unless the transferee
executes and delivers to Tenant a written agreement assuming all of Landlord's
obligations under the Backlease, and in such event Landlord shall continue to be
fully responsible jointly and severally with such assignee for all of Landlord's
obligations under the Backlease. Tenant shall not be responsible for furnishing
to the Leaseback Area or the occupants thereof any of the services undertaken in
this Lease to be furnished by Landlord or (except as otherwise provided in
Section 22.04C and D above) for the making of repairs or alterations, or the
incurrence of any expense with respect to the Leaseback Area during the
Backlease Term applicable thereto, but shall only make available that which it
receives from Landlord. At the expiration or earlier termination of the
Backlease Term, Landlord shall have no obligations to restore or alter or
improve the Leaseback Area and Tenant shall take possession of the Leaseback
Area in the condition that the same shall then be in, provided only that all
facilities necessary for the use and occupancy of the Leaseback Area, or any
subdivisions thereof as they then exist, such as ceilings, lighting fixtures,
electrical outlets, and heating, ventilating and air conditioning systems, shall
be in place.
(ii) Tenant shall furnish to Landlord or its assignee or
subtenant under the Backlease any consents or approvals requested under the
Backlease so long as (a) Landlord furnishes such consents or approvals to Tenant
and, (b) Tenant incurs no expense by reason of any such consent or approval.
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(iii) Landlord and Tenant expressly negate any intention
that any estate created by or under the Backlease shall be merged with any other
estate held by either of them. At the request of either party, Landlord and
Tenant shall mutually execute, acknowledge, and deliver an instrument or
instruments of sublease and/or assignment to confirm and separately set forth
the demise, rent, terms, conditions and other provisions of the Backleasing or
any Leaseback Area as may be appropriate.
(iv) Tenant may use any overdue rental obligation or
other failure under a Backlease as an offset against its rental obligation or
the obligation comparable to that so failed under this Lease. E. If Landlord
shall not exercise either of its options under Section 22.04A or 22.04B hereof,
Landlord shall not unreasonably withhold or delay its consent to the proposed
subletting referred to in Tenant's notice given thereunder, provided that the
following further conditions shall be fulfilled:
(i) There shall be no advertisement, public communication
or listing of the availability of the Demised Premises for subletting without
the prior written consent of Landlord, which shall not be unreasonably withheld;
it is specifically understood that it shall not be unreasonable for Landlord to
deny its consent if any advertisement or public communication shall list the
rental rate in any way or shall adversely reflect on the dignity, character or
prestige of the Building;
(ii) No space shall be sublet to another tenant, or to a
related entity of any other tenant, or to any other occupant of the Building, if
Landlord shall then have available for rent comparable or similar space in the
Building;
(iii) No subletting shall be to a person or entity which
has a financial standing, is of a character, is engaged in business, is of a
reputation, or proposes to use the sublet premises in a manner, not in keeping
with the standards in such respects of the other tenancies of the Building;
(iv) The subletting shall be expressly subject to all of
the obligations of Tenant under this Lease, and, without limiting the generality
of the foregoing, the sublease shall impose at least the same restrictions and
conditions with respect to use as are contained in Section 1.10 and Article 8
hereof, and shall specifically provide that there shall be no further subletting
of the sublet premises;
(v) That part, if any, of the term of any such sublease
or any renewal or extension thereof, which shall extend beyond a date one (1)
day prior to the expiration or earlier termination of the term, shall be a
nullity;
(vi) The subletting shall not have the effect, or give
the utility serving the Building with electricity cause to claim, that Landlord
will not be permitted to serve the Demised Premises or the portion thereof so
sublet, or any of the other lease portions of the Building, with electricity, on
a "rent inclusion" basis as provided for herein;
(vii) No such subletting shall result in there being more
than two (2) occupants in the Demised Premises;
(viii) The Base Rent and additional rent for any such
subletting shall be not less than the greater of (a) that provided for under
this Lease on a per square foot basis for the space as proposed to be sublet,
and (b) the then going market rental rate for comparable space and for a
comparable term in the Building (or if none is or has been currently leased or
subleased, then comparable space and term
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in a comparable building in the area in which the Building is located;
(ix) The proposed subtenant shall not be a person then
negotiating with Landlord for the rental of any space in the Building;
(x) The subleased premises shall not be used by an
employment or recruitment agency; by a school, college, university or
educational institution whether or not for profit; or by any government or
subdivision or agency of any government;
(xi) The business of the subtenant shall not be in
violation of any restriction against competition contained in any other lease to
which Landlord is a party;
(xii) Landlord shall be furnished with a duplicate
original of the sublease within ten (10) days after the date of its execution;
(xiii) Tenant shall pay to Landlord, as additional rent,
a sum equal to the amount of (a) all Base Rent and additional rent and any other
consideration paid or payable to Tenant by any subtenant which is in excess of
the Base Rent and additional rent then being paid by Tenant to Landlord pursuant
to the terms hereof, and (b) any other profit or gain realized by Tenant from
any such subletting; if only a part of the Demised Premises is sublet, then the
Base Rent and additional rent paid therefor by Tenant to Landlord shall be
deemed to be that fraction thereof that the area of said sublet space bears to
the entire Demised Premises; and
(xiv) Tenant shall have fully and faithfully complied
with all of the terms, covenants and conditions of this Lease on the part of the
Tenant then to have been performed under this Lease.
22.05 The provisions of this Article 22 shall apply to each such
proposed subletting, none of which shall be effective until all of the foregoing
shall have been complied with. Notwithstanding any subletting, Tenant and any
future sublessor shall remain liable for the full performance of all the terms
and conditions of this Lease on the part of the Tenant to be performed.
ARTICLE 23
Security Deposit
Tenant has deposited with Landlord the Security Deposit as security for
the punctual performance by Tenant of each and every obligation of it under this
Lease. In the event of any default by Tenant, Landlord may apply or retain all
or any part of the security to cure the default or to reimburse Landlord for any
sum which Landlord may spend by reason of the default. In the case of every such
application or retention Tenant shall, on demand, pay to Landlord the sum so
applied or retained which shall be added to the Security Deposit so that the
same shall be restored to its original amount. If at the end of the Term Tenant
shall not be in default under this Lease, the Security Deposit, or any balance
thereof, shall be returned to Tenant within thirty (30) days after the
Expiration Date. In the event of a sale of the land and Building or leasing of
the Building, of which the Demised Premises form a part, Landlord shall have the
right to transfer the security to the vendee or lessee and Landlord shall
thereupon be released by Tenant from all liability for the return of
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such security; and Tenant agrees to look to the new landlord solely for the
return of said security; and its is agreed that the provisions hereof shall
apply to every transfer or assignment made of the security to a new landlord.
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 the
Landlord nor its successors or assigns shall be bound by any such assignment,
encumbrance, attempted assignment or attempted encumbrance.
ARTICLE 24
Quiet Enjoyment, Subordination, Attornment, and
Notice to Lessor and Mortgagees
24.01 Landlord covenants that if, and so long as, Tenant pays all of the
Base Rent and additional rent due hereunder, and keeps and performs each and
every covenant, agreement, term, provision and condition herein contained on the
part and on behalf of Tenant to be kept and performed, Tenant shall quietly
enjoy the Demised Premises without hindrance or molestation by Landlord or by
any other person lawfully claiming the same, subject to the covenants,
agreements, terms, provisions and conditions of this Lease and to any superior
leases and/or superior mortgages.
24.02 This Lease, and all rights of Tenant hereunder, are and shall be subject
and subordinate in all respects to all present and future ground leases,
over-riding leases and underlying leases and/or grants of term of the land
and/or the Building or the portion thereof in which the Demised Premises are
located in whole or in part now or hereafter existing ("superior leases") and to
all mortgages and building loan agreements, which may now or hereafter affect
the land and/or the Building and/or any superior leases ("superior mortgages")
whether or not the superior leases or superior mortgages shall also cover other
lands and/or buildings, and to each and every advance made or hereafter to be
made under the superior mortgages, and to all renewals, modifications,
replacements and extensions of the superior leases and superior mortgages and
spreaders, consolidations and correlations of the superior mortgages. This
Section shall be self-operative and no further instrument of subordination shall
be required. In confirmation of such subordination, Tenant shall promptly
execute and deliver at its own cost and expense any instrument, in recordable
form, if required, that Landlord, the lessor of any superior lease or the holder
of any superior mortgage of any of their respective successors in interest may
request to evidence such subordination and Tenant hereby constitutes and
appoints Landlord attorney-in-fact for Tenant to execute any such instrument for
and on behalf of Tenant.
Tenant agrees without further instruments of attornment in each
case, to attorn to lessor under any superior lease, or the holder of any
superior mortgage, as the case may be, to waive the provisions of any statute or
rule or law now or hereafter in effect which may give or propose to give Tenant
any right of election to terminate this Lease or to surrender possession of the
Demised Premises in the event a superior lease is terminated or a superior
mortgage is foreclosed, and that unless and until said lessor, or holder, as the
case may be, shall elect to terminate this Lease, this Lease shall not be
affected in any way whatsoever by any such proceeding or termination, and Tenant
shall take no steps to terminate this Lease without giving written notice to
said lessor under the superior lease, or holder of a superior mortgage, and a
reasonable opportunity to cure (without such lessor or holder being obligated to
cure), any default on the part of the Landlord under this Lease. In confirmation
of such attornment, Tenant shall promptly execute and deliver at its own cost
and expense any instrument, in recordable form, if required, that Landlord, the
lessor of any superior lease or the holder of any superior mortgage or any of
their respective successors in interest may request to evidence such attornment,
and Tenant hereby constitutes and appoints Landlord attorney-in-fact for Tenant
to execute any
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such instrument for and on behalf of Tenant.
ARTICLE 25
Brokerage
Tenant represents that, in the negotiation of this Lease, it dealt with
no broker or brokers other than the Leasing Broker, and based thereupon Landlord
agrees to pay to the Leasing Broker a brokerage fee per a separate agreement
between Landlord and Broker which either has been entered into at the time of
signing this Lease or which may hereinafter be entered into. Tenant hereby
indemnifies Landlord and agrees to hold Landlord harmless from any and all
losses, costs, damages, expenses, claims and liabilities, including, without
limitation, court costs and attorneys' fees and disbursements, arising out of
any inaccuracy or alleged inaccuracy of the above representation. Landlord shall
have no liability for brokerage commissions arising out of any sublease by
Tenant, and Tenant shall and does hereby indemnify Landlord and hold Landlord
harmless from any and all liabilities for brokerage commissions arising out of
any such sublease.
ARTICLE 26
Re-Entry by Landlord on Tenant's Default,
Curing Tenant's Defaults
26.01 If this Lease shall terminate for any reason whatsoever, Landlord
or Landlord's agents and employees may, without further notice, immediately or
at any time thereafter enter upon and re-enter the Demised Premises, or any part
thereof, and possess or repossess itself thereof either by summary dispossess
proceedings, ejectment or by any suitable action or proceeding at law, or by
agreement, or by force or otherwise, and may dispossess and remove Tenant and
all other persons and property from the Demised Premises without being liable to
indictment, prosecution, or damages therefor, and may repossess the same, and
may remove any persons therefrom, to the end that Landlord may have, hold and
enjoy the Demised Premises and the right to receive all rental income again as
and of its first estate and interest therein. The words "enter" or "re-enter",
"possess" or "repossess" as herein used, are not restricted to their technical
legal meaning. In the event of any termination of this Lease under the
provisions of Article 21 or re-entry under this Article or in the event of the
termination of this Lease, or of re-entry by summary dispossess proceedings,
ejectment, or by any suitable action or proceeding at law, or by agreement, or
by force or otherwise by reason of default hereunder on the part of Tenant,
Tenant shall thereupon pay to Landlord the Base Rent and additional rent due up
to the time of such termination of this Lease or of such recovery of possession
of the Demised Premises by Landlord, as the case may be, and shall also pay to
Landlord damages as provided in Article 30. 26.02 In the event of any breach or
threatened breach by Tenant of any of the agreements, terms, covenants or
conditions contained in this Lease, Landlord shall be entitled to enjoin such
breach or threatened breach and shall have the right to invoke any right and
remedy allowed at law or in equity or by statute or otherwise as though
re-entry, summary proceedings, and other remedies were not provided for in this
Lease.
26.03 Each right and remedy of Landlord provided for in this Lease shall
be cumulative and
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shall be in addition to every other right or remedy provided for in this
Lease or now or hereafter existing at law or in equity or by statute or
otherwise, and the exercise or beginning of the exercise by Landlord of any one
or more of the rights or remedies provided for in this Lease or now or hereafter
existing at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by Landlord of any or all other rights or
remedies provided for in this Lease or now or hereafter existing at law or in
equity or by statute or otherwise.
26.04 If this Lease shall terminate under the provisions of Article 21,
or if Landlord shall re-enter the Demised Premises under the provisions of this
Article 26, or in the event of the termination of this Lease or of re-entry, by
or under any summary dispossess or other proceeding or action or any provision
of law by reason of default hereunder on the part of Tenant, Landlord shall be
entitled to retain all monies, if any, paid by Tenant to Landlord, whether as
advance rent, security or otherwise, but such monies shall be credited by
Landlord against any Base Rent or additional rent due from Tenant at the time of
such termination or re-entry or, at Landlord's option, against any damages
payable by Tenant under Article 30 or pursuant to law.
26.05 If Tenant shall default in the performance of any covenant,
agreement, term, provision or condition herein contained, Landlord without
thereby waiving such default, may perform the same for the account and at the
expense of Tenant without notice in case of emergency and in any other case if
such default continues after three (3) days from the due date of the giving by
Landlord to Tenant of written notice of intention to do so. Bills for any
reasonable and necessary expense incurred by Landlord in connection with any
such performance by Landlord for the account of Tenant, and reasonable and
necessary bills for all costs, expenses and disbursements, including (without
being limited to) reasonable counsel fees, incurred in collecting or endeavoring
to collect the Base Rent or additional rent or other charge or any part thereof
or enforcing or endeavoring to enforce any rights against Tenant under or in
connection with this Lease, or pursuant to law, whether or not any action or
proceeding is instituted, payable by Tenant, within three (3) days of notice to
Tenant and if not paid when due, the amounts thereof shall immediately become
due and payable as additional rent under this Lease together with interest
thereon at the lesser of the maximum rate permitted by law or the rate of three
(3%) percent per month or portion thereof from the date the said bills should
have been paid in accordance with their terms. Landlord reserves the right,
without liability to Tenant andwithout constituting any claim or constructive
eviction, to suspend furnishing or rendering to Tenant any property, material,
labor, utility or other service, wherever Landlord is obligated to furnish or
render the same at the expense of Tenant, in the event that (but only for so
long as) Tenant is in arrears in paying Landlord therefor.
ARTICLE 27
Notices
27.01 Whenever either party shall consist of more than one (1) person or
entity, any notice, statement, demand, or other communication required or
permitted and any payment to be made shall be deemed duly given or paid if
addressed to or by (or in the case of payment by check, to the order of) any one
of such persons or entities who shall be designated from time to time as the
authorized representative of such party. Such party shall promptly notify the
other of the identity of such person or entity who is so to act on behalf of all
persons and entities then comprising such party and of all changes in such
identity.
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27.02 Any notice, statement, demand, request or other communication
required or permitted pursuant to this Lease or otherwise shall be in writing
and shall be deemed to have been properly given if addressed to the other party
at the address hereinabove set forth (except that after the Commencement Date,
Tenant's address, unless Tenant shall give notice to the contrary, shall be the
Building), and (a) if sent to such address by registered or certified United
States mail, return receipt requested, postage prepaid, by depositing the same
in a United States Post Office or an official depository thereof, in which event
notice shall be deemed to have been given, rendered or made two (2) business
days following the day so mailed in the State of Connecticut (or five (5)
business days following the day so mailed outside of the State of Connecticut)
as evidenced by a United States Post Office postmark, or (b) if delivered to
such address to an officer, partner or other authorized representative of the
other party, receipt requested. Either party may, by notice as aforesaid,
designate a different address or addresses for notices, statements, demands or
other communications intended for it. However, notices requesting after hours
services pursuant to Sections 7.01 and 11.03 may be given, provided they are in
writing, by delivery to the Building Superintendent or any other person in the
Building designated by Landlord to receive such notices, and notice of fire,
accident or other emergency shall be given by telegram or by personal delivery
of written notice to that address designated for this purpose from time to time
by the respective parties hereto.
27.03 Tenant shall give notice to Landlord promptly after Tenant learns
thereof (a) of any accident in or about the Demised Premises or the Building,
(b) of all fires in the Demised Premises, (c) of all damages to or defects in
the Demised Premises, including thefixtures, equipment and appurtenances
thereof, for the repair of which Landlord might be responsible or which
constitutes Landlord's property, and (d) of all damage to or defects in any
parts or appurtenances of the Building's sanitary, electrical, heating,
ventilating, air conditioning, elevator and other systems located in or passing
through the Demised Premises.
ARTICLE 28
Rules and Regulations; Laws and Requirements
of Public Authorities
28.01 Tenant promptly shall notify Landlord of any written notice it
receives of the violation of any law, statute, code, rule, regulation or
requirements of any Federal, State, Municipal or other public authority which
shall, with respect to the Building or the Demised Premises or the use and
occupation thereof or the abatement of any nuisance, impose any violation, order
or duty arising from (a) Tenant's or any other party's use of the Demised
Premises, (b) the manner of conduct of any business or operation of its
installations, equipment or other property therein, (c) any cause or condition
created by or at the instance of Tenant or any other party, or (d) breach of any
of Tenant's obligations hereunder.
28.02 Tenant and its employees and agents shall, at their sole cost and
expenses, faithfully observe and comply with (a) the Rules and Regulations
annexed hereto as Exhibit "B", and such reasonable changes therein (whether by
modification, elimination or addition) as Landlord at any time or times
hereafter may make and communicate in writing to Tenant, which do not
unreasonably affect the conduct of Tenant's business in the Demised Premises;
provided however, that in case of any conflict or inconsistency between the
provisions of this Lease and any Rules and Regulations changed subsequent to the
date of this Lease the provision of this Lease shall control, and (b) all laws,
statutes, codes, rules, regulations and requirements referred to in Section
28.01 hereof.
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ARTICLE 29
Non-Liability, Indemnification and Non-Recourse
29.01 Neither Landlord nor any agent or employee of Landlord shall be
liable to Tenant, its employees, agents, contractors and licensees, and Tenant
shall hold Landlord harmless for any injury or damage to Tenant or to any other
persons for any damage to, or loss (by theft, vandalism or otherwise) of, any
property of Tenant and/or of any other person, irrespective of the cause (unless
caused by Landlord's negligence) of such injury, damage or loss, including,
without limitation, that caused by water regardless of its source, or
thatresulting from promulgating or failing to promulgate or enforce any Rules
and Regulations specified in Exhibit "B". Landlord shall not be liable in any
event for loss of, or damage to, any property entrusted to any of Landlord's
employees or agents by Tenant without Landlord's specific written consent.
Landlord shall not be liable for the security or physical safety of Tenant, its
employees, agents or visitors, including, without limitation, after hours use of
the Demised Premises, the Building or the Real Property.
29.02 Tenant shall defend, indemnify and save harmless Landlord and its
agents and employees against and from all liabilities, obligations, damages,
penalties, claims, costs, charges and expenses, including reasonable architects'
and attorneys' fees, which may be imposed upon or incurred by or asserted
against Landlord and/or its agents by reason or any of the following occurring
during the Term, or during any period of time prior to the Commencement Date
that Tenant may have been given access to or possession of all or any part of
the Demised Premises: (a) any work or thing done in on or about the Demised
Premises or any part thereof by or at the instance of Tenant, its agents,
contractors, subcontractors, servants, employees, licensees, or invitees; (b)
any negligence or otherwise wrongful act or omission on the part of Tenant or
any of its agents, contractors, subcontractors, servants, employees, licensees,
or invitees; (c) any accident, injury, or damage to any person or property
occurring in, on or about the Demised Premises or any part thereof, or vault,
passageway, or space adjacent thereto; (d) any failure on the part of Tenant to
perform or comply with any of the covenants, agreements, terms, provisions,
conditions or limitations contained in this Lease on its part to be performed or
complied with. In case any action or proceeding is brought against Landlord by
reason of any such claim, Tenant upon written notice from Landlord shall at
Tenant's expense resist or defend such action or proceeding by counsel approved
by Landlord in writing, which approval Landlord shall not unreasonably withhold.
29.03 Except as otherwise provided herein, this Lease and the
obligations of Tenant to pay rent hereunder and perform all of the other
covenants, agreements, terms, provisions and conditions hereunder on the part of
Tenant to be performed shall in no wise be affected, impaired or excused because
Landlord is unable to fulfill any of its obligations under this Lease or is
unable to supply or is delayed in supplying any service, express or implied, to
be supplied or is unable to make or is delayed in supplying any equipment or
fixtures if Landlord is prevented or delayed from so doing by reason of any
Events of Force Majeure, as defined in Section 4.05 hereof; provided that
Landlord shall in each instance exercise reasonable diligence to effect
performance when and as soon as possible. However, nothing contained in this
Section shall be deemed to extend or otherwise modify or affect any of the time
limits and conditions set forth in Section 15.03.
29.04 Tenant shall look solely to the estate and interest of Landlord,
its successors and assigns, in the land and Building (or the proceeds thereof)
for the collection of a judgment (or other judicial process) requiring the
payment of damages or money by Landlord in the event of any default by Landlord
hereunder, and no other property or assets of Landlord (or if Landlord is a
partnership of any partner of
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Landlord) shall be subject to levy, execution or other enforcement procedure for
the satisfaction of Tenant's remedies under or with respect to either this
Lease, the relationship of Landlord and Tenant hereunder or Tenant's use and
occupancy of the Demised Premises.
ARTICLE 30
Damages
30.01 If this Lease is terminated under the provisions of Article 21, or
if Landlord shall re-enter the Demised Premises under the provisions of Article
26 or in the event of the termination of this Lease, or of re-entry by summary
dispossess proceedings, ejectment or by any suitable action or proceeding at
law, or by agreement, or by force or otherwise, by reason of default hereunder
on the part of Tenant, Tenant shall pay to Landlord as damages, at the election
of Landlord, either,
A. on demand, a sum which at the time of such termination of this
Lease or at the time of any such re-entry by Landlord, as the case may be,
represents the excess of (1) the aggregate of the Base Rent and the additional
rent payable hereunder which would have been payable by Tenant (conclusively
presuming the additional rent to be the same as was payable for the year
immediately preceding such termination) for the period commencing with such
earlier termination of this Lease or the date of any such re-entry, as the case
may be, and ending with the expiration of the Term, had this Lease not so
terminated or had Landlord not so re-entered the Demised Premises, over (2) the
aggregate market rental value (calculated as of the date of such termination or
re-entry) of the Demised Premises for the same period, or,
B. sums equal to the Base Rent and the additional rent (as above
presumed) payable hereunder which would have been payable by Tenant had this
Lease not so terminated, or had Landlord not so re-entered the Demised Premises,
payable quarterly but otherwise upon the terms therefor specified herein
following such termination or such re-entry and until the expiration of the
Term, provided, however, that if Landlord shall relet the Demised Premises or
any portion or portions thereof during said period, Landlord shall credit Tenant
with the net rents received by Landlord from such reletting, such net rents to
be determined by first deducting from the gross rents as and when received by
Landlord from such reletting the expenses incurred or paid by Landlord in
terminating this Lease or in re-entering the Demised Premises and in securing
possession thereof, as well as the expenses of reletting, including altering and
preparing the Demised Premises or any portion or portions thereof for new
tenants, brokers' commissions, advertising expenses, attorneys' fees, and all
other expenses properly chargeable against the Demised Premises and the rental
therefrom; it being understood that any such reletting may be for a period
shorter or longer than the remaining Term of this Lease but in no event shall
Tenant be entitled to receive any excess of such net rents over the sums payable
by Tenant to Landlord hereunder, nor shall Tenant be entitled to any suit for
the collection of damages pursuant to this Subsection to a credit in respect of
any net rents from a reletting, except to the extent that such net rents are
actually received by Landlord. If the Demised Premises or any part thereof
should be relet in combination with other space, then proper apportionment shall
be made of the rent received from such reletting and of the expenses of
reletting.
If the Demised Premises or any part thereof be relet by Landlord
for the unexpired portion of the Term, or any part thereof, before presentation
of proof of such damages to any court, commission, or
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tribunal, the amount of rent reserved upon such reletting shall, prima facie, be
the fair and reasonable rental value for the Demised Premises, or part thereof,
so relet during the term of the reletting. Landlord however, shall in on event
and in no way be responsible or liable for any failure to relet the Demised
Premises or any part thereof or for failure to collect any rent due upon any
such reletting.
30.02 Suit or suits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the date when the Term would have expired if it had not been
so terminated under the provisions of Article 21, or under any provision of law,
or had Landlord not re-entered the Demised Premises. Nothing herein contained
shall be construed to limit or preclude recovery by Landlord against Tenant of
any sums or damages to which, in addition to the damages particularly provided
above, Landlord may lawfully be entitled by reason of any default hereunder or
otherwise on the part of Tenant. Nothing herein contained shall be construed to
limit or prejudice the right of the Landlord to prove for and obtain as
liquidated damages by reason of the termination of this Lease or re-entry on the
Demised Premises for the default of Tenant under this Lease, 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 any of the sums referred to
in Section 30.01.
30.03 Anything in this Lease to the contrary notwithstanding, if Tenant
shall at any time be in default hereunder, whether or not Landlord shall
institute an action or summary proceeding against Tenant based upon such default
and whether or not such default results from non-payment of Base Rent or
additional rent, or if Tenant requests Landlord to review or execute documents
(including, without limitation, any sublease or occupancy documents) in
connection with this Lease, or otherwise if it is reasonably prudent for
Landlord to contact counsel, then Tenant shall reimburse Landlord, as additional
rent, for the expense of attorneys' fees and disbursements thereby incurred by
Landlord, so far as the same are reasonable.
ARTICLE 31
Waivers, Failure to Enforce Terms, Modifications
31.01 Tenant, for itself, and on behalf of any and all persons claiming
through or under Tenant, including creditors of all kinds, does hereby waive and
surrender all right and privilege so far as is permitted by law, which they or
any of them might have under or by reason of any present or future law, of the
service of any notice of intention to re-enter and also waives any and all right
of redemption or re-entry or repossession in case Tenant shall be dispossessed
or ejected by process of law or in case of re-entry or repossession by Landlord
or in case of any expiration or termination of this Lease as herein provided.
31.02 Tenant waives Tenant's rights, if any, to assert a counterclaim in
any summary proceeding brought by Landlord against Tenant, and Tenant agrees to
assert any such claim against Landlord only by way of a separate action or
proceeding.
31.03 Tenant waives Tenant's rights, if any, to designate the items
against which any payments made by Tenant are to be credited, and Tenant agrees
that Landlord may apply any payments made by Tenant to any items it sees fit,
irrespective of and notwithstanding any designation or request by Tenant as to
the items against which any such payments shall be credited.
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31.04 To the extent not prohibited by applicable law, Landlord and
Tenant hereby waive trial by jury in any action, proceeding or counterclaim
brought by either against the other on any matter whatsoever arising out of or
in any way connected with this Lease, the relationship of Landlord and Tenant,
or Tenant's use or occupancy of the Demised Premises, or any emergency or other
statutory remedy with respect thereto.
31.05 The failure of either party to insist in any one or more instances
upon the strict performance of any one or more of the agreements, terms,
covenants, conditions or obligations of this Lease, or to exercise any right,
remedy, or election herein contained, shall not be construed as a waiver or
relinquishment for the future of the performance of such one or more obligations
of this Lease or of the right to exercise such election, but the same shall
continue and remain in full force and effect with respect to any subsequent
breach, act or omission. The manner of enforcement or the failure of Landlord to
enforce any of the Rules and Regulations set forth herein, or hereafter adopted
against the Tenant and/or any other tenant in the Building shall not be deemed a
waiver of any such Rules and Regulations.
31.06 No agreement to accept a surrender of all or any part of the
Demised Premises shall be valid unless in writing and signed by Landlord. The
delivery of keys to an employee of Landlord or of its agent shall not operate as
a termination of this Lease or a surrender of the Demised Premises. If Tenant
shall at any time request Landlord to sublet the Demised Premises for Tenant's
account, Landlord or its agent is authorized to receive said keys for such
purposes without releasing Tenant from any of its obligations under this Lease,
and Tenant hereby releases Landlord of any liability for loss or damage to any
of Tenant's Property in connection with such subletting.
31.07 A. No executory agreement hereafter made between Landlord and
Tenant shall be effective to change, modify, waive, release, discharge,
terminate or effect an abandonment of this Lease, in whole or in part, unless
such executory agreement is in writing, refers expressly to this Lease and is
signed by the party against whom enforcement of the change, modification,
waiver, release, discharge or termination or effectuation of the abandonment is
sought.
B. If, in connection with obtaining, continuing or renewing
financing for which the Building, land or a leasehold or any interest therein
represents collateral in whole or in part, a banking, insurance or other lender
shall request modifications of this Lease as a condition of such financing,
Tenant will not withhold, delay or defer its consent thereto, provided that such
modifications do not increase the obligations of Tenant hereunder or adversely
affect to a material degree the Tenant's leasehold interest hereby created.
ARTICLE 32
Shoring
32.01 If an excavation or other substructure work shall be undertaken or
authorized upon land adjacent to the Building or in the vaults beneath the
Building or in subsurface space adjacent to the said vaults, Tenant, without
liability on the part of the Landlord therefor, shall afford to the person
causing or authorized to cause such excavation or other substructure work
license to enter upon the Demised Premises for the purpose of doing such work as
such person shall deem necessary to protect or preserve any of the walls or
structures of the Building or surrounding lands from injury or damage and to
support the same by
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proper foundations, pinning and/or underpinning, and, except in case of
emergency, if so requested by Tenant such entry shall be accomplished in the
presence of a representative of Tenant, who shall be designated by Tenant
promptly upon Landlord's request. The said license to enter shall be afforded by
Tenant without any claim for damages or indemnity against the Landlord and
Tenant shall not be entitled to any diminution or abatement of rent on account
thereof.
ARTICLE 33
Successors and Assigns, No Other Representations, Construction
33.01 The obligations of this Lease shall bind and benefit the
successors and assigns of the parties with the same effect as if mentioned in
each instance where a party is named or referred to, except that no violation of
the provisions of Article 22 shall operate to vest any rights in any successor
or assignee of Tenant, and that the provisions of this Article shall not be
construed as modifying the conditions of limitation contained in Article 21.
However, the obligations of Landlord under this Lease shall not be binding upon
Landlord herein named with respect to any period subsequent to the transfer of
its interest in the Building as owner or lessee thereof and in the event of such
transfer such obligations shall thereafter be binding upon each transferee of
the interest of Landlord herein named as such owner or lessee of the Building,
but only with respect to the period ending with a subsequent transfer within the
meaning of this Article, and such transferee, by accepting such interest, shall
be deemed to have assumed such obligations except only as may be expressly
otherwise provided elsewhere in this Lease. A lease of Landlord's entire
interest in the Building as owner or lessee thereof shall be deemed a transfer
within the meaning of this Article 33.
33.02 This Lease supersedes and revokes all previous negotiations,
arrangements, letters of intent, offers to lease, lease proposals, brochures,
"Representations" (meaning covenants, promises, assurances, agreements,
representations, conditions, warranties, statements and understandings), and
information conveyed, whether oral or in writing, between the parties hereto or
their respective representatives or any other person purporting to represent
Landlord or Tenant. Tenant expressly acknowledges and agrees that Landlord has
not made, and is not making, and Tenant, in executing and delivering this Lease,
is not relying upon, and has not been induced to enter into this Lease by, any
Representations, except to the extent that the same are expressly set forth in
this Lease or in any other written agreement which may be made and executed
between the parties concurrently with the execution and delivery of this Lease
and shall expressly refer to this Lease, and no such Representations not so
expressly herein set forth shall be used in the interpretation or construction
of this Lease, and Landlord shall have no liability for any consequences arising
as a result of any such Representations not so expressly herein set forth.
33.03 If any of the provisions of this Lease, or the application thereof
to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such provision
or provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby, and every
provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law.
ARTICLE 34
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Miscellaneous Provisions
34.01 All work, including but not limited to, waxing or additional
cleaning that Tenant does or shall do in the Demised Premises, shall be done
with union labor and materials only, by contractors approved in writing by
Landlord, shall at all times conform to the standards of the Building and shall
comply with all laws and/or requirements of public authorities. Tenant, as
additional rent, shall indemnify and hold harmless Landlord, against any loss or
damage Landlord may sustain by reason of, and against, any orders, decrees,
judgments, attorneys' fees and expenses resulting from, failure of Tenant to
comply with provisions hereof.
34.02 The Article headings in this Lease and the Table of Contents
prefixed to this Lease are inserted only as a matter of convenience or
reference, and are not to be given any effect whatsoever in construing this
Lease.
34.03 Any provision of this Lease which requires a party not to
unreasonably withhold its consent, (a) shall be read as if the word "withhold"
read "withhold, delay or defer", and (b) shall never be the basis for any award
of damages (unless exercised in intentional and deliberate bad faith) or give
rise to a right of setoff to the other party, but shall be the basis for a
declaratory judgment or specific injunction with respect to the matter in
question.
34.04 Wherever in this Lease Landlord performs any work due to Tenant's
default as set forth in Section 34.01 hereof, due to Tenant's failure to perform
any of the conditions on its part to be performed hereunder, or wherever
Landlord otherwise performs work at Tenant's cost and expense, then there shall
be added to the cost of such work the percentages referred to in Section 4.07.
34.05 This Lease is offered to Tenant for signature with the express
understanding that it shall not be binding upon Landlord unless and until
Landlord shall have executed and delivered a fully executed copy to Tenant, and
until the holder of any and all superior mortgages shall have approved the same.
34.06 This Lease shall be governed in all respects by and construed
under the Laws of the State of Connecticut.
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IN WITNESS WHEREOF, the parties hereto have executed this instrument the
day and year first above written.
LANDLORD:
969 ASSOCIATES, a Connecticut
Limited Partnership
By:-----------------
Signature
Its: General Partner
- -------------------- ---------------------------
Witness for Landlord (Title)
TENANT:
By:-----------------
Signature(s)-----------------
Witness for Tenant
- ------------------
Corporate Witness for Tenant Its:------------
(Title)
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ACKNOWLEDGMENTS
FOR INDIVIDUAL TENANT(s):
STATE OF )
)ss.:
COUNTY OF )
On this day of , 198 , before me personally appeared to me known and
known to me to be the individual(s) described in and who executed the foregoing
instrument, and he duly acknowledged that he executed the same as his (their)
free act and deed.
-------------------
Notary Public
FOR CORPORATE TENANT:
STATE OF )
)ss.:
COUNTY OF )
On this day of , 198 , before me personally came to me known, who, being
by me duly sworn did depose and say that he resides at that he is the of , the
corporation described in and which executed the foregoing instrument; 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.
Notary Public
-------------------
FOR PARTNERSHIP TENANT:
STATE OF )
)ss.:
COUNTY OF )
On this day of , 198 , before me personally came to me known and known
to me to be a general partner of and known to me to be the person described in
and who executed the foregoing instrument in said partnership name, and he duly
acknowledged that he executed the same as his free act and deed and as the free
act and deed of said partnership.
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Notary Public
-------------------
EXHIBIT A
Floor Plan(s) of Demised Premises
---------------------------------
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EXHIBIT A-1
Tenant's Plans
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EXHIBIT B
Rules and Regulations
1. All removals from the Demised Premises or the Building, or the moving
or carrying in or out of the Demised Premises or the Building of any safes,
freight, furniture, packages, boxes, crates or any other objects or matter of
any description must take place during such hours and in such elevators as
Landlord and its agent may determine from time to time. All deliveries of any
nature whatsoever to the Building or the Demised Premises must be made only
through Building entrances specified for such deliveries by Landlord. Landlord
reserves the right to inspect all objects and matter to be brought into the
Building and to exclude from the Building all objects and matter which violate
any of these Rules and Regulations or the Lease of which these Rules and
Regulations are a part. Landlord may require any person leaving the Building
with any package or other object or matter, to submit a pass, listing such
package or object or matter, from the Tenant from whose premises the package or
other object or matter is being removed, but the establishment and enforcement
of such requirement shall not impose any responsibility on Landlord for the
protection of any tenant against the removal of property from the premises of
such tenant. Landlord shall, in no way, be liable to Tenant for damages or loss
arising from the admission, exclusion or ejection of any person to or from the
Demised Premises or the Building under the provisions of this Rule 1 or Rule 6
hereof.
2. Additional locks or bolts of any kind which shall not be operable by
the grand master key for the Building shall not be placed upon any of the doors
or windows by any tenant, nor shall any changes be made in locks or the
mechanism thereof which shall make such locks inoperable by said grand master
key. Each tenant shall, upon the termination of its tenancy, turn over to
Landlord 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
furnished by Landlord, such tenant shall pay to Landlord the cost thereof.
3. Any moving of furniture or equipment into or out of the Demised
Premises must be done by Tenant at its own cost and expense, on Monday through
Friday, after 6:00 p.m., or on Saturday, subject, however, to the prior written
consent of Landlord. If such move requires use of an elevator, such move shall
not be in excess of such elevator's carrying load capacity.
4. No showcases or other articles shall be put in front or affixed to
any part of the exterior of the Building, nor placed in the halls, corridors, or
vestibules.
5. The water and wash closets and other 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
thrown or deposited therein. All damages resulting from any misuse of the
fixtures shall be borne by the tenant who, or whose servants, employees, agents,
visitors or licensees shall have caused the same.
6. Landlord reserves the right (although it is specifically understood
that Landlord shall not be obligated, under any circumstances) to exclude from
the Building during hours other than Standard Business Hours (as defined in the
foregoing Lease) all persons who do not present a pass to the Building signed by
Landlord. All persons entering and/or leaving the Building during hours
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other than Regular Business Hours may be required to sign a register. Landlord
will furnish passes to persons for whom any tenant requests same in writing.
Each tenant shall be responsible for all persons for whom such tenant requests
such pass and shall be liable to Landlord for all acts or omissions of such
persons. Landlord's providing of after hours ventilating and air conditioning
service or heating service, if requested, during other than Standard Business
Hours, shall not be interpreted to mean that the Building is in operation during
such after hours; and, in light of possible darkness, lack of activity and lack
of Building services during such after hours, Tenant may wish to take measures
regarding security of its employees, agents and visitors using the Demised
Premises during other than Standard Business Hours.
7. There shall not be used in any space, or in any lobbies, corridors,
public halls or other public areas of the Building, either by any tenant or by
jobbers or any others, in the moving or delivery or receipt of safes, freights,
furniture, packages, boxes, crates, paper, office material, or any other object
or thing, any hand trucks except those equipped with rubber tires, side guards
and such other safeguards as Landlord shall require. No move or delivery of any
object or thing of whatever nature, other than light-weight objects hand-carried
by not more than one person, shall be made without at least 24 hours prior
written notice by Tenant to Landlord and without Tenant, prior to any such move
or delivery, lying (without affixation or attachment to any part of the floor or
floor covering) adequate masonite or plywood sheets covering all lobby,
corridor, public hall and other public area floors of the Building (whether
carpeted or terrazzo) over which such move or delivery shall take place.
8. Tenant, before closing and leaving the Demised Premises at any time,
shall see that all lights are turned out. All entrance doors in the Demised
Premises shall be left locked by Tenant when the Demised Premises are not in
use. Entrance doors shall not be left open at any time.
9. Unless Landlord shall furnish electrical energy hereunder as a
service included in the rent, Tenant shall, at Tenant's expense, provide
artificial light and electrical energy for the employees of Landlord and/or
Landlord's contractors while doing janitor service or other cleaning in the
Demised Premises and while making repairs or alterations in the Demised
Premises.
10. The Demised Premises shall not be used for lodging or sleeping or
for any immoral or illegal purpose.
11. The requirements of tenants will be attended to only upon
application at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside of their regular duties, unless under
special instructions from Landlord.
12. Canvassing, soliciting and peddling in the Building are prohibited
and each tenant shall cooperate to prevent the same.
13. The sidewalks, entrances, passages, lobby, elevators, vestibules,
stairways, corridors, or halls shall not be obstructed or encumbered by any
Tenant or used for any purpose other than ingress and egress to and from the
Demised Premises and Tenant shall not permit any of its employees, agents or
invitees to congregate in any of said areas. No door mat of any kind whatsoever
shall be placed or left in any public hall or outside any entry door of the
Demised Premises.
14. Tenant shall not occupy or permit any portion of the Demised
Premises to be occupied as an office for a public stenographer or public typist,
or for the possession, storage, manufacture, or sale of beer, wine or liquor,
narcotics, drugs, tobacco, in any form, or as a barber, beauty or manicure shop,
or as an
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employment bureau. Tenant shall not engage or pay any employees on the Demised
Premises, except those actually working for Tenant on the Demised Premises, nor
advertise for laborers giving an address at the Demised Premises. Tenant shall
not use the Demised Premises or any part thereof, or permit the Demised Premises
or any part thereof to be used, for manufacturing, or for sale at auction of
merchandise, goods or property of any kind.
15. Subject to the provisions of Section 8.02(c) of the Lease, Landlord
shall not unreasonably withhold its consent to the installation, maintenance and
operation by Tenant in the Demised Premises of data processing machines, office
duplicating machines, teletype machines and other business machines and
machinery customarily used in offices in the ordinary course of business,
provided, however, that Tenant shall comply with all other obligations of this
Lease that may be applicable to or result from such installation, maintenance or
operation.
16. Landlord shall not unreasonably withhold from Tenant any approval
provided for in the Rules and Regulations.
17. No awnings or other projections shall be attached to the outside
walls of the Building. No curtains, blinds, shades, or screens shall be attached
to or hung in or used in connection with, any window or door of the Demised
Premises, without the prior written consent of Landlord. Such curtains, blinds,
shade or screens must be of a quality, type, design and color and attached in
the manner, approved by Landlord. Any curtains, blinds, shades or screens
permitted to be used in the Demised Premises shall be kept neat and orderly.
18. No sign, insignia, advertisements, object, notice, or other
lettering shall be exhibited, inscribed painted or affixed by any tenant on any
part of the outside or inside of the Demised Premises or the Building without
the prior written consent of Landlord. In the event of the violation of the
foregoing by any tenant, Landlord may remove the same without any liability, and
may charge the expense incurred in such removal to the tenant or tenants
violating this rule. Interior signs and lettering on doors and directory tablet
shall, if and when approved by Landlord, be inscribed, painted or affixed for
each tenant by Landlord at the expense of such tenant, and shall be of a size,
color and style acceptable to Landlord.
19. The sashes, sash doors, skylights, windows and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed by Tenant, nor shall any bottles,
parcels, or other articles be placed on the window sills.
20. No bicycles, vehicles, animals, fish or birds of any kind be brought
into or kept in or about the premises.
21. No noise, including, but not limited to, music, the playing of
musical instruments, recordings, radio or television which, in the judgment of
the Landlord, might disturb other tenants in the Building, shall be made or
permitted by any tenant. Nothing shall be done or permitted in the Demised
Premises by Tenant which would impair or interfere with the use or enjoyment by
any other tenant of any other space in the Building. No tenant shall throw
anything out of the doors, windows, skylights, or down the passageways.
22. Tenant, its servants, employees, agents, visitors or licensees,
shall not at any time bring or keep upon the Demised Premises any explosive
fluid, chemical, or substance, nor any inflammable or combustible objects or
materials except subject to the provisions of Section 29.02(a) of the foregoing
Lease.
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23. No Tenant shall mark, paint, drill into, or in any way deface any
part of the Demised Premises or the Building. No boring, cutting, or stringing
of wires shall be permitted, except with the prior written consent of Landlord,
and as Landlord 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 materials, soluble in water, the use of cement and
other similar adhesive material is expressly prohibited.
24. Tenant shall not obtain, purchase or accept for use in the Demised
Premises ice, drinking water, food, beverage, towel, barbering, boot blacking,
cleaning, floor polishing, or other similar services from any person not
authorized by Landlord in writing to furnish such services, provided always that
the charges for such services by persons authorized by Landlord are not
excessive. Such services shall be furnished only at such hours, in such places
within the Demised Premises, and under such regulations as may be fixed by
Landlord. Tenant shall not purchase or contract for waxing, rug shampooing,
venetian blind washing, furniture polishing, lamp servicing, cleaning of
electric fixtures, removal of garbage or towel service in the Demised Premises
except from contractors, companies or persons approved by Landlord.
25. Landlord shall have the right to prohibit any advertising or
identifying sign by any tenant which in Landlord's judgment tends to impair the
reputation of the Building or its desirability as a building for offices, and
upon written notice from Landlord, such tenant shall refrain from or discontinue
such advertising or identifying sign.
26. Tenant shall not and shall not permit its personnel, agents or
visitors to litter or loiter upon any public areas of the Building or the land
or improvements on the land on which the Building is located (including, without
limitation, the walkways, and parking areas located thereon), and Tenant shall
be responsible to, and shall pay, Landlord for the cost of removal of such
litter and for any and all expenses incurred by Landlord in policing,
supervising, removing or providing resources to any person loitering or
violation of this rule within ten (10) days of notice thereof by Landlord.
27. Tenant shall cooperate with Landlord in obtaining maximum
effectiveness of the cooling system by lowering and closing venetian blinds
and/or drapes and curtains when the sun's rays fall directly on the windows of
the Demised Premises.
28. Landlord reserves the right to rescind, alter or waive any rule or
regulation at any time prescribed for the Building, when, in its judgment, it
deems it necessary or desirable for the reputation, safety, care or appearance
of the Building, or the preservation of good order therein, or the operation or
maintenance of the Building or the equipment thereof, or the comfort of tenants
or others in the Building. No recision, alteration or waiver of any rule or
regulation in favor of one tenant shall operate as a recision, alteration or
waiver in favor of any other tenant.
29. Tenant shall not cause or permit any odors of cooking or other
processes or any unusual or objectionable odors to emanate from the Demised
Premises which would annoy other Tenants or create a public or private nuisance.
No cooking shall be done in the Demised Premises except as is expressly
permitted in the foregoing Lease.
EXHIBIT C
969 HIGH RIDGE ROAD
CLEANING SPECIFICATIONS
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A. Office Cleaning (5 nights per week)
1. Empty and clean wastebaskets and receptacles and remove waste to
designated containers and areas.
2. Empty and damp wipe all ash trays and cigarette receptacles.
3. Vacuum clean all carpeted areas.
4. Dust and clean, with treated dust cloths, all furniture and
furnishings such as tables, chairs, desks, filing cabinets,
bookcases, shelves, picture frames, wall ornaments, equipment, etc.
5. Dust mop, with treated mop heads, and remove any foreign matter
adhering to tile and concrete floors.
6. Sweep and mop mats at entrance.
7. Clean and polish drinking fountains and metal trim.
8. Clean slop sinks and closets.
9. Dust all areas beneath desks and tables.
10. Stairs to be swept nightly.
11. Spot mop stairs.
B. Lavatory Maintenance (5 nights per week)
1. Mop, disinfect, rinse and dry floors using a solution containing an
approved disinfectant.
2. Thoroughly sanitize, deodorize and disinfect all basins, water
closets, urinals, and toilet bowls using an approved disinfectant.
Interior ledges, channels and traps will receive special attention.
3. Wash and polish all mirrors, flushometers, piping, seat hinges,
shelves, soap dispensers, fixtures and all other metal trim.
4. Sanitize, deodorize and disinfect all toilet seats and urinal traps
using an approved disinfectant
5. Damp wipe walls and wall fixtures, moldings, stalls and other
surfaces making sure that partitions are free from water splashing,
dust and finger marks.
969 HIGH RIDGE ROAD
CLEANING SPECIFICATIONS
PAGE TWO
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6. Wash tile walls as required.
7. Replace all paper, hand towels, hand soap, toilet tissue, sanitary
napkins, etc., in lavatories.
8. Empty and sanitize all waste receptacles.
C. Elevator (5 nights per week)
1. Thoroughly clean and polish cab.
2. Vacuum and spot clean carpeting.
3. Polish metal trim and paneling.
PERIODIC SERVICES
MONTHLY
1. Resilient tile floors to be spray buffed or washed and waxed.
2. Mop and wash all stairs and landings with a non-alkaline solution.
QUARTERLY
1. All Bathroom tile to be washed quarterly.
2. Remove fingerprints, smudges and foreign matter from walls and doors
when and where necessary.
SEMI-ANNUALLY
1. Clean exterior and interior window surfaces.
2. Dust louvers and vent grills.
3. Dust venetian blinds.
4. Wipe down paneling with specially treated dust cloths.
EXHIBIT D
WORK LETTER
969 HIGH RIDGE ROAD
The provisions of this Work Letter are included only for the purpose of setting
forth the building standard work. Thus reference in Parts A through H to
allowances by Landlord or inclusion of any
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quantities at Landlord's cost and expense are specifically negated hereby. In
addition, such building standard items of work shall not necessarily limit or
describe the items of work which Tenant may include in Tenant's Plans, it being
understood that Tenant may perform or cause to be performed other work to the
extent in accordance with the requirements of this Lease and this Work Letter.
Part A. Partitions.
1. Landlord shall furnish and install drywall partitions in the quantity of
one (1) lineal foot of partition for every fifteen square feet of
Tenant's Floor Space. The framing of such drywall partitions shall be
constructed of 2-1/2" steel studs from floor to above ceiling with 5/8"
sheetrock laid out vertically on both sides with all joints spackled and
taped, finished with 4" vinyl base, either cove or straight at Tenant's
option.
2. If Tenant substitutes any non-standard partitioning, Landlord, at
Tenant's expense shall furnish and install such non-standard partitions
specified on Tenant's plans, and allow Tenant a credit of $ per lineal
foot of unused standard partitions (as per item A.1 above,) toward the
cost of the new partitioning. This credit shall include the cost of
painting and base.
3. At all points that the drywall partition intersects a window mullion in
the locations designated on Tenant's plans, Landlord shall furnish and
install filler panels inside the heating unit which shall be constructed
of materials so that, when installed, they will have approximately the
same sound transfer coefficient as that material with which the
partition is constructed.
Part B. Doors, Bucks, and Hardware.
1. Landlord shall furnish and install doors in the drywall partitions,
including single and double types, in the quantity of one (1) door for
every twenty-five (25) feet of allowable drywall partition. These doors
shall be stock size building standard 1-3/4" thick, 18 gauge, flush type
hollow metal, 3'-0" x 7"-0", primed for paint or solid core wood doors,
and shall be installed in integral pressed steel bucks, 16 gauge,
reinforced for hardware, in location and stock sizes required. Solid
core wood doors, and shall be installed in integral pressed steel bucks,
16 gauge, reinforced for hardware, in location and stock sizes required.
Solid core doors not to exceed 25% of total allowable doors. Landlord
shall furnish and install one (1) pair of full-height building standard
metal sliding closet doors, including hardware and drywall partitions
for one (1) closet for each 2,500 SF of rentable area.
3. In areas designated by Tenant for carpeting, all doors shall be undercut
as designated on Tenant's plans.
4. Landlord shall furnish and install 1-1/2 pairs of 4 x 4 ballbearing
butts, building standard equivalent, latch set, and a wall stop or flush
stop on each door as designated on Tenant's hardware schedule. All
hardware shall be of a manufacturer's first line quality (Schlage "D"
Series, Tulip Design or equal). Entrance doors from public corridors and
elevator lobbies allowable under Item B.1, shall be equipped with a lock
set (same design and finish as above).
5. All locks shall be keyed in accordance with Tenant's key schedule and
all keys shall be delivered to Tenant properly tagged and tested.
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Part C. Painting and Wall Coverings
1. Landlord shall paint all walls, drywall partitions, vertical furring,
nonacoustically treated ceilings, metal and wood masonry or metal
surfaces. This initial painting shall consist of one (1 prime coat and
two (2) coats of paint, flat or semi-gloss. Colors are to be selected by
Tenant and limited to one (1) color per room or other area.
2. All Vinyl wall coverings shall be at Tenant's expense.
Part D. Lighting.
1. Landlord shall furnish and install an average of one (1) fluorescent
lighting fixture per 85 SF of Tenant's Floor Space in the building. The
fixtures (Art Metal or equal) shall be building standard, 2' x 4'
recessed, designated to contain four (4) 40 watt fluorescent lamps with
rapid start ballast and acrylic prismatic lenses.
2. Landlord shall furnish and install such miscellaneous fixtures, either
fluorescent or incandescent, for areas such as mechanical spaces,
toilets, stairwells, exits, in quantities required to conform with the
Building Code.
3. Landlord shall furnish and install the initial lamps for all fixtures.
4. Landlord shall furnish and install building standard quiet type single
pull switches, with the required associated wiring facilities in amounts
not in excess of one (1) switch per room. Open areas shall have
sufficient switches to comply with the Building Code requirements.
Part E. Electrical.
1. Landlord shall furnish and install 15 ampere, 120 volt, duplex wall
receptacles with the required associated wiring facilities in the
quantity of one (1) outlet per 125 SF of Tenant's Floor Space.
2. Tenant shall make arrangements with Telephone Company to pre-wire
outlets so as not to delay Owner in completion of his work.
Part F. Heating, Ventilating and Air Conditioning.
1. Landlord shall furnish and install, in satisfactory working order, a
first-class, central air conditioning system, including heat pump units,
sufficient ductwork, controls, thermostats, control valves, fire
dampers, registers, diffusers and related materials adapted to meet the
Building Standard load requirements.
2. The work shall comprise the design and installation of the ductwork
system for each floor together with air diffusers and associated
fixtures all supplied from a central system. The Building Standard
distribution shall be designed to conform to Tenant's Plans by
Landlord's engineer.
3. Landlord shall instruct its engineer to design and Landlord shall
install the building air conditioner system for cooling and heating the
air in the building, according the following standards.
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a. During the normal heating season, to maintain an indoor dry bulb
temperature of not less than 70 degrees F. or more than 75 degrees
F. when the outdoor dry bulb temperature is lower than 65 degrees
F., but not lower than 0 degrees F.
b. To maintain comfort cooling for an indoor dry bulb temperature of 75
degrees F. when the outside dry bulb temperature is 77 degrees F.
4. All of the foregoing performance standards are based upon and limited to the
following conditions of internal sources of heat and moisture:
a. A maximum total electrical lighting and/or office machinery
connected load of five watts per foot of usable floor area, in any
given room or space.
b. A maximum population of one (1) person per 150 square feet of usable
floor area, in any given room or space.
Part G. Ceilings.
1. All ceilings will be 2' x 4' layin ceilings with mineral fissured
acoustical tile.
Part H. Floor Load.
1. Floor loads are 50 pounds per square foot (plus 20 pounds per square
foot for partitions). Areas which are on grade will be 70 pounds per
square foot.
EXHIBIT D-2
Work Letter - Previously Occupied Space
If Landlord is not to deliver the Demised Premises "as is" pursuant to
Section 4.02 of the Lease and if Landlord is to perform work for Tenant under
the Lease, then Landlord agrees to do the following described work in connection
with the Demised Premises, at the cost and expense of the party indicated in
Section 1.03 of the Lease and as may hereinafter further be provided:
1. Incorporation.
Those items of Landlord's standard Work Letter - New Space pertaining to
initial construction (attached to the Lease as Exhibit "D") are hereby
incorporated herein by reference and made a part hereof (except (a) that the
only work to be performed by Landlord shall be limited to that specified below,
(b) that reference in Exhibit "D" to various items of work, or performance of
various duties, being at Landlord's cost and expense shall be deemed deleted and
governed by Section 1.03 of the Lease and that specified below, and (c) as may
otherwise be provided below.
2. Materials.
In performing any work pursuant to the Exhibit "D-2" herein, Landlord
shall not be required to utilize only new materials and equipment, but may also
utilize materials and equipment which have previously been used, provided that
such materials are not damaged, marred, or show signs of material
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wear and tear.
3. Additional Work.
In the event that Tenant's Plans show or will show any work to be
performed (including, without limitation, demolition work) which Landlord agrees
to perform, or for which a credit or reimbursement will be granted, then it is
agreed between Landlord and Tenant, as follows:
Landlord is to build the Demised Premises for Tenant, subject to
Landlord's review of Tenant's plans. Landlord agrees to contribute $25.00 per
square foot to said work, and Tenant agrees to reimburse Landlord for the
balance.
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EXHIBIT E
GUARANTY
A. The undersigned ( ) corporation, ( ) general partnership, ( )
limited partnership, organized under the laws of the State of , having its
principal office at or ( x ) individual or ( ) individuals (as joint and several
obligors) residing at , and in consideration of the execution and delivery, by
969 Associates, a Connecticut limited partnership, as landlord ("Landlord"), of
the within lease ("Lease") to Kulla Post Ltd., as tenant ("Tenant") and in order
to induce Landlord to execute and deliver the Lease to Tenant, and in further
consideration of the sum of Ten ($10.00) Dollars and other good and valuable
consideration, to it in hand paid by the Landlord, the receipt whereof is hereby
acknowledged, DOES HEREBY ABSOLUTELY GUARANTEE to the Landlord, its successors
and assigns, the full and prompt performance by Tenant of all of the obligations
of Tenant under the Lease, including, without limitation, the payment by Tenant
of all Base Rent and additional rent reserved under, and as defined in, the
Lease, and any arrears thereof, and any other sum or sums required to be paid by
Tenant under any of the terms of the Lease, that may be or become due or payable
to Landlord, its successors and assigns, and the payment by Tenant of any and
all damages that may arise in consequence of the non-performance by Tenant of
any of the covenants or agreements required to be performed by Tenant pursuant
to the Lease.
B. This Guaranty shall be a continuing guaranty.
C. This Guaranty shall not be discharged, impaired, or in any way
affected, nor shall the undersigned be released from liability hereunder
because, or on account of, any waiver, modification, alteration, amendment, or
extension, at any time or from time to time, of any of the terms or provisions
of the Lease, or by reason of any other act or thing which but for this
provision of this Guaranty might be deemed a legal or equitable discharge of a
surety, or by reason of the failure of Landlord, its successors or assigns, to
proceed promptly or otherwise; and the undersigned hereby expressly waives and
surrenders any defense to its liability hereunder based upon any of the
foregoing waivers, modifications, alterations, amendments, extensions or delays,
or any of them.
D. It is specifically agreed that Landlord, its successors and
assigns, may proceed under this Guaranty without being required to give to the
undersigned notice of any default on the part of Tenant under the Lease and
without being required to institute any proceedings against Tenant.
This Guaranty shall inure to the benefit of Landlord, its successors and
assigns, and shall bind the undersigned and its successors and assigns.
IN WITNESS WHEREOF, the undersigned has hereunto set its hand and
seal as of the day of , 199 .
GUARANTOR:
ATTEST:
--------------
65
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By:
--------------------------
Its:
---------------------------
Corporate Seal
66
<PAGE>
ACKNOWLEDGMENTS
FOR INDIVIDUAL GUARANTOR:
STATE OF )
)ss.:
COUNTY OF )
On this day of , 199 , before me personally appeared
to me known and known to me to be the individual(s) described in and who
executed the foregoing instrument, and he duly acknowledged that he executed
the same as his(their) free act and deed.
-------------------------
Notary Public
FOR CORPORATE GUARANTOR:
STATE OF )
)ss.:
COUNTY OF )
On this day of , 199 , before me personally came
to me known, who, being by me duly sworn did depose and say that he resides
at that he is the of , the corporation described
in and which executed the foregoing instrument; 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.
-------------------------
Notary Public
FOR PARTNERSHIP GUARANTOR:
STATE OF )
)ss.:
COUNTY OF )
On this day of , 199 , before me personally came
to me known and known to me to be a general partner of
and known to me to be the person described in and who executed the foregoing
instrument in said partnership name, and he duly acknowledged that he executed
the same as his free act and deed and as the free act and deed of said
partnership.
67
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------------------------
Notary Public
68
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969 ASSOCIATES, Landlord
and
Tenant
STANDARD FORM LEASE
Dated: , 199
INDEX
Page
Access............................................... 18
Additional Rent...................................... 5
Air-Conditioning..................................... 14
Assignment........................................... 40
Attornment........................................... 47
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Base Rent............................................ 5
Brokerage............................................ 48
Changes in the Building.............................. 18
Commencement Date.................................... 10
Construction......................................... 56
Costs of Operation................................... 11
Curing Tenant's Defaults............................. 48
Damage and Destruction............................... 31
Damages.............................................. 53
Default Provisions............................... 39, 48
Definitions and Terms................................ 1
Demise and Premises.................................. 5
Eminent Domain....................................... 28
Energy............................................... 26
Estoppel Certificate................................. 39
Events of Default.................................... 40
Expiration Date...................................... 2
Failure to Enforce Terms............................. 54
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Page
Heat................................................. 14
Indemnification...................................... 52
Insurance............................................ 32
Laws and Requirements of Public Authorities.......... 51
Miscellaneous Provisions............................. 57
Modifications........................................ 54
Mortgaging........................................... 40
Name of Building..................................... 16
No Other Representations............................. 56
Non-Liability........................................ 52
Non-Recourse......................................... 52
Notices.......................................... 47, 50
Preparing the Demised Premises....................... 7
Quiet Enjoyment...................................... 47
Real Estate Tax Changes.............................. 20
Recording............................................ 39
Re-Entry by Landlord................................. 48
Relocation........................................... 59
Rent................................................. 5
Rent Adjustments Based Upon Costs of Operation....... 11
Rent Adjustments Based Upon Taxes.................... 20
Repairs and Maintenance.............................. 30
Rules and Regulations................................ 51
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Page
Security Deposit..................................... 46
Services - Landlord's................................ 23
Shoring.............................................. 56
Subletting........................................... 40
Subordination........................................ 47
Successors and Assigns............................... 56
Surrender............................................ 38
Tenant Changes....................................... 34
Tenant Indentification............................... 16
Tenant's Property.................................... 37
Termination of Lease................................. 39
Terms and Definitions................................ 1
Use.................................................. 16
Ventilating.......................................... 14
Waivers.............................................. 54
EXHIBITS
Exhibit
A - Floor Plan(s)
A-1 - Tenant's Plans
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B - Rules and Regulations
C - General Cleaning Specifications
D - Work Letter
D-2 - Work Letter - Previously Occupied Space
E - Guaranty
73
Exhibit 11
Statement re: Computation of Per Share Earnings
International Telecommunications Data Systems, Inc.
<TABLE>
<CAPTION>
Year ended Six months ended June 30,
December 31, 1995 1995 1996
----------------- ---------- ----------
<S> <C> <C> <C>
Average shares
outstanding for the period 4,875,200 4,875,200 4,875,200
Pro forma adjustments (1):
Common shares exchanged for
Preferred Stock:
Class A 524,808 524,808 524,808
Class B 328,004 328,004 328,004
Class C 103,200 103,200 103,200
Warrants exercised 334,524 334,524 334,524
---------- ---------- ----------
Weighted average Common Shares
outstanding 6,165,736 6,165,736 6,165,736
========== ========== ==========
Income before extraordinary item $ 825,594 $ 466,616 $ 994,205
Extraordinary Loss (223,696) (223,696) --
---------- ---------- ----------
Net Income $ 601,898 $ 242,920 $ 994,205
========== ========== ==========
Pro forma net income per
Common Share:
Pro forma income before
extraordinary item $.13 $.07 $.16
Extraordinary Loss (.03) (.03) --
---------- --------- ----------
Pro forma net income $.10 $.04 $.16
========== ========= ==========
</TABLE>
(1) Assumes that proceeds from the sale of the warrants ($823,000) was used to
retire the notes ($825,000) issued in exchange for the Preferred A and B
stock.
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and under
the caption "Selected Financial Data" and to the use of our report dated March
15, 1996, except for Note 10, as to which the date is September 27, 1996, in the
Registration Statement (Form S-1 No. 333-11045) and related Prospectus of
International Telecommunication Data Systems, Inc. for the registration of
2,666,667 shares of its common stock.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
September 30, 1996
