As filed with the Securities and Exchange Commission on August 29, 1996
Registration No. 333-
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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International Telecommunication Data Systems, Inc.
(Exact Name Of Registrant As Specified In Its Charter)
Delaware 7371 06-12959
(State or other (Primary Standard (I.R.S.
jurisdiction of Industrial Employer
incorporation or Classification Code Identification
organization) Number) 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)
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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)
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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. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed
Maximum
Aggregate Amount of
Title Of Each Class Of Offering Registration
Securities To Be Registered Price (1) Fee
- -------------------------------------- -------------- ---------------
Common Stock, $.01 par value per share $49,066,672 $16,920
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of
1933.
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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.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
Subject to Completion, dated , 1996
PROSPECTUS
2,666,667 Shares
[ITDS logo]
INTERNATIONAL
TELECOMMUNICATION
DATA SYSTEMS
Common Stock
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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". Application has been made to have the
Common Stock approved for quotation on the Nasdaq National Market under the
symbol "ITDS".
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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.
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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.
Underwriting
Discounts and Proceeds to
Price to Commissions Proceeds to Selling
Public (1) Company (2) Stockholders
Per Share $ $ $ $
Total (3) $ $ $ $
(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".
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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.
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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 ITDS facility]
[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.
ITDS Features:
(bullet) UNIX Platform Option
(bullet) Relational Data Bases
(bullet) Text or GUI Presentation
(bullet) CIBER Compliant
(bullet) GSM Compliant
(bullet) CORD Compliant
(bullet) Full Product Integration
[Text Representation of Chart]
Out Bound Traffic
-----------------------------------------> To Roaming
| (Fraud, Billing, Settlement Records) Partners
|
|
|
| In Bound Traffic (All Roamer Records) From Roaming
| --------------------------------------- Partners
| |
| |
| |
| V (Home & Roam
Switch DMH Call Billing Records) ITDS 10X(R) Subscriber
MTSO ----> Handler -------------------> File Server (UNIX or Intel)
| |
| |
| |
| |
|------------> Home Fraud Analysis |
(Home & Roam | |
Fraud Records) | |
| |
| |
| |
- ---------------------------------------------------------------------------
| | | | | | | | | |
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
[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
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<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
Common Stock offered by the 2,000,000 shares
Company.
Common Stock offered by the 666,667 shares
Selling Stockholders
Common Stock to be outstanding 8,165,736 shares (1)
after the offering
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
- -------------
(1) Based upon the number of shares outstanding as of August 31, 1996.
Excludes 1,200,000 shares reserved for issuance under the Company's 1996
Stock Incentive Plan and 1996 Employee Stock Purchase Plan.
4
<PAGE>
Summary Financial Information
(in thousands, except per share data)
Six Months
Year Ended December 31, Ended June 30,
------------------------ -----------------
1993 1994 1995 1995 1996
----- ----- ------ ------ -------
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 (loss) before
extraordinary item (1) (82) 708 826 467 994
Per common share data (2):
Income (loss) before
extraordinary item (.02) .14 .16 .09 .19
Extraordinary loss -- -- (.04) (.04) --0
----- ----- ------ ------ ------
Net income (loss) (.02) .14 .12 .05 .19
Shares used in determining
net income (loss) per
share 4,779 5,067 4,875 4,875 4,875
===== ===== ====== ====== ======
As of June 30, 1996
As of December 31, As Adjusted
1995 Actual (3)
------------------ ----- -------------
Balance Sheet Data:
Cash, cash equivalents and
short term investments $1,468 $1,372 $25,283
Working capital 1,210 2,256 26,388
Total assets 5,434 6,500 35,901
Long-term debt and capital
lease obligations 2,437 2,482 491
Stockholders' equity 1,019 1,952 28,909
- -------------
(1) In 1995, the Company experienced an extraordinary loss of $224 (net of
$158 tax benefit) in connection with the refinancing of long-term debt.
(2) Computed on the basis described in Note 1 of the Notes to Financial
Statements.
(3) Adjusted to give effect to the sale by the Company of 2,000 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
<PAGE>
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
<PAGE>
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 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."
8
<PAGE>
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
52.2% of the outstanding Common Stock, assuming no exercise of the
Underwriters' over allotment options and approximately 50.9% 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."
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."
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
9
<PAGE>
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 (pursuant to two
promissory notes payable to Connecticut Innovations, Incorporated ("CII"),
promissory notes payable to former holders of the Company's Class A and Class
B Preferred Stock) and for general corporate purposes, including the funding
of working capital and growth. At July 31, 1996, the Company had outstanding
two promissory notes payable to 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. The promissory notes payable to the
former holders of Class A and Class B Preferred Stock were issued in
connection with the Recapitalization, are in the aggregate amount of
$825,000, are interest free and are due upon the completion of this offering.
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 a one-time payment to CII of $200,000 from the net proceeds of this
offering.
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.
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.
June 30, 1996
------------------------------
Pro Forma
Pro as
Forma Adjusted
Actual (1) (2)
----- ------ -----------
(in thousands)
Long-Term debt and capital lease
obligations $2,482 $3,307 $ 491
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 -- --
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 -- --
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 62 1,026 27,956
Retained earnings 871 871 871
Treasury stock (400) -- --
------ ------ -------
Total stockholders' equity 1,952 1,959 28,909
------ ------ -------
Total capitalization $4,434 $5,266 $29,400
====== ====== =======
(1) Includes $822,959 received by the Company upon exercise of the Warrants
and the retirement of 249,600 shares held in treasury.
(2) Excludes 1,200,000 shares of Common Stock reserved for issuance pursuant
to the Company's 1996 Stock Incentive Plan and 1996 Employee Stock
Purchase Plan.
(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 $1,959,000 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 $28,909,000, 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:
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
=======
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):
Shares Purchased Total Consideration
------------------ --------------------
Average
Price
Number Percent Amount Percent Per Share
-------- ------ ---------- ------ ----------
Existing
stockholders 6,165,736 75.5% $ 2,289,559 7.1% $ .37
New investors 2,000,000 24.5 30,000,000 92.9 15.00
--------- ----- ----------- ----- ------
Total 8,165,736 100.0% $32,289,559 100.0%
========= ===== =========== =====
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.
Six Months
Ended June
Year Ended December 31, 30,
----------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ----- ---- -----
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):
Income (loss) before
extraordinary item $(.30) $(.15) $(.02) $ .14 $ .16 $ .09 $ .19
Extraordinary loss -- -- -- -- (.04) (.04) --
Net income (loss) $(.30) $(.15) $(.02) $ .14 $ .12 $ .05 $ .19
===== ====== ===== ===== ====== ===== =======
Shares used in
determining income
(loss) per common
share 1,838 3,064 4,779 5,067 4,875 4,875 4,875
===== ===== ===== ===== ======= ===== ======
14
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30, 1996
As
Adjusted
1991 1992 1993 1994 1995 Actual (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 $25,283
Working capital 288 243 164 157 1,210 2,256 26,388
Current assets 321 671 971 1,457 3,117 4,029 27,940
Current liabilities 33 429 807 1,300 1,907 1,773 1,552
Total assets 430 1,193 1,917 2,651 5,434 6,500 35,901
Total long-term debt and
capital lease
obligations 636 1,055 1,501 1,353 2,437 2,482 491
Total stockholders' equity
(deficit) (239) (310) (503) (186) 1,019 1,952 28,909
</TABLE>
- -------------
(1) Computed on the basis described in Note 1 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:
Six Months
Year Ended December 31, Ended June 30,
----------------------- ----------------
1993 1994 1995 1995 1996
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%
==== ==== ==== ==== =====
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. The increase was due primarily to increases in employment
agency fees, increases in employee benefits obligations, increases in
expenditures for trade show participation, advertising, travel, and increases
in expenditures for accounting. 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 royalty
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. These increases were principally due to increased salaries and
bonuses paid to the senior management of the Company, as well as additional
employment agency fees, employee benefits, and other administrative expenses
required 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.
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
18
<PAGE>
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 royalty
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. The increase was due primarily to
additional legal expenses incurred relating to a settlement of litigation and
the related purchase of a minority shareholder's Common Stock interest in the
Company; increased accounting expenses related to financial and operational
audits performed on behalf of the Company; and increased employment agency
fees, increases in employment benefit obligations, and other administrative
expenses relating to 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.
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.
19
<PAGE>
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 royalty 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 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.
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.
20
<PAGE>
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.
Three Months Ended
-----------------------------------------------------
Mar. June Sept. Dec. Mar. June
31, 30, 30, 31, 31, 30,
1995 1995 1995 1995 1996 1996
----- ----- ----- ----- ----- -------
(in thousands)
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
====== ====== ====== ====== ====== =======
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.
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<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:
[Chart Depicting ITDS Product Features]
Out Bound Traffic
-----------------------------------------> To Roaming
| (Fraud, Billing, Settlement Records) Partners
|
|
|
| In Bound Traffic (All Roamer Records) From Roaming
| --------------------------------------- Partners
| |
| |
| |
| V (Home & Roam
Switch DMH Call Billing Records) ITDS 10X(R) Subscriber
MTSO ----> Handler -------------------> File Server (UNIX or Intel)
| |
| |
| |
| |
|------------> Home Fraud Analysis |
(Home & Roam | |
Fraud Records) | |
| |
| |
- ---------------------------------------------------------------------------
| | | | | | | | | |
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
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:
Subscriber Order Entry Credit Bureau Interface
Integrated Point of Sale Transactional Credit Card Billing
Phone Number Assignment Rate & Feature Assignment
Switch Provisioning Equipment Inventory Assignment &
Interface Tracking
Lead Generation & Tracking Multiple Account Receivable Options
Automatic Clearinghouse for
Bank Draft Payments Automatic Call Credit Adjustments
Multi-tiered Security
Systems On-Line What-if Plan Selection
Automatic Notes and Multiple Search Keys at Account or
Reminders Phone Level
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:
Data Collection from all Polling or Receipt of Near Real Time
Switch Types Records
Roamer In/Out Collect
Processing Up to 999 Rate Plans per Market
Error Management & Rating, Re-rating and "Pseudo Roaming"
Reporting Support
Discounts by Amount or Variable Time Periods for Air and/or
Percentage Toll
Selective or Global
Exceptions Unlimited Toll Plans On-line
Billing & Invoicing--Application of rated messages to invoices, summary
files and reports:
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
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.
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<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
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<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
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<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.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers, directors and certain additional management of the
Company are as follows:
Name Age Position
- --------------------------- --- ---------------------------------------
Directors and
Named Executive Officers
Charles L. Bakes 66 President, Chief Executive Officer and
Director
Mark D. Spitzer (1) 47 Executive Vice President, Chief Financial
Officer, Treasurer and Director
Lewis D. Bakes 38 Executive Vice President, Chief Operating
Officer, Secretary and Director
David L. Wells 48 Executive Vice President, Chief
Information 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'Neil 67 Senior Vice President
Peter L. Masanotti 41 Vice President and General Counsel
- -------------
(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 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 and Chief Financial Officer 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 and Chief Operating Officer 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 and Chief Information Officer 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.
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<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.
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
Annual Compensation
-----------------------------------
All Other
Name and Principal Position Salary Bonus Compensation
----------------------------- ------- ------- -------------
Charles L. Bakes $239,950 $308,825 --
Mark D. Spitzer $322,887 $294,798 --
Lewis D. Bakes $321,772 $290,913 --
David L. Wells $204,000 $120,181 --
Barry K. Lewis $115,000 $ 7,500 --
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<PAGE>
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. The agreement terminates on July 4, 1997, unless sooner terminated
as provided therein. The agreement provides for an annual base salary of
$85,000 per year (plus performance bonuses to be determined in the sole
discretion of the Board of Directors) and an annual housing allowance of
$15,000. In addition, Mr. Lewis is entitled to certain other rights, subject
to a cap on value of $550,000, payable upon an initial public offering or
change in control in the Company. Upon the closing of this offering, the
Company intends to satisfy such rights in full by payment in cash of
$275,000, $137,500 of which will be payable immediately and $137,500 of which
will be payable within one year of the closing of this offering. In addition,
Mr. Lewis will be issued _________ shares of Common Stock, which shares shall
vest over four years in equal annual installments. 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 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.
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<PAGE>
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."
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 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 an aggregate of 852,812 shares of Common Stock and
promissory notes in the aggregate amount of $825,000, evidencing the Company's
obligations to repay capital. 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.
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<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.
Shares of
Shares of Common
Common Stock Stock
Beneficially Number of Beneficially
Owned Prior to Shares of Owned
the Offering Common After the
(2) Stock Offering (2)(3)
Name and Address (1) of --------------- Being ---------------
Beneficial Owner Number Percent Offered Number Percent
- -------------------------- ------ ------- --------- ------ -------
Connecticut Innovations,
Incorporated (4) 437,724 7.1% 0 437,724 5.3%
845 Brook Street
Rocky Hill, CT 06067
Charles L. Bakes (5) 1,671,756 27.1% 224,413 1,447,343 17.7%
Mark D. Spitzer (6) 1,279,756 20.8% 171,791 1,107,965 13.6%
Lewis D. Bakes (7) 1,250,600 20.3% 167,878 1,082,722 13.3%
David L. Wells (8) 719,400 11.7% 96,571 622,829 7.6%
Barry K. Lewis 0
0 -- 0 (9) --
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) 4,921,512 79.8% 666,667 4,260,859 52.2%
- -------------
* 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) Does not include __________ shares to be issued to Mr. Lewis after this
offering.
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<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
8,165,736 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 June 30, 1996, there will be 8,165,736 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 5,499,069 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) 4,266,045 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 81,654
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.
The Company anticipates that prior to this offering, all of the security
holders of the Company will 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 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 this Prospectus is a part and
will be effective upon filing. Shares issued upon the exercise of stock
options after
39
<PAGE>
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.
In connection with the issuance and sale of the Warrants and the Class C
Convertible Preferred Stock to CII, the Company granted rights with respect
to the registration of shares under the Securities Act (the "Registration
Rights") to CII. 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 exercising
registration rights (including CII), CII is entitled, with respect to 437,724
shares of Common Stock, to notice of such registration and is entitled to
include such shares of Common Stock in the registration. In addition, CII
will be entitled, with respect to 103,200 of such shares, 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. The Company
anticipates that prior to this offering all of the security holders of the
Company will agree 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 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.
41
<PAGE>
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 Company has applied for quotation of its Common Stock 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
Page
-------
Report of Independent Auditors F-2
Financial Statements
Balance Sheets as of December 31, 1994 and 1995 and June 30,
1996 (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
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 years in the three year 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 years in the
three year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Stamford, Connecticut
March 15, 1996, except for Note 10,
as to which the date is ________________, 1996
The foregoing report is in the form that will be signed upon the
recapitalization described in Note 10 to the financial statements.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
August 29, 1996
F-2
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
BALANCE SHEETS
December 31, June 30,
----------------------
1994 1995 1996
--------- --------- -----------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 412,250 $1,172,692 $1,031,990
Short-term investments (Note 2) 99,286 295,069 340,200
Accounts receivable 891,178 1,348,787 2,333,856
Prepaid expenses 43,564 279,942 279,478
Deferred income taxes 10,605 20,256 43,000
---------- ---------- ----------
Total current assets 1,456,883 3,116,746 4,028,524
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
Furniture and fixtures, including
leased property under capital
leases of $33,119 90,015 90,015 90,015
Trade booth 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
Leasehold improvements 27,026 27,026 27,026
---------- ---------- ----------
1,094,076 1,827,480 2,177,170
Less: accumulated depreciation and
amortization 499,537 709,911 997,173
---------- ---------- ----------
594,539 1,117,569 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
Other 127,795 185,563 189,775
Deferred income taxes -- 228,823 99,000
---------- ---------- ----------
599,776 1,199,391 1,291,614
---------- ---------- ----------
Total assets $2,651,198 $5,433,706 $6,500,135
========== ========== ==========
See accompanying notes.
F-3
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
BALANCE SHEETS--Continued
December 31, June 30,
----------------------
1994 1995 1996
--------- --------- ----------
(unaudited)
Liabilities and stockholders'
equity (deficiency)
Current liabilities:
Accounts payable $ 384,886 $ 256,001 $ 347,395
Accrued expenses 126,916 386,137 345,221
Accrued compensation 45,592 693,386 440,900
Current portion of accrued rent
liability 17,365 26,401 27,597
Current maturities of notes
payable 75,821 77,198 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
---------- ---------- ----------
Total current liabilities 1,300,202 1,906,624 1,772,465
Accrued rent liability 79,694 53,293 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
Deferred income taxes 10,605 -- --
Deferred revenue -- -- 200,000
Other 16,184 17,694 47,842
Commitments and contingencies
(Note 7) -- -- --
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--Class C
$4,961 par value, cumulative,
nonvoting
250 shares authorized, 129 shares
outstanding -- 640,000 640,000
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 51,248 51,248 51,248
Additional paid-in capital 61,862 61,862 61,862
Retained earnings (deficit) (627,350) (62,046) 870,559
Treasury stock (400,030) (400,030) (400,030)
---------- ---------- ----------
Total stockholders' equity
(deficiency) (186,270) 1,019,034 1,951,639
---------- ---------- ----------
Total liabilities and stockholders'
equity (deficiency) $2,651,198 $5,433,706 $6,500,135
========== ========== ==========
See accompanying notes.
F-4
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended June
Year ended December 31, 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
========== ========== =========== ========== ==========
Income (loss) per common
share:
Income (loss) before
extraordinary item $ (.02) $ .14 $ .16 $ .09 $ .19
Extraordinary loss -- -- (.04) (.04) --
---------- ---------- ----------- ---------- ----------
Net income (loss) $ (.02) $ .14 $ .12 $ .05 $ .19
========== ========== =========== ========== ==========
Shares used in computing
income (loss) per common
share 4,779,267 5,067,293 4,875,200 4,875,200 4,875,200
========== ========== =========== ========== ==========
</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 Class C
----------------------- ---------------------- ----------------------
Number $25,000 Number $250 Number $4,961
of Shares Par of Shares Par of Shares Par
Outstanding Value Outstanding Value Outstanding Value
----------- -------- ------------ ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992 18 $400,400 1,500 $327,600 0 $ --
Issuance of common
stock
Distribution of stock
to officers
Net loss
Preferred stock
dividends
-------- -------- --------- -------- --------- --------
Balance at December 31,
1993 18 400,400 1,500 327,600 0
Issuance of common
stock
Net income
Preferred stock
dividends
Purchase of treasury
stock
-------- -------- --------- -------- --------- --------
Balance at December 31,
1994 18 400,400 1,500 327,600 0 --
Issuance of preferred
stock 129 640,000
Net income
Preferred stock
dividends
-------- -------- --------- -------- --------- --------
Balance at December 31,
1995 18 400,400 1,500 327,600 129 640,000
Net income
Preferred stock
dividends
-------- -------- --------- -------- --------- --------
Balance at June 30, 1996 18 $400,400 1,500 $327,600 129 $640,000
======== ======== ========= ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Common Stock
Treasury
Number Additional Stock Retained
of Shares Par Paid-in at Earnings
Outstanding Value Capital Cost (Deficit)
----------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December
31, 1992 3,259,200 $32,592 $14,968 $ -- $(1,220,219)
Issuance of common
stock 32,000 320 280
Distribution of
stock to officers 1,800,000 18,000 16,185
Net loss (81,581)
Preferred stock
dividends (11,250)
----------- ------- ---------- ---------- -------------
Balance at December
31, 1993 5,091,200 50,912 31,433 -- (1,313,050)
Issuance of common
stock 33,600 336 30,429
Net income 708,200
Preferred stock
dividends (22,500)
Purchase of
treasury stock (249,600) (400,030)
----------- ------- ---------- ---------- -------------
Balance at December
31, 1994 4,875,200 51,248 61,862 (400,030) (627,350)
Issuance of
preferred stock
Net income 601,898
Preferred stock
dividends (36,594)
----------- ------- ---------- ---------- -------------
Balance at December
31, 1995 4,875,200 51,248 61,862 (400,030) (62,046)
Net income 994,205
Preferred stock
dividends (61,600)
----------- ------- ---------- ---------- -------------
Balance at June 30,
1996 4,875,200 $51,248 $61,862 $(400,030) $ 870,559
=========== ======= ========== ========== =============
</TABLE>
See accompanying notes.
F-6
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended June
Year ended December 31, 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 has capitalized software development costs incurred in the
development of software used in its product and service line. 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 on the straight-line method over an estimated useful
life of 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.
Net income (loss) per share of common stock, after preferred stock
dividends of $11,250, $22,500 and $36,594 in the years ended December 31,
1993, 1994 and 1995, respectively, and $11,250 and $61,600 in the six month
periods ended June 30, 1995 and 1996, respectively, is calculated using the
weighted average number of shares of common stock outstanding and common
stock equivalents, if dilutive, and reflects the 800-for-1 stock split
referred to in Note 10. In accordance with the provisions of Accounting
Principles Board Opinion No. 15, common stock equivalents applicable to
primary earnings per share calculations, and shares applicable to fully
diluted
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)
earnings per share calculations have been excluded from such calculations
because they result in dilution of less than 3% for all periods presented.
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:
Six months
Year ended ended
December 31,
1995 June 30, 1996
-------------- ---------------
Income before extraordinary item $ .17 $.17
Extraordinary item (.04) --
------------ -------------
Net income $ .13 $.17
============ =============
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 in the form of quarterly royalty 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
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)
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.
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.
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)
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.
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, an
employee will become entitled, only in the event of a change in control or a
public offering of the Company's Common Stock, to certain rights, limited to
an amount not to exceed $550,000.
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 loss of
$223,696 net of a $158,038 tax benefit. Such extraordinary loss was due to
negotiated acceleration of royalty 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:
1993 1994 1995
----- ----- -------
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%
==== ==== =====
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. 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 Company's 1996 Stock Incentive Plan and 1996 Employee Stock Purchase
Plan will take effect upon the closing of the IPO. A total of 1,200,000
common shares have been authorized for issuance under these plans.
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. Minimum future rental payments due under such lease are $723,330
per year.
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
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
Page
-----
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
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]
INTERNATIONAL
TELECOMMUNICATION
DATA SYSTEMS
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 *
Blue Sky Fees and Expenses *
Transfer Agent and Registrar Fees *
Accounting Fees and Expenses *
Legal Fees and Expenses *
Printing, Engraving and Mailing Expenses *
Miscellaneous *
Total $ *
======
- -------------
* To be provided by amendment.
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 Inc.
("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.
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
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------
1* Form of Underwriting Agreement.
2* Agreement and Plan of Merger, dated September , 1996
between the Registrant and International
Telecommunications Data Systems, Inc. a Connecticut
corporation.
3.1 Certificate of Incorporation of the Registrant.
3.2 By-Laws of the Registrant.
4.1 Specimen Certificate for shares of Common Stock, $.01 par
value, 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, dated as of June 1994.
10.4* Stock Purchase Agreement dated December 11, 1995 between
the Registrant and Connecticut Innovations, Incorporated
relating to Class C Convertible Preferred Stock.
10.5* 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 (included on page II-6).
27 Financial Data Schedule.
- -------------
* To be filed by amendment.
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 Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Boston, Commonwealth of Massachusetts, on this 29 day of August, 1996.
INTERNATIONAL TELECOMMUNICATION
DATA SYSTEMS, INC.
By: /s/ Charles L. Bakes
Charles L. Bakes
President
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of International
Telecommunication Data Systems, Inc., hereby severally constitute and appoint
Charles L. Bakes, Mark D. Spitzer and John A. Burgess, and each of them
singly, our true and lawful attorneys with full power to them, and each of
them singly, to sign for us and in our names in the capacities indicated
below, the Registration Statement on Form S-1 filed herewith and any and all
pre-effective and post-effect amendments to said Registration Statement, and
any subsequent Registration Statement for the same offering which may be
filed under Rule 462(b) and generally to do all such things in our names and
on our behalf in our capacities as officers and directors to enable
International Telecommunication Data Systems, Inc. to comply with the
provisions of the Securities Act of 1933, as amended, and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to
said Registration Statement and any and all amendments thereto or to any
subsequent Registration Statement for the same offering which may be filed
under Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
- -------------------------- ------------------------ ----------------------
President, Chief
Executive Officer
and Director
/s/ Charles L. Bakes (Principal Executive
Charles L. Bakes Officer) August 29, 1996
Chief Financial
Officer (Principal
Financial and
/s/ Mark D. Spitzer Accounting Officer)
Mark D. Spitzer and Director August 29, 1996
/s/ Lewis D. Bakes
Lewis D. Bakes Director August 29, 1996
/s/ David L. Wells
David L. Wells Director August 29, 1996
/s/ Stuart L. Bell
Stuart L. Bell Director August 29, 1996
/s/ Michael E. Kalogris
Michael E. Kalogris Director August 29, 1996
II-5
<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
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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.
5
<PAGE>
(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.
6
<PAGE>
(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,
7
<PAGE>
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,
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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
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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
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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
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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
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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,
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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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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
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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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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
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BY-LAWS
OF
INTERNATIONAL TELECOMMUNICATION
DATA SYSTEMS, INC.
<PAGE>
BY-LAWS
TABLE OF CONTENTS
Page
ARTICLE 1 - Stockholders 1
Section 1.1 Place of Meetings 1
Section 1.2 Annual Meeting 1
Section 1.3 Special Meetings 1
Section 1.4 Notice of Meetings 1
Section 1.5 Voting List 2
Section 1.6 Quorum 2
Section 1.7 Adjournments 2
Section 1.8 Voting and Proxies 2
Section 1.9 Action at Meeting 3
Section 1.10 Nomination of Directors 3
Section 1.11 Notice of Business at Annual Meetings 4
Section 1.12 Action without Meeting 5
Section 1.13 Organization 5
ARTICLE 2 - Directors 5
Section 2.1 General Powers 5
Section 2.2 Number; Election and Qualification 6
Section 2.3 Classes of Directors 6
Section 2.4 Terms of Office 6
Section 2.5 Allocation of Directors Among Classes
in the Event of Increases or Decreases
in the Number of Directors 7
Section 2.6 Vacancies 7
Section 2.7 Resignation 7
Section 2.8 Regular Meetings 8
Section 2.9 Special Meetings 8
Section 2.10 Notice of Special Meetings 8
Section 2.11 Meetings by Telephone Conference Calls 8
Section 2.12 Quorum 8
Section 2.13 Action at Meeting 9
Section 2.14 Action by Consent 9
Section 2.15 Removal 9
Section 2.16 Committees 9
Section 2.17 Compensation of Directors 9
ARTICLE 3 - Officers 10
Section 3.1 Enumeration 10
Section 3.2 Election 10
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<PAGE>
Page
Section 3.3 Qualification 10
Section 3.4 Tenure 10
Section 3.5 Resignation and Removal 10
Section 3.6 Vacancies 11
Section 3.7 Chairman of the Board and Vice
Chairman of the Board 11
Section 3.8 President 11
Section 3.9 Vice Presidents 11
Section 3.10 Secretary and Assistant Secretaries 11
Section 3.11 Treasurer and Assistant Treasurers 12
Section 3.12 Salaries 12
ARTICLE 4 - Capital Stock 13
Section 4.1 Issuance of Stock 13
Section 4.2 Certificates of Stock 13
Section 4.3 Transfers 13
Section 4.4 Lost, Stolen or Destroyed
Certificates 13
Section 4.5 Record Date 14
ARTICLE 5 - General Provisions 14
Section 5.1 Fiscal Year 14
Section 5.2 Corporate Seal 14
Section 5.3 Waiver of Notice 14
Section 5.4 Voting of Securities 15
Section 5.5 Evidence of Authority 15
Section 5.6 Certificate of Incorporation 15
Section 5.7 Transactions with Interested Parties 15
Section 5.8 Severability 16
Section 5.9 Pronouns 16
ARTICLE 6 - Amendments 16
Section 6.1 By the Board of Directors 16
Section 6.2 By the Stockholders 16
Section 6.3 Certain Provisions 16
-ii-
<PAGE>
BY-LAWS
OF
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
ARTICLE 1 - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held within six months after the end of each
fiscal year of the corporation on a date to be fixed by the Board of Directors
or the President (which date shall not be a legal holiday in the place where the
meeting is to be held) at the time and place to be fixed by the Board of
Directors or the President and stated in the notice of the meeting. If no annual
meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-Laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
any time by 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.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice
<PAGE>
of a special meeting shall state, in addition, the purpose or purposes for which
the meeting is called. If mailed, notice is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by the General Corporation Law of the State of Delaware, the Certificate of
Incorporation or these By-Laws. Each stockholder of record entitled to vote at a
meeting of stockholders, or to express consent or dissent to corporate action in
writing without a
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<PAGE>
meeting, may vote or express such consent or dissent in person or may authorize
another person or persons to vote or act for him by written proxy executed by
the stockholder or his authorized agent and delivered to the Secretary of the
corporation. No such proxy shall be voted or acted upon after three years from
the date of its execution, unless the proxy expressly provides for a longer
period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. When a quorum is present at any meeting, any
election by stockholders shall be determined by a plurality of the votes cast on
the election.
1.10 Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nomination for election to the Board of Directors of the corporation
at a meeting of stockholders may be made by the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting who complies with the notice procedures set forth in this Section
1.10. Such nominations, other than those made by or on behalf of the Board of
Directors, shall be made by notice in writing delivered or mailed by first class
United States mail, postage prepaid, to the Secretary, and received not less
than 60 days nor more than 90 days prior to such meeting; provided, however,
that if less than 70 days' notice or prior public disclosure of the date of the
meeting is given to stockholders, such nomination shall have been mailed or
delivered to the Secretary not later than the close of business on the 10th day
following the date on which the notice of the meeting was mailed or such public
disclosure was made, whichever occurs first. Such notice shall set forth (a) as
to each proposed nominee (i) the name, age, business address and, if known,
residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to be named as
a nominee and to serve as a director if elected); and (b) as to the
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<PAGE>
stockholder giving the notice (i) the name and address, as they appear on the
corporation's books, of such stockholder and (ii) the class and number of shares
of the corporation which are beneficially owned by such stockholder. The
corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the corporation to determine the eligibility of
such proposed nominee to serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
1.11 Notice of Business at Annual Meetings. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before an annual meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, if such business relates to the election of directors of the
corporation, the procedures in Section 1.10 must be complied with. If such
business relates to any other matter, the stockholder must have given timely
notice thereof in writing to the Secretary. To be timely, a stockholder's notice
must be delivered to or mailed and received at the principal executive offices
of the corporation not less than 60 days nor more than 90 days prior to the
meeting; provided, however, that in the event that less than 70 days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the date on which
such notice of the date of the meeting was mailed or such public disclosure was
made, whichever occurs first. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the corporation's books, of
the stockholder proposing such business, (c) the class and number of shares of
the corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding anything
in these By-Laws to the contrary, no business shall be conducted at any
4
<PAGE>
annual meeting except in accordance with the procedures set forth in this
Section 1.11 and except that any stockholder proposal which complies with Rule
14a-8 of the proxy rules (or any successor provision) promulgated under the
Securities Exchange Act of 1934, as amended, and is to be included in the
corporation's proxy statement for an annual meeting of stockholders shall be
deemed to comply with the requirements of this Section 1.11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 1.11, and if he should so
determine, the chairman shall so declare to the meeting that any such business
not properly brought before the meeting shall not be transacted.
1.12 Action without Meeting. 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, stockholders may not take any action by written consent in lieu of
a meeting.
1.13 Organization. The Chairman of the Board, or in his absence the
Vice Chairman of the Board designated by the Chairman of the Board, or the
President, in the order named, shall call meetings of the stockholders to order,
and shall act as chairman of such meeting; provided, however, that the Board of
Directors may appoint any stockholder to act as chairman of any meeting in the
absence of the Chairman of the Board. The Secretary of the corporation shall act
as secretary at all meetings of the stockholders; but in the absence of the
Secretary at any meeting of the stockholders, the presiding officer may appoint
any person to act as secretary of the meeting.
ARTICLE 2 - Directors
2.1 General Powers. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
5
<PAGE>
2.2 Number; Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors, but in no event shall be less than three. The number
of directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
2.3 Classes of Directors. 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, 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.
2.4 Terms of Office. Subject to the next sentence, each director shall
serve for a term ending on the date of the first annual meeting following the
annual meeting at which such director was elected. 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, each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting of stockholders in
1997; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 1998; and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders 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.
6
<PAGE>
2.5 Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. When applicable, 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.
2.6 Vacancies. 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,
any vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, shall be filled only by vote of a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. Prior to such public offering, any such vacancy may be
filled by vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director, or by a majority of the stockholders
entitled to vote thereon. A director elected to fill a vacancy shall be elected
for the unexpired term of his predecessor in office, and a director chosen to
fill a position resulting from an increase in the number of directors shall 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.
2.7 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
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2.8 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.9 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.10 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 24 hours in advance of the meeting, (ii) by sending a telegram, telecopy,
or telex, or delivering written notice by hand, to his last known business or
home address at least 24 hours in advance of the meeting, or (iii) by mailing
written notice to his last known business or home address at least 72 hours in
advance of the meeting. A notice or waiver of notice of a meeting of the Board
of Directors need not specify the purposes of the meeting.
2.11 Meetings by Telephone Conference Calls. Directors or any members
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.12 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
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 such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
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2.13 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.14 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.15 Removal. Directors of the corporation may be removed only for
cause by the affirmative vote of the holders of two-thirds of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote.
2.16 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these By-Laws for the Board of Directors.
2.17 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
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subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - Officers
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
10
<PAGE>
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess such
powers as are assigned to him by the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the Board
of Directors.
3.8 President. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders, and if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all
11
<PAGE>
meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
12
<PAGE>
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, these
By-Laws, applicable securities laws or any agreement among any number of
stockholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any
13
<PAGE>
previously issued certificate alleged to have been lost, stolen, or destroyed,
upon such terms and conditions as the Board of Directors may prescribe,
including the presentation of reasonable evidence of such loss, theft or
destruction and the giving of such indemnity as the Board of Directors may
require for the protection of the corporation or any transfer agent or
registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - General Provisions
5.1 Fiscal Year. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January in each year and end on the last day of December in each
year.
5.2 Corporate Seal. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly
14
<PAGE>
authorized attorney, or by telegraph, cable or any other available method,
whether before, at or after the time stated in such waiver, or the appearance of
such person or persons at such meeting in person or by proxy, shall be deemed
equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes
of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon,
15
<PAGE>
and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or
(3) The contract or transaction is fair as to the
corporation as of the time it is authorized, approved or ratified, by
the Board of Directors, a committee of the Board of Directors, or the
stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of these By-Laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.9 Pronouns. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE 6 - Amendments
6.1 By the Board of Directors. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 By the Stockholders. Except as otherwise provided in Section 6.3,
these By-Laws may be altered, amended or repealed or new by-laws may be adopted
by the affirmative vote of the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
any regular or special meeting of stockholders, provided notice of such
alteration, amendment, repeal or adoption of new by-laws shall have been stated
in the notice of such regular or special meeting.
6.3 Certain Provisions. 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,
notwithstanding any other provision of law, the Certificate of Incorporation or
these By-Laws, 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
16
<PAGE>
the 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 Section 1.3, Section 1.10, Section 1.11, Section 1.12, Section 1.13,
Article 2 or Article 6 of these By-Laws.
17
[ITDS LOGO]
INTERNATIONAL TELECOMMUNICATION
DATA SYSTEMS, INC.
COMMON STOCK COMMON STOCK
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that CUSIP
SEE REVERSE FOR CERTAIN DEFINITIONS
is the owner of
FULLY PAID AND NONASSESSABLE SHARES, PAR VALUE $.O1 PER SHARE,
OF THE COMMON STOCK OF
International Telecommunication Data Systems, Inc. transferable upon the books
of the Corporation in person or by attorney upon surrender of this Certificate
properly endorsed or assigned. This Certificate and the shares represented
hereby are subject to the laws of the State of Delaware and to the provisions of
the Restated Certificate of Incorporation and By-Laws of the Corporation as from
time to time amended. This Certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar.
Witness the seal of the Corporation and the signatures of its
duly authorized officers.
Dated:
TREASURER PRESIDENT AND CHIEF EXECUTIVE OFFICER
INTERNATIONAL
TELECOMMUNICATION
DATA SYSTEMS, INC.
SEAL
CONNECTICUT
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
The Corporation is authorized to issue more than one class of stock. A statement
of the powers, designations, preferences and relative participating, optional or
other special rights of each class and series of stock and the qualifications,
limitations or restrictions thereon will be provided without charge to each
stockholder upon request to the Corporation.
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ___ Custodian _____
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right or under Uniform Gifts to Minors
survivorship and not as tenants Act_____________________
in common (State)
Additional abbreviations may also be used though not in the above list.
ASSIGNMENT
For value received, ____________________ hereby sell, assign, and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]__________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS
INCLUDING POSTAL ZIP CODE OF ASSIGNEE
______________________________________________________________________________
____________________________________________________________________ Shares of
the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated, ______________________ ____________________________________
NOTICE: The signatures to this assignment must
correspond with the name as written
upon the face of the Certificate in
every particular, without alteration or
enlargement, or any change whatever.
SIGNATURE(S) GUARANTEED: _____________________________________________________
The signature(s) should be guaranteed by an eligible
guarantor institution (Banks, Stockbrokers, Savings
and Loan Associations and Credit Unions with membership
in an approved Signature Guarantee Medallion Program),
Pursuant to S.E.C. Rule 17A6-15.
International Telecommunication Data Systems, Inc.
1996 STOCK INCENTIVE PLAN
Purpose
-------
The purpose of this 1996 Stock Incentive Plan (the "Plan") of
International Telecommunication Data Systems, Inc., a Delaware corporation (the
"Company"), is to enhance the profitability of the Company for the benefit of
the stockholders by providing equity ownership opportunities and
performance-based incentives to attract, retain and motivate key employees,
directors, consultants and others who make important contributions to the
Company, and to better align their interests with those of the stockholders.
Except where the context otherwise requires, the term "Company" shall include
all present and future subsidiaries of International Telecommunication Data
Systems, Inc. as defined in Section 424(f) of the Internal Revenue Code of 1986,
as amended, and any regulations promulgated thereunder (the "Code") (a
"Subsidiary").
Eligibility
-----------
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, stock appreciation rights,
performance shares, restricted stock, or other stock based awards (each, an
"Award") under the Plan. Any person who has been granted an Award under the Plan
shall be deemed a "Participant".
Administration, Delegation
--------------------------
Administration by Board of Directors. The Plan will be administered by
the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable
from time to time, to interpret the provisions of the Plan, and to correct any
defects in the Plan or an Award. No member of the Board shall be liable for any
action or determination relating to the Plan made in good faith. All decisions
by the Board shall be final and binding on all persons having or claiming any
interest in the Plan or in any Award.
Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards [and all determinations under the Plan with
respect thereto], provided that the Board shall fix the maximum amount of such
Awards to be made by
<PAGE>
such executive officers and a maximum amount for any one Participant.
Appointment of Committees. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees, each consisting of not less than two members
of the Board (a "Committee"). If and when the common stock, $.01 par value per
share, of the Company (the "Common Stock") is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), the Board shall appoint one such
Committee, each member of which shall be a "outside director" within the meaning
of Section 162(m) of Code ("Section 162(m)") and a "non-employee director" as
defined in Rule 16b-3 promulgated under the Exchange Act. All references to the
Board in the Plan shall mean a Committee or the Board.
Stock Available for Awards
--------------------------
Number of Shares. Subject to adjustment under Section 4(c) below,
Awards may be made under the Plan for up to 1,000,000 shares of Common Stock. If
any Award expires or is terminated, surrendered or canceled without having been
fully exercised or is forfeited in whole or in part or results in any Common
Stock not being issued, the unused Common Stock covered by such Award shall
again be available for the grant of Awards under the Plan, subject, however, in
the case of Incentive Stock Options (as defined hereinafter), to any limitation
required under the Code. Shares issued under the Plan may consist in whole or in
part of authorized but unissued shares or treasury shares.
Per-Participant Limit. Subject to adjustment under Section 4(c), for
Awards granted after the Common Stock is registered under the Exchange Act, the
maximum number of shares with respect to which an Award may be granted to any
Participant under the Plan shall be 100,000 per calendar year. The per
Participant limit described in this Section 4(b) shall be construed and applied
consistent with Section 162(m).
Adjustment to Common Stock. In the event that the Board, in its sole
discretion, determines that any stock dividend, extraordinary cash dividend,
recapitalization, reorganization, split-up, spin-off or other similar
transaction affects the Common Stock such that an adjustment is required in
order to preserve the benefits or potential benefits intended to be made
available under the Plan, then the Board may equitably adjust any or all of (i)
the total number and kind of shares issuable under the Plan, (ii) the number and
kind of shares subject to Awards then outstanding, and
2
<PAGE>
(iii) the exercise, conversion price or other terms with respect to any
outstanding Award. The number of shares resulting from any such adjustment shall
always be a whole number.
Stock Options
-------------
General. Subject to the provisions of the Plan, the Board may award
options to purchase Common Stock (an "Option") and determine the number of
shares of Common Stock to be covered by each Option, the exercise price of such
Option and the conditions and limitations applicable to the exercise of such
Option, including conditions relating to applicable federal or state securities
laws, as it considers necessary or advisable. An Option which is not intended to
be an Incentive Stock Option (as defined hereinafter) shall be designated a
"Nonstatutory Stock Option".
Incentive Stock Options. The terms and conditions of an Option that
the Board intends to be an "incentive stock option" as defined in Section 422 of
the Code (an "Incentive Stock Option") shall be subject to and shall be
construed consistent with the requirements of Section 422 of the Code.
Exercise Price. The Board shall establish the exercise price at the
time each Option is awarded and specify it in the applicable option agreement.
Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
Exercise of Option. Options may be exercised only by delivery to the
Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
Payment Upon Exercise. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
in cash or by check, payable to the order of the Company;
except as the Board may otherwise determine or provide in an
Option, delivery of an irrevocable and unconditional undertaking by a broker to
deliver promptly to the Company sufficient funds to pay the exercise price, or
delivery by the Participant to the Company of a copy of irrevocable and
unconditional instructions to a
3
<PAGE>
broker to deliver promptly to the Company cash or a check sufficient to
pay the exercise price;
to the extent permitted by the Board at or after the award of
the Option (i) by delivery of shares of Common Stock owned by the Participant
valued at their fair market value as determined by the Board in good faith
("Fair Market Value"), (ii) delivery of a promissory note of the Participant to
the Company on terms determined by the Board, or (iii) payment of such other
lawful consideration as the Board may determine; or
any combination of the above permitted forms of payment.
Stock Appreciation Rights
-------------------------
Grant and Payment. The Board may grant Awards entitling recipients on
exercise of such Awards to receive an amount, in cash or Common Stock or a
combination thereof (such form to be determined by the Board), determined in
whole or in part by reference to appreciation in the Fair Market Value of the
Common Stock between the date of grant of the Award and the exercise of the
Award (a "Stock Appreciation Right" or an "SAR"). The Board in its sole
discretion shall determine the terms and conditions of any SAR.
Grant of SARs in Tandem with Options. SARs may be granted in
tandem with, or independently of, Options granted under the Plan. If an SAR is
granted in tandem with an Option, the exercise of the Option shall cause a
proportional reduction in SARs outstanding to a Participant's credit which were
granted in tandem with the Option; and the payment of SARs shall cause a
proportional reduction of the shares of Common Stock under such Option. An SAR
granted in tandem with an Incentive Stock Option shall have such terms and
conditions as shall be required for the incentive stock option to qualify as an
Incentive Stock Option.
Performance Shares
------------------
The Board may make Awards entitling recipients to acquire shares of
Common Stock on a future date upon the attainment of specified performance goals
("Performance Share Awards"). The Board may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. The Board in its sole discretion shall determine the performance goals,
the periods during which performance is to be measured, and all other terms and
conditions applicable to a Performance Share Award.
4
<PAGE>
Restricted Stock
----------------
Grants. The Board may grant Awards entitling recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their issue price (or to require
forfeiture of such shares if issued at no cost) from the recipient in the event
that conditions specified by the Board in the applicable Award are not satisfied
prior to the end of the applicable restriction period or periods established by
the Board for such Award ("Restricted Stock Award").
Terms and Conditions. The Board in its sole discretion shall
determine the terms and conditions of any such Restricted Stock Award, including
the conditions for repurchase (or forfeiture) and the issue price, if any. Any
stock certificates issued in respect of a Restricted Stock Award shall be
registered in the name of the Participant and, unless otherwise determined by
the Board, deposited by the Participant, together with a stock power endorsed in
blank, with the Company (or its designee). At the expiration of the restriction
period, the Company (or such designee) shall deliver such certificates to the
Participant or if the Participant has died, to the beneficiary designated by a
Participant, in a manner determined by the Board, to receive amounts due or
exercise rights of the Participant in the event of the Participant's death (the
"Designated Beneficiary"). In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant's estate.
Other Stock Based Awards
------------------------
The Board shall have the right to grant other Awards based upon the
Common Stock, including the grant of shares based upon certain conditions and
the grant of securities convertible into Common Stock.
General Provisions Applicable to Awards
---------------------------------------
Transferability of Awards. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to Participant, to the extent
relevant in the context, shall include references to authorized transferees.
Documentation. Each Award under the Plan shall be
evidenced by an instrument in such form as the Board shall determine delivered
to the Participant
5
<PAGE>
specifying the terms and conditions thereof.
Board Discretion. Except as otherwise provided by the Plan,
each type of Award may be made alone, in addition to or in relation to any other
type of Award. The terms of each type of Award need not be identical, and the
Board need not treat Participants uniformly.
Termination of Status. The Board shall determine the effect on
an Award of the disability, death, retirement, authorized leave of absence or
other termination of employment or other status of a Participant and the extent
to which, and the period during which, the Participant, the Participant's legal
representative, conservator guardian or Designated Beneficiary may exercise
rights under the Award.
Mergers, Etc.
------------
Consequences of Mergers, etc. In the event of a consolidation
or merger involving the Company or a sale of all or substantially all the
Company's assets (an "Acquisition") or in the event of a liquidation of the
Company, the Board, or the board of directors of any corporation assuming the
obligations of the Company, may, in its discretion, take any one or more of the
following actions as to outstanding Awards: (i) provide that such Awards shall
be assumed, or substantially equivalent Awards shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof) on such terms as
the Board determines to be appropriate; (ii) upon written notice to
Participants, provide that all unexercised or unvested Awards will terminate
upon the consummation of a transaction except to the extent exercised by the
Participant within a specified period following the date of such notice; (iii)
in the event of an Acquisition under the terms of which holders of the Common
Stock of the Company will receive upon consummation thereof a cash payment for
each share surrendered in the Acquisition (the "Acquisition Price"), make or
provide for a cash payment to each Participant, on or before the consummation of
the Acquisition, equal to the difference, if any, between (A) the Acquisition
Price times the number of shares of Common Stock subject to outstanding Award of
such Participant (whether or not such Award is fully vested) and (B) the
aggregate exercise price, if any, of all such outstanding Awards, in exchange
for the termination of all such Awards held by such Participant; and (iv) upon
written notice to Participants, provide that all outstanding Awards will become
exercisable or realizable in full prior to the effective date of such
Acquisition and will terminate upon the consummation of such Acquisition except
to the extent exercised by the Participant within a specified period following
the date of such notice.
Assumption of Options Upon Mergers, etc. The Board may
grant
6
<PAGE>
Awards under the Plan in substitution for stock and stock based-awards
held by employees of another corporation who become employees of the Company as
a result of a merger or consolidation of the employing corporation with the
Company or the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.
Withholding. Each Participant shall pay to the Company, or
make provision satisfactory to the Board for payment of, any taxes required by
law to be withheld in respect of Awards to such Participant under the Plan no
later than the date of the event creating the tax liability. In the Board's
discretion, and subject to such conditions as the Board may establish, such tax
obligations may be paid in whole or in part in shares of Common Stock, including
shares retained from the Award creating the tax obligation, valued at their Fair
Market Value. The Company may, to the extent permitted by law, deduct any such
tax obligations from any payment of any kind otherwise due to a Participant.
Amendment of Award. The Board may amend, modify or terminate
any outstanding Award, including but not limited to, substituting therefor
another Award of the same or a different type, changing the date of exercise or
realization, converting an Incentive Stock Option to a Nonstatutory Stock
Option, and accelerating the exercise or vesting of any Award, provided that the
Participant's consent to such action shall be required unless the Board
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
Conditions on Delivery of Stock. The Company will not be
obligated to deliver any shares of Common Stock pursuant to the Plan or to
remove restrictions from shares previously delivered under the Plan until (i)
all conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws, stock exchange or stock market rules
and regulations, and (iii) the Participant has executed and delivered to the
Company such representations or agreements as the Company may consider
appropriate to satisify the requirements of any applicable laws.
Miscellaneous
7
<PAGE>
No Right To Employment or Other Status. No person shall have
any claim or right to be granted an Award, and the grant of an Award shall not
be construed as giving a Participant the right to continued employment by or
other relationship with the Company. The Company expressly reserves the right at
any time to dismiss or otherwise terminate its relationship with a Participant
free from any liability or claim under the Plan, except as expressly provided in
the applicable Award.
No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
under the Plan until becoming the record holder thereof.
Effective Date and Term of Plan. The Plan shall become
effective on the date on which it is approved by the stockholders of the
Company. Grants of Awards under the Plan may be made prior to that date (but
contemporaneous with or after Board adoption of the Plan), subject to approval
of the Plan by such stockholders. No Awards shall be granted under the Plan
after the completion of ten years from the date on which the Plan was adopted by
the Board, but awards previously granted may extend beyond that date.
Amendment of Plan. The Board may amend, suspend or terminate
the Plan or any portion thereof at any time, provided that no amendment shall be
made without stockholder approval if (i) such approval is necessary to comply
with any applicable tax or regulatory requirements, including any securities
laws, stock exchange or stock market, or (ii) such amendment increases the
number of shares of Common Stock available under the Plan pursuant to Section
4(a), other than such increases authorized under Section 4(c). Amendments
requiring stockholder approval shall become effective when adopted by the Board,
but no Award granted after the date of such amendment shall become exercisable
or vested (to the extent that such amendment to the Plan was required to grant
such Award to a particular Participant) unless and until such amendment shall
have been approved by the Company's stockholders. If such stockholder approval
is not obtained within twelve months of the Board's adoption of such amendment,
any Award granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular Participant.
(e) Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
8
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of
International Telecommunication Data Systems, Inc. (the "Company") and certain
of its subsidiaries with opportunities to purchase shares of the Company's
Common Stock, $.01 par value (the "Common Stock"). An aggregate of 200,000
shares of Common Stock have been approved for this purpose.
1. Administration. The Plan will be administered by the Company's Board
of Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. Participation in the Plan will neither be permitted nor
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder. All
employees of the Company, including directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings of
Options (as defined below) to purchase Common Stock under the Plan, provided
that:
(a) they are regularly employed by the Company or a Designated
Subsidiary for more than 30 hours a week and for more than five months
in a calendar year; and
(b) they have been employed by the Company or a Designated
Subsidiary for at least three months prior to enrolling in the Plan;
and
(c) they are employees of the Company or a Designated
Subsidiary on the first day of the applicable Plan Period (as defined
below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding
<PAGE>
sentence, the attribution rules of Section 424(d) of the Code shall apply in
determining the stock ownership of an employee, and all stock which the employee
has a contractual right to purchase shall be treated as stock owned by the
employee.
3. Offerings. The Company will make one or more offerings ("Offerings")
to employees to purchase Common Stock under this Plan. Offerings will begin each
August 1 and February 1, or the first business day thereafter (the "Offering
Commencement Dates"). Each Offering Commencement Date will begin a six (6) month
period (a "Plan Period") during which payroll deductions will be made and held
for the purchase of Common Stock at the end of the Plan Period. The Board or the
Committee may, at its discretion, choose a different Plan Period of six (6)
months or less for subsequent Offerings.
4. Participation. An employee eligible on the Offering Commencement
Date of any Offering may participate in such Offering by completing and
forwarding a payroll deduction authorization form to the Controller of the
Company at least 14 days prior to the applicable Offering Commencement Date. The
form will authorize a regular payroll deduction from the Compensation received
by the employee during the Plan Period. Unless an employee files a new form or
withdraws from the Plan, his deductions and purchases will continue at the same
rate for future Offerings under the Plan as long as the Plan remains in effect.
The term "Compensation" means the amount of money reportable on the employee's
Federal Income Tax Withholding Statement, excluding overtime, shift premium,
incentive or bonus awards, allowances and reimbursements for expenses such as
relocation allowances for travel expenses, income or gains on the exercise of
Company stock options or stock appreciation rights, and similar items, whether
or not shown on the employee's Federal Income Tax Withholding Statement, but
including, in the case of salespersons, sales commissions to the extent
determined by the Board or the Committee.
5. Deductions.
----------
(a) The Company will maintain payroll deduction accounts for
all participating employees. With respect to any Offering made under this Plan,
an employee may authorize a payroll deduction in any dollar amount up to a
maximum of 10% of the Compensation he or she receives during the Plan Period or
such shorter period during which deductions from payroll are made. Payroll
deductions may be at the rate of 1%, 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9% or 10% of
Compensation.
-2-
<PAGE>
(b) No employee may be granted an Option which permits his
rights to purchase Common Stock under this Plan and any other stock purchase
plan of the Company and its subsidiaries, to accrue at a rate which exceeds
$25,000 of the fair market value of such Common Stock (determined at the
Offering Commencement Date of the Plan Period) for each calendar year in which
the Option is outstanding at any time.
6. Deduction Changes. An employee may decrease or discontinue his
payroll deduction once during any Plan Period by filing a new payroll deduction
authorization form. However, an employee may not increase his payroll deduction
during a Plan Period. If an employee elects to discontinue his payroll
deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. Interest. Interest will not be paid on any employee payroll
deduction accounts, except to the extent that the Board or its Committee, in its
sole discretion, elects to credit such accounts with interest at such per annum
rate as it may from time to time determine.
8. Withdrawal of Funds. An employee may on any one occasion during a
Plan Period and for any reason withdraw all or part of the balance accumulated
in the employee's payroll deduction account. Any such withdrawal must be
effected prior to the close of business on the last day of the Plan Period. If
the employee withdraws all of such balance, the employee shall thereby withdraw
from participation in the Offering and may not begin participation again during
the remainder of the Plan Period. Any employee withdrawing all or part of such
balance may participate in any subsequent Offering in accordance with terms and
conditions established by the Board or the Committee, except that, unless
otherwise permitted under Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules promulgated thereunder, any employee
who is also a director and/or officer of the Company within the meaning of
Section 16 of the Exchange Act may not (a) withdraw less than all of the balance
accumulated in such employee's payroll deduction account or (b) participate
again for a period of at least six months as provided in Rule 16b-3(d)(2)(i) or
any successor provision under the Exchange Act.
9. Purchase of Shares.
------------------
(a) On the Offering Commencement Date of each Plan Period, the
Company will grant to each eligible employee who is then a participant in the
Plan an option (an "Option") to purchase
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<PAGE>
on the last business day of such Plan Period (the "Exercise Date"), at the
Option Price hereinafter provided for, such number of whole shares of Common
Stock of the Company reserved for the purposes of the Plan as does not exceed
the number of shares determined by dividing 15% of such employee's annualized
Compensation for the immediately prior six-month period by the price determined
in accordance with the formula set forth in the following paragraph but using
the closing price on the Offering Commencement Date of such Plan Period.
(b) The Option Price for each share purchased will be 85% of
the closing price of the Common Stock on (i) the first business day of such Plan
Period or (ii) the Exercise Date, whichever closing price shall be less. Such
closing price shall be (A) the closing price of the Common Stock on any national
securities exchange on which the Common Stock is listed, or (B) the closing
price of the Common Stock on the Nasdaq National Market ("Nasdaq") or (C) the
average of the closing bid and asked prices in the over-the-counter market,
whichever is applicable, as published in The Wall Street Journal. If no sales of
Common Stock were made on such a day, the price of the Common Stock for purposes
of clauses (A) and (B) above shall be the reported price for the next preceding
day on which sales were made.
(c) Each employee who continues to be a participant in the
Plan on the Exercise Date shall be deemed to have exercised his Option at the
Option Price on such date and shall be deemed to have purchased from the Company
the number of full shares of Common Stock reserved for the purpose of the Plan
that his accumulated payroll deductions on such date will pay for pursuant to
the formula set forth above (but not in excess of the maximum number determined
in the manner set forth above).
(d) Any balance remaining in an employee's payroll deduction
account at the end of a Plan Period will be automatically refunded to the
employee, except that any balance which is less than the purchase price of one
share of Common Stock will be carried forward into the employee's payroll
deduction account for the following Offering, unless the employee elects not to
participate in the following Offering under the Plan, in which case the balance
in the employee's account shall be refunded.
10. Issuance of Certificates. Certificates representing shares of
Common Stock purchased under the Plan may be issued only in the name of the
employee, in the name of the employee and another person of legal age as joint
tenants with rights of survivorship, or (in the Company's sole discretion) in
the street name of a brokerage firm, bank or other nominee holder designated by
the employee.
-4-
<PAGE>
11. Rights on Retirement, Death or Termination of Employment. In the
event of a participating employee's termination of employment prior to the last
business day of a Plan Period (whether as a result of the employee's voluntary
or involuntary termination, retirement, death or otherwise), no payroll
deduction shall be taken from any pay due and owing to the employee and the
balance in the employee's payroll deduction account shall be paid to the
employee or, in the event of the employee's death, (a) to a beneficiary
previously designated in a revocable notice signed by the employee (with any
spousal consent required under state law) or (b) in the absence of such a
designated beneficiary, to the executor or administrator of the employee's
estate or (c) if no such executor or administrator has been appointed to the
knowledge of the Company, to such other person(s) as the Company may, in its
discretion, designate. If, prior to the last business day of the Plan Period,
the Designated Subsidiary by which an employee is employed shall cease to be a
subsidiary of the Company, or if the employee is transferred to a subsidiary of
the Company that is not a Designated Subsidiary, the employee shall be deemed to
have terminated employment for the purposes of this Plan.
12. Optionees Not Stockholders. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. Rights Not Transferable. Rights under this Plan are not
transferable by a participating employee other than by will or the laws of
descent and distribution, and are exercisable during the employee's lifetime
only by the employee.
14. Application of Funds. All funds received or held by the Company
under this Plan may be combined with other corporate funds and may be used for
any corporate purpose.
15. Adjustment in Case of Changes Affecting Common Stock. In the event
of a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, and the
share limitation set forth in Section 9, shall be increased proportionately, and
such other adjustment shall be made as may be deemed equitable by the Board or
the Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
-5-
<PAGE>
16. Merger.
------
(a) If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger, and the Board or the Committee shall take such
steps in connection with such merger as the Board or the Committee shall deem
necessary to assure that the provisions of Section 15 shall thereafter be
applicable, as nearly as reasonably may be, in relation to the said securities
or property as to which such holder of such Option might thereafter be entitled
to receive thereunder.
(b) In the event of a merger or consolidation of the Company
with or into another corporation which does not involve Continuity of Control,
or of a sale of all or substantially all of the assets of the Company while
unexercised Options remain outstanding under the Plan, (i) subject to the
provisions of clauses (ii) and (iii), after the effective date of such
transaction, each holder of an outstanding Option shall be entitled, upon
exercise of such Option, to receive in lieu of shares of Common Stock, shares of
such stock or other securities as the holders of shares of Common Stock received
pursuant to the terms of such transaction; or (ii) all outstanding Options may
be cancelled by the Board or the Committee as of a date prior to the effective
date of any such transaction and all payroll deductions shall be paid out to the
participating employees; or (iii) all outstanding Options may be cancelled by
the Board or the Committee as of the effective date of any such transaction,
provided that notice of such cancellation shall be given to each holder of an
Option, and each holder of an Option shall have the right to exercise such
Option in full based on payroll deductions then credited to his account as of a
date determined by the Board or the Committee, which date shall not be less than
ten (10) days preceding the effective date of such transaction.
17. Amendment of the Plan. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the stockholders of the Company is required by Section 423 of
the Code or by Rule 16b-3 under the Exchange Act, such amendment shall not be
effected without such approval, and (b) in no event may any
-6-
<PAGE>
amendment be made which would cause the Plan to fail to comply with Section 16
of the Exchange Act and the rules promulgated thereunder, as in effect from time
to time, or Section 423 of the Code.
18. Insufficient Shares. In the event that the total number of shares
of Common Stock specified in elections to be purchased under any Offering plus
the number of shares purchased under previous Offerings under this Plan exceeds
the maximum number of shares issuable under this Plan, the Board or the
Committee will allot the shares then available on a pro rata basis.
19. Termination of the Plan. This Plan may be terminated at any time by
the Board. Upon termination of this Plan all amounts in the payroll deduction
accounts of participating employees shall be promptly refunded.
20. Governmental Regulations.
------------------------
(a) The Company's obligation to sell and deliver Common Stock
under this Plan is subject to listing on a national stock exchange or quotation
on Nasdaq and the approval of all governmental authorities required in
connection with the authorization, issuance or sale of such stock.
(b) The Plan shall be governed by the laws of the State of
Delaware except to the extent that such law is preempted by federal law.
(c) The Plan is intended to comply with the provisions of Rule
16b-3 promulgated under the Exchange Act. Any provision inconsistent with such
Rule shall to that extent be inoperative and shall not affect the validity of
the Plan.
21. Issuance of Shares. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
22. Notification upon Sale of Shares. Each employee agrees, by entering
the Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
23. Effective Date and Approval of Stockholders. The Plan shall take
effect upon the closing of the Company's initial public offering of Common Stock
pursuant to an effective registration
-7-
<PAGE>
statement under the Securities Act of 1933, as amended, subject to approval by
the stockholders of the Company as required by Rule 16b-3 under the Exchange Act
and by Section 423 of the Code, which approval must occur within twelve months
of the adoption of the Plan by the Board.
Adopted by the Board of Directors on
______ _, 1996
Approved by the stockholders on
______ _, 1996
-8-
SUBLEASE
THIS SUBLEASE is entered into on this 11th day of June, 1996, by and
between LEARNING INTERNATIONAL, a division of Times Mirror Training, Inc.
("Sublessor"), having offices at 225 High Ridge Road, Stamford, P.O. Box 10211,
Connecticut 06904, and INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
("Sublessee"), having offices at 969 High Ridge Road, Stamford, Connecticut
06905.
RECITALS
WHEREAS, Sublessor is the Tenant under the Lease dated
April 12, 1990, and two (2) Amendments to Lease dated
September 1,1990, and February 11,1993, respectively, by and
between 225 High Ridge Venture, a Connecticut General
Partnership ("Landlord") and Sublessor (the "Master Lease");
WHEREAS, under the Master Lease, Landlord leased to
Sublessor an aggregate of 54,634 rentable square feet on the
real property located in the City of Stamford, County of
Fairfield, State of Connecticut, described as West Building,
225 High Ridge Road, Stamford, Connecticut ("Master
Premises");
WHEREAS, Sublessor desires to sublease a portion of the
Master Premises to Sublessee, namely 48,222 rentable square
feet.
NOW, THEREFORE, Sublessor and Sublessee agree as follows:
1. PREMISES
Sublessor hereby subleases on the terms and conditions set forth in
this Sublease and on an "as is" basis a portion of the Master Premises, namely
48,222 rentable square feet of office space ("Premises") as depicted in Exhibit
"1," attached hereto and incorporated herein by reference. Sublessor makes no
warranties or representations as to whether Sublessee will be able to use the
Premises for its intended purposes or business.
2. PARKING SPACES
Sublessee shall have the right, subject to reasonable rules and
regulations adopted by Landlord, to a total of one hundred forty five (145)
parking spaces, calculated at three (3) parking spaces per 1,000 rentable square
feet within the Premises ("Spaces"). Seventy (70) of the Spaces shall be
covered.
<PAGE>
3. CONSTRUCTION ALLOWANCE
Sublessor and Sublessee agree that Sublessor shall not contribute any
sum towards Sublessee's costs and expenses, including fees for professional
services, incurred in remodeling the Premises for Sublessee's use and purposes
("Work"). Further, Sublessee agrees to comply with all applicable requirements
of the Master Lease with regard to the Work and the making of any alterations or
improvements. Sublessee shall take sole responsibility for the cost and expense
of the Work and shall indemnify and hold harmless Sublessor against any and all
claims, losses, damages, and costs and expenses, including reasonable attorney's
fees, arising out of, related to, or resulting from the Work or to the removal
of any such Work as requested by the Landlord.
Upon the expiration of or sooner termination of this Sublease any
improvements which are affixed to the Premises and which Sublessee has made to
the Premises shall become the property of Sublessor, and Sublessor shall have no
obligation to compensate Sublessee for said improvements. Sublessee assumes no
obligation of Sublessor, if any, to restore the Premises to any former condition
except, that Sublessee shall remove the Work and indemnify the Sublessor to the
extent the Landlord requires such removal.
4. WARRANTY BY SUBLESSOR
Sub lessor warrants and represents to Sublessee that the Master Lease
has not been amended or modified except as expressly set forth herein, that
Sublessor is not now, and as of the commencement of the Term hereof will not be,
in default or breach of any of the provisions of the Master Lease, and that
Sublessor has no knowledge of any claim by Landlord that Sublessor is in default
or breach of any of the provisions of the Master Lease.
5. TERM
The term of this Sublease shall commence on September 16,1996 or when
the Landlord has consented to this Sublease ("Commencement Date"), whichever
shall last occur, and end on August 31, 2000 ("Termination Date"), unless
otherwise sooner terminated in accordance with the provisions of this Sublease.
In the event the Term commences on a date other than the Commencement Date,
Sublessor and Sublessee shall execute a memorandum setting forth the actual date
of commencement of the Term. Possession of the Premises ("Possession") shall be
delivered to Sublessee on the commencement of the Term. If for any reason,
Sublessor does not deliver Possession to Sublessee on the commencement of the
Term, Sublessor shall not be subject to any liability for such failure, the
Termination Date shall not be extended by the delay, and the validity of this
Sublease shall not be impaired, but rent shall abate until delivery of
Possession and Sublessee shall receive a Rent credit equal to
-2-
<PAGE>
$1,506.94 per day for each day that Sublessor's delivery of Possession is
delayed beyond the Commencement Date. Notwithstanding the foregoing, if
Sublessor has not delivered Possession to Sublessee within thirty (30) days
after the Commencement Date, then at any time thereafter and before delivery of
Possession, Sublessee may give written notice to Sublessor of Sublessee's
intention to cancel this Sublease. Said notice shall set forth an effective date
for such cancellation which shall be at least ten (10) days after delivery of
said notice to Sublessor. If Sublessor delivers Possession to Sublessee on or
before such effective date, this Sublease shall remain in full force and effect.
If Sublessor permits Sublessee to take Possession prior to the commencement of
the Term, such early Possession shall not advance the Termination Date and shall
be subject to the provisions of this Sublease, including, without limitation,
the payment of rent for the early possession period.
6. RENT
a. Sublessor and Sublessee agree that Sublessor shall commence the
payment of rent 30 days following the Commencement Date.
b. Sublessee shall pay to Sublessor as minimum rent, without deduction,
setoff, notice, or demand, at Service One, 12227 South Business Park Drive,
Building 5, Suite 130, Draper, Utah 84020 or at such other place as Sublessor
shall designate from time to time by notice to Sublessee, the sum of $60,277.50
(48,222 square feet x $15.00 per square foot/12) per month, payable by
Sublessee's company check, in advance on the first day of each month, beginning
30 days after the Commencement Date to August 31, 2000.
c. Sublessee understands and acknowledges that the costs for cleaning
services are as set forth in Exhibit E of the Master Lease, included in the
operating expenses of the Premises and that no additional cleaning cost will be
incurred unless Sublessee requests special services.
7. ESCALATIONS
a. Common area costs ("Costs") shall include all items delineated and
any increases related thereto as determined under Article 3 of the Master Lease.
For purposes of escalations as related to this Sublease, the Base Year shall be
defined as the period from January 1,1996 through December 31,1996 ("Base
Year"). Notwithstanding Sublessor's agreement to pay the Costs for the Base
Year, in the event that costs increase and Sublessor receives from Landlord, the
notice of estimated increase in Costs ("Increase") for the year(s) subsequent to
the Base Year, Sublease shall, beginning on the first anniversary of the
Commencement Date, pay its pro-rata share of the Increase, payment to be made,
at Sublessor's option, either monthly or in other installments in compliance
with Landlord's request under Section 3.03 of the Master Lease. Sublessee's
pro-rata share of the Increase shall be 48,222
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<PAGE>
rentable square feet within the Premises divided by 54, 634 rentable square feet
within the Master Premises.
b. Sublessor shall give written notice to Sublessee of any Increase and
shall adjust Sublessee's payments to reflect any difference between the Increase
and the actual Costs.
8. ELECTRICITY
Sublessee's electricity usage shall be measured by separate sub- meter
for the Premises, already installed and either billed to Sublessee, or, at
Sublessor's discretion, received by Landlord and forwarded to Sublessor, who
will then forward the Sublessee's electricity bill (the "Bill") to Sublessee or
received by Landlord and forwarded directly to Sublessee for payment. Sublessee
shall pay all charges for electricity to the Premises at the actual rate per
kilowatt hour charged by the local utility company. Sublessee shall pay the Bill
no later than ten (10) days after its receipt beginning on the Commencement
Date.
9. SECURITY DEPOSIT
a. Sublessee shall deposit Three Hundred Sixty One Thousand Six Hundred
Sixty Dollars ($361,660) or Sublessee may provide Sublessor with a Letter of
Credit meeting the conditions set forth below in paragraph (b) (the "Security
Deposit") with Sublessor to secure Sublessee's performance of the obligations of
this Sublease payable Twenty Five Thousand Dollars ($25,000) upon execution of
this Sublease and the balance payable on Sublessee's Possession of the Premises.
The Security Deposit shall be placed in an interest-bearing account which
interest shall accrue for the benefit of Sublessee provided that Sublessee does
not default in the performance of any of its obligations under the Sublease. If
Sublessee defaults Sublessor may, after giving five (5) business days advance
notice to Sublessee without prejudice to any of Sublessor's remedies, apply all
or part of the Security Deposit to cure Sublessee's default. If Sublessor so
uses part or all of the Security Deposit, then Sublessee shall within ten (10)
days after written demand, pay Sublessor the amount used to restore the Security
Deposit to its original amount.
Sublessor shall release twenty five percent (25%) (i.e., $90,415) to
Sublessee on each anniversary date of the Commencement Date for years 1997,1998
and 1999; provided, that Sublessee has performed each and every one of its
obligations under the Sublease. Further, Sublessee and Sublessor agree that the
final 25% will be due and payable from Sublessor to Sublessee thirty (30) days
following the Termination Date; provided, that Sublessee has performed each and
every one of its obligations under this Sublease.
-4-
<PAGE>
b. In lieu of a cash Security Deposit, Sublessee may deliver to
Sublessor a clean, irrevocable, non-documentary and unconditional Letter of
Credit issued by and drawn upon any commercial bank, trust company, national
banking association or savings and local association having offices for banking
purposes in the City of New York (hereinafter referred to as the "Issuing Bank")
and which (or the parent company of which) shall have outstanding unsecured,
uninsured and unguaranteed indebtedness, or shall have issued a letter of credit
or other credit facility that constitutes the primary security for any
outstanding indebtedness (which is otherwise uninsured and unguaranteed), that
is then rated, without regard to qualification of such rating by symbols such as
"+" or "-" or numerical notation. "Aa" or better by Moody's Investors Services
and "AA" or better by Standard & Poor's Corporation, and has combined capital,
surplus and undivided profits of not less than $500,000,000.00, which Letter of
Credit shall have a term of not less than one year, be in form and content
reasonably satisfactory to Sublessor, be for the account of Sublessor, be in the
amount of the Security Deposit then required to be deposited hereunder, and be
fully transferable by Sublessor to successor owners of the Master Premises
without the payment of any fees or charges, it being agreed that if any such
fees or charges shall be so imposed, then such fees or charges, shall be paid by
Sublessee. The Letter of Credit shall provide that it shall be deemed
automatically renewed, without amendment for consecutive periods of one year
each thereafter for three (3) years, unless the Issuing Bank sends notice (the
"Non-Renewal Notice") to Sublessor by certified mail, return receipt requested,
not less than thirty (30) days next preceding the then expiration date of the
Letter of Credit that it elects not to have such Letter of Credit renewed.
Additionally, the Letter of Credit shall provide that Sublessor shall have the
right, exercisable within twenty (20) days of its receipt of the Non- Renewal
Notice, by sight draft on the Issuing Bank, to receive the monies represented by
the existing Letter of Credit and to hold such proceeds pursuant to the terms of
this Sublease as a cash security pending the replacement of such Letter of
Credit. If an Event of Default shall have occurred and be continuing with
respect to any provision of this Lease, including but not limited to the
provisions relating to the payment of Fixed Rent and Additional Rent, Sublessor
may apply or retain the whole or any part of the cash security so deposited or
may notify the Issuing Bank and thereupon receive all the monies represented by
the Letter of Credit and use, apply, or retain the whole or any part of such
proceeds, as provided in this Sublease.
c. Sublessee shall provide the financial documents set forth below to
Sublessor ninety (90) days following the first day of January 1997,1998,1999 and
2000 respectively. Such financial disclosures shall be maintained in the
strictest of confidence by Sublessor pursuant to the terms of that certain
Mutual Nondisclosure and Confidentiality Agreement, dated January 17, 1996:
(i) Audited Consolidated Balance Sheet; and
(ii) Audited Income Statement.
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<PAGE>
10. USE OF PREMISES
Sublessee agrees that the Premises shall be used and occupied only for
those purposes described in and permitted under Section 1.05 of the Master
Lease.
11. ASSIGNMENT AND SUBLETTING
Sublessee shall not assign this Sublease or further sublet all or any
part of the Premises without the prior written consent of Sublessor, which shall
not be unreasonably withheld (and the consent of Landlord, if such is required
under the terms of the Master Lease). No consent of Sublessor to any assignment
or subletting, however, shall be construed as relieving Sublessee of any
liability hereunder or any obligation to obtain such consent to any further
assignment, other transfer or subletting.
12. OTHER PROVISIONS OF SUBLEASE
All applicable terms and conditions of the Master Lease are
incorporated into and made a part of this Sublease as if Sublessor were the
Landlord thereunder, Sublessee the Lessee thereunder, and the Premises the
Master Premises. Sublessee assumes and agrees to perform the Lessee's
obligations under the Master Lease during the Term to the extent that such
obligations are applicable to the Premises, except that the obligation to pay
rent to Landlord under the Master Lease shall be considered performed by
Sublessee to the extent and in the amount rent is paid to Sublessor in
accordance with Section 6 of this Sublease. Sublessee shall not commit or suffer
any act or omission that will violate any of the provisions of the Master Lease.
Sublessor shall exercise due diligence in attempting to cause Landlord to
perform its obligations under the Master Lease for the benefit of Sublessee. If
the Master Lease terminates, this Sublease shall terminate and the parties shall
be relieved of any further liability or obligation under this Sublease, provided
however, that if the Master Lease terminates as a result of a default or breach
by Sublessor or Sublessee under this Sublease and/or the Master Lease, then the
defaulting party shall be liable to the nondefaulting party for the damage
suffered as a result of such termination. Notwithstanding the foregoing, if the
Master Lease gives Sublessor any right to terminate the Master Lease in the
event of the partial or total damage, destruction, or condemnation of the Master
Premises are a part, the exercise of such right by Sublessor shall not
constitute a default or breach hereunder.
13. BROKERAGE COMMISSION
Sublessee warrants and represents that it has had no contact or
dealings with any real estate broker other than Albert B. Ashforth, Inc., 3001
Summer Street, Stamford, Connecticut 06905 ("Broker") and Cushman & Wakefield,
Sublessor's Broker, which would give rise to any obligation on the part of
Sublessor to pay any
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<PAGE>
brokerage commission or fee in connection with this Sublease other than to
Broker and Sublessor's Broker. Sublessee does hereby hold harmless Sublessor
against any and all claims, including but not losses, damages, and costs and
expenses, including reasonable attorney's fees, arising out of, related to, or
resulting from any dispute regarding the brokerage commission or fee.
In any event, Sublessee acknowledges and agrees that Sublessor shall
pay only the brokerage commission or fee, which shall be calculated and the
schedule of payment for which determined under separate agreement by and between
Sublessor and Sublessor's Broker executed prior to the Commencement Date.
14. NOTICES
All notices and demands which may or are to be required or permitted to
be given by either party on the other hereunder shall be in writing. All notices
and demands by the Sublessor to Sublessee shall be sent by United States mail,
postage prepaid, addressed to the Sublessee at the Premises and at the address
hereinbelow or in such other place as Sublessee may from time to time designate
in a notice to Sublessor. All notices and demands by the Sublessee to Sublessor
shall be sent by United States mail, postage prepaid, addressed to the Sublessor
at the address set forth herein, and to such other person or place as the
Sublessor may from time to time designate in a notice to the Sublessee:
To Sublessor: Learning International
c/o Service One
12227 South Business Park Drive
Building 5, Suite 130
Draper, Utah 84020
Attention: Director, Real Estate and Travel Services
With a copy to: Paul J. Richardson, Esq.
Legal Department
Times Mirror Company
Times Mirror Square
Los Angeles, California 90053
To Sublessee: International Telecommunication Data Systems, Inc.
969 High Ridge Road
Stamford, Connecticut 06905
Attention: Lewis Bakes
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<PAGE>
15. CERTIFICATE OF INSURANCE
As a further pre-condition to Sublessee's right to take Possession of
the Premises, Sublessee shall deliver to Sublessor acceptable certificate(s) of
insurance, in full compliance with the terms of Article 8 of the Master Lease, a
copy of which Sublessee has received, evidencing 1) standard fire and extended
insurance coverage on Sublessee's personal property on the Premises pursuant to
the requirements of Section 8.04 of the Master Lease; and 2) comprehensive
general public liability and property damage insurance policy with a broad form
contractual liability endorsement, which shall name Sublessor and Landlord as
additional insureds, and which shall have a limit of not less than Five Million
Dollars ($5,000,000) for injury or death and a limit of not less than One
Million Dollars ($1,000,000) for damage to property on the Premises pursuant to
the requirements of Section 8.05 of the Master Lease. All insurance shall be
issued by a Qualified Insurer as defined in Section 8.04 of the Master Lease.
16. CONSENT BY LANDLORD
THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO IN
WRITING BY LANDLORD WITHIN THIRTY (30) DAYS AFTER EXECUTION HEREOF, AS SUCH
CONSENT IS REQUIRED UNDER THE TERMS OF THE MASTER LEASE.
17. NON-DISTURBANCE
This Sublease is subject and subordinate to all ground or underlying
leases, mortgage and deed of trust which may now or hereafter affect the
Premises. Sublessor shall provide Sublessee with a nondisturbance agreement from
the holder of any such superior interest, in form acceptable to such holder,
providing that so long as Sublessee is not in default under any of the terms,
covenants, provisions or conditions of this Sublease, or to the extent to which
they apply, the Master Lease, Sublessee shall have the right to peaceably and
quietly enjoy the Premises subject to the terms of this Sublease.
18. LATE FEES
Any rent, or other sums payable by Sublessee to Sublessor, which shall
not be paid within five business (5) days of the due date thereof, such amount
shall thereafter be payable with interest from the due date thereof at a rate
per annum equal to the lesser of (i) 2% above the prime or base commercial
lending rate from time to time announced by The Chase Manhattan Bank, N.A. to be
in effect at is principal office in New York, N.Y., or (i) the maximum rate then
permitted by law.
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<PAGE>
19. GENERAL PROVISIONS
a. This Sublease shall be governed by, and all disputes of the parties
with respect to this Sublease shall be determined in accordance with Connecticut
law. This Agreement shall be deemed to have been entered into and performed in
the County of Fairfield, State of Connecticut.
b. If Sublessor, or Sublessee shall commence an action against the
other arising out of or in connection with this Sublease to enforce the terms,
conditions, or provisions of this Sublease, the prevailing party shall be
entitled to recover its costs of suit and reasonable attorney's fees.
c. If Sublessor receives a bona fide offer ("Offer") from a third party
to purchase any furniture that is currently in the Premises; Sublessor agrees
that prior to entering into an agreement with such third-party Sublessor shall
notify Sublessee and shall offer such furniture to Sublessee upon the same terms
and conditions as contained in the Offer. Sublessee shall have three (3)
business days from such notice to inform Sublessor of its acceptance to purchase
the furniture on the terms stated in the Offer. If Sublessee fails to notify
Sublessor within the three day period, Sublessee's right of first refusal shall
be deemed waived and terminated.
d. The invalidity of any provision of this Agreement as determined by a
court of competent jurisdiction shall in no way affect the validity of any other
provision contained herein.
e. This Agreement contains all agreements of the parties with respect
to any matter mentioned herein. No prior or contemporaneous agreement or
understanding pertaining to any such matter shall be effective unless contained
herein.
f. This Agreement shall be modified only in writing, and such
modification shall only become effective upon execution by both parties herein.
g. The title of sections to this Sublease are not a part of this
Sublease and shall have no effect upon the construction or interpretation of any
part hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their proper officers thereunto duly authorized on the day and year
first above written.
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<PAGE>
SUBLESSOR:
WITNESSES: LEARNING INTERNATIONAL
_____________________________ By: Learning International a division of
Times Mirror Training, Inc., a Florida
corporation
______________________________ By:______________________________________
Name:___________________________________
Title:____________________________________
STATE OF ____________________________)
) SS.:
COUNTY OF __________________________ )
On this _____ day of ____________, 1996, personally appeared before me the
undersigned officer, ____________________________________________ acting herein
_______________________, by ________________________, its duly authorized
______________________ who acknowledged that he/she signed, sealed and delivered
the above and foregoing instrument as his/her free act and deed, the free act
and deed of said ____________________, and the free act and deed of said
___________________________________, for the purposes therein stated, before me.
-------------------------------------
Notary Public
Notary Seal:
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THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
No. 1
STOCK SUBSCRIPTION WARRANT
(SUBSTITUTE WARRANT)
To Purchase Common Stock of
International Telecommunication Data Systems, Inc. (the "Company")
DATE OF INITIAL ISSUANCE: July 21, 1992
THIS CERTIFIES THAT for value received, CONNECTICUT INNOVATIONS,
INCORPORATED or its registered assigns (hereinafter called the "Holder") is
entitled to purchase from the Company, at any time during the Term of this
Warrant, Two Hundred Thirty Three (233) shares of common stock, without par
value, of the Company (the "Common Stock"), at the Warrant Price, payable in
lawful money of the United States of America to be paid upon the exercise
hereof. The exercise of this Warrant shall be subject to the provisions,
limitations and restrictions herein contained, and may be exercised in whole or
in part. The number of shares of Common Stock issuable upon exercise of this
Warrant and the Warrant Price set forth herein reflect (i) all adjustments
required through the date of execution of this Warrant in accordance with the
terms of a warrant dated as of July 21, 1992 (the "Original Warrant") being
surrendered by the Holder in exchange for this Warrant, and (ii) the correction
of an error in the number of shares made the subject of the Original Warrant.
SECTION 1. Definitions.
-----------
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
Common Stock -- shall mean and include the Company's authorized Common
Stock, without par value, as constituted at the date hereof, and shall also
include any capital stock of any class or series of the Company hereafter
authorized which shall not be limited to a fixed sum or percentage of par value
or of the purchase price of such stock in respect of the rights of the holders
thereof to participate in dividends and/or in the distribution of assets upon
the voluntary or involuntary liquidation, dissolution or winding up of the
Company. Notwithstanding the foregoing, for purposes of determining the
<PAGE>
class or series of the Company's capital stock which the Holder is entitled to
purchase pursuant hereto, the term "common stock" shall mean the Company's
authorized Common Stock, without par value, as constituted at the date hereof.
Securities Act -- the Securities Act of 1933, as amended.
Term of this Warrant -- shall mean the period beginning on the date of
initial issuance hereof and ending on August 1, 1999.
Warrant Price -- $1,879.65 per share, subject to adjustment in
accordance with Section 5 hereof.
Warrants -- this Warrant and any other Warrant or Warrants issued in
exchange or substitution for the Original Warrant pursuant to the Exchange
Agreement between the Company and Connecticut Innovations, Incorporated made
effective as of December 28, 1994 (the "Exchange Agreement") to the original
holder of this Warrant, or any transferees from such original holder or this
Holder.
Warrant Shares -- shares of Common Stock purchased or purchasable by
the Holder of this Warrant upon the exercise hereof.
SECTION 2. Exercise of Warrant.
-------------------
2.1. Procedure for Exercise of Warrant. To exercise this Warrant in
whole or in part (but not as to any fractional share of Common Stock), the
Holder shall deliver to the Company at its office referred to in Section 13
hereof at any time and from time to time during the Term of this Warrant: (i)
the Notice of Exercise in the form attached hereto, (ii) cash, certified or
Official bank check payable to the order of the Company, wire transfer of funds
to the Company's account, or evidence of any indebtedness of the Company to the
Holder (or any combination of any of the foregoing) in the amount of the Warrant
Price for each share being purchased, and (iii) this Warrant. In the event of
any exercise of the rights represented by this Warrant, a certificate or
certificates for the shares of Common Stock so purchased, registered in the name
of the Holder or such other name or names as may be designated by the Holder,
shall be delivered to the Holder hereof within a reasonable time, not exceeding
fifteen (15) days, after the rights represented by this Warrant shall have been
so exercised; and, unless this Warrant has expired, a new Warrant representing
the number of shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder hereof within such time.
The person in whose name any certificate for shares of Common Stock is issued
upon exercise of this Warrant shall for all purposes be deemed to have become
the holder of record of such shares on the date on which the Warrant was
surrendered and payment of the Warrant Price and any applicable taxes was made,
irrespective of the date of
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<PAGE>
delivery of such certificate, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Company are closed, such
person shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are open.
2.2. Transfer Restriction Legend. Each certificate for Warrant Shares
shall bear the following legend (and any additional legend required by (i) any
applicable state securities laws and (ii) any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof unless at the time of exercise such Warrant Shares shall be registered
under the Securities Act:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold or transferred in the absence of such
registration or an exemption therefrom under said Act."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the holder thereof (which counsel shall be reasonably satisfactory
to counsel for the Company) the securities represented thereby are not, at such
time, required by law to bear such legend.
2.3. Exercise Period. The Holder may exercise this Warrant in whole or
in part at any time (and from time to time) commencing on the date of initial
issuance and continuing throughout the Term of this Warrant.
SECTION 3. Covenants as to Common Stock. The Company covenants and agrees that
all shares of Common Stock that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable, and free from all taxes, liens and charges with respect to
the issue thereof. The Company further covenants and agrees that it will pay
when due and payable any and all federal and state taxes which may be payable in
respect of the issue of this Warrant or any Common Stock or certificates
therefor issuable upon the exercise of this Warrant. The Company further
covenants and agrees that the Company will at all times have authorized and
reserved, free from preemptive rights, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant. The
Company further covenants and agrees that if any shares of capital stock to be
reserved for the purpose of the issuance of shares upon the exercise of this
Warrant require registration with or approval of any governmental authority
under any federal or state law before such shares may be validly issued or
delivered upon exercise, then the Company will in good faith
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<PAGE>
and as expeditiously as possible endeavor to secure such registration or
approval, as the case may be. If and so long as the Common Stock issuable upon
the exercise of this Warrant is listed on any national securities exchange, the
Company will, if permitted by the rules of such exchange, list and keep listed
on such exchange, upon official notice of issuance, all shares of such Common
Stock issuable upon exercise of this Warrant.
SECTION 4. Adjustment of Number of Shares. Upon each adjustment of the Warrant
Price as provided in Section 5, the Holder shall thereafter be entitled to
purchase, at the Warrant Price resulting from such adjustment, the number of
shares (calculated to the nearest tenth of a share) obtained by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant Price resulting from such
adjustment.
SECTION 5. Adjustment of Warrant Price. The Warrant Price shall be subject to
adjustment from time to time as follows:
(i) If the Company shall at any time or from time to time
during the Term of this Warrant issue shares of Common Stock other than
Excluded Stock (as hereinafter defined), the Warrant Price in effect
immediately prior to each such issuance or adjustment shall forthwith
(except as provided in this clause (i)) be adjusted to a price equal to
the product of (A) the Warrant Price in effect immediately prior to
adjustment, multiplied by (B) the number of shares of Common Stock
issued and outstanding immediately prior to such issuance, divided by
(C) the number of shares of Common Stock issued and outstanding
immediately subsequent to such issuance.
For the purposes of any adjustment of the Warrant Price pursuant to
this clause (i), the following provisions shall be applicable:
1. [Omitted].
2. [Omitted].
3. In the case of the issuance of (i) options to purchase or
rights to subscribe for Common Stock, (ii) securities by
their terms convertible into or exchangeable for Common
Stock or (iii) options to purchase or rights to subscribe
for such convertible or exchangeable securities:
(A) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of
such options to purchase or rights to
subscribe for Common Stock shall be deemed
to have been
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<PAGE>
issued at the time such options
or rights were issued and for a
consideration equal to the consideration
(determined in the manner provided in
subdivisions (1) and (2) above with the
proviso in subdivision (2) being applied to
the number of shares of Common Stock
deliverable upon such exercise), if any,
received by the Company upon the issuance of
such options or rights plus the minimum
purchase price provided in such options or
rights for the Common Stock covered thereby;
(B) the aggregate maximum number of shares of
Common Stock deliverable upon conversion of
or in exchange for any such convertible or
exchangeable securities or upon the exercise
of options to purchase or rights to
subscribe for such convertible or
exchangeable securities and subsequent
conversions or exchanges thereof shall be
deemed to have been issued at the time such
securities were issued or such options or
rights were issued and for a consideration
equal to the consideration received by the
Company for any such securities and related
options or rights (excluding any cash
received on account of accrued interest or
accrued dividends), plus the additional
consideration, if any, to be received by the
Company upon the conversion or exchange of
such securities or the exercise of any
related options or rights (the consideration
in each case to be determined in the manner
provided in subdivisions (1) and (2) above
with the proviso in subdivision (2) being
applied to the number of shares of Common
Stock deliverable upon such conversion,
exchange or exercise);
(C) on any change in the number of shares of
Common Stock deliverable upon exercise of
any such options or rights or conversion of
or exchange for such convertible or
exchangeable securities, other than a change
resulting from the antidilution provisions
thereof, the Warrant Price shall forthwith
be readjusted to such Warrant Price as would
have obtained had the adjustment that was
made upon the issuance of such options,
rights or securities made upon the basis of
such changed number of shares, but not
including any securities that were convened
before such change was made; and
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<PAGE>
(D) on the expiration of any such options or
rights, the termination of any such rights
to convert or exchange or the expiration of
any options or rights related to such
convertible or exchangeable securities, the
Warrant Price shall forthwith be readjusted
to such Warrant Price as would have obtained
had the adjustment made upon the issuance of
such options, rights, securities or options
or rights related to such securities being
made upon the basis of the issuance of only
the number of shares of Common Stock
actually issued upon the conversion or
exchange of such securities or upon the
exercise of the options or rights related to
such securities.
(ii) "Excluded Stock" shall mean shares of Common Stock issued by
the Company as a stock dividend payable in shares of Common Stock or
upon any subdivision or split-up of the outstanding shares of Common
Stock.
(iii) If, at any time during the Term of this Warrant, the number of
shares of Common Stock outstanding is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of
shares of Common Stock, then, following the record date fixed for the
determination of holders of Common Stock entitled to receive such stock
dividend, subdivision or split-up, the Warrant Price shall be
appropriately decreased so that the number of shares of Common Stock
issuable upon the exercise hereof shall be increased in proportion to
such increase in outstanding shares.
(iv) If, at any time during the Term of this Warrant, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date for
such combination, the Warrant Price shall appropriately increase so that
the number of shares of Common Stock issuable upon the exercise hereof
shall be decreased in proportion to such decrease in outstanding shares.
(v) [Omitted].
(vi) All calculations under this Section 5 shall be made to the
nearest cent or to the nearest one-tenth (1/10) of a share, as the case
may be.
(vii) [Omitted].
(viii) Whenever the Warrant Price shall be adjusted as provided in
Section 5, the Company shall prepare a statement showing the facts
requiring such adjustment and the Warrant Price that shall be in effect
after such adjustment. The
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<PAGE>
Company shall cause a copy of such statement to be sent by mail,
first class postage prepaid, to each Holder of this Warrant at his
address appearing on the Company's records. Where appropriate, such copy
may be given in advance and may be included as part of the notice
required to be mailed under the provisions of subsection (x) of this
Section 5.
(ix) Adjustments made pursuant to clauses (iii), (iv) and (v) above
shall be made on the date such dividend, subdivision, split-up,
combination or distribution, as the case may be, is made, and shall
become effective at the opening of business on the business day next
following the record date for the determination of stockholders entitled
to such dividend, subdivision, split-up, combination or distribution.
(x) In the event the Company shall propose to take any action of the
types described in clauses (iii), (iv), or (v) of this Section 5, the
Company shall forward, at the same time and in the same manner, to the
Holder of this Warrant such notice, if any, which the Company shall give
to the holders of capital stock of the Company.
(xi) In any case in which the provisions of this Section 5 shall
require that an adjustment shall become effective immediately after a
record date for an event, the Company may defer until the occurrence of
such event issuing to the Holder of all or any part of this Warrant
which is exercised after such record date and before the occurrence of
such event the additional shares of capital stock issuable upon such
exercise by reason of the adjustment required by such event over and
above the shares of capital stock issuable upon such exercise before
giving effect to such adjustment exercise; provided, however, that the
Company shall deliver to such Holder a due bill or other appropriate
instrument evidencing such Holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(xii) The sale or other disposition of any Common Stock theretofore
held in the treasury of the Company shall be deemed to be an issuance
thereof.
SECTION 6. Ownership.
---------
6.1. Ownership of This Warrant. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 6.
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<PAGE>
6.2. Transfer and Replacement. This Warrant and all rights hereunder
are transferable in whole or in part upon the books of the Company by the Holder
hereof in person or by duly authorized attorney, and a new Warrant or Warrants,
of the same tenor as this Warrant but registered in the name of the transferee
or transferees (and in the name of the Holder, if a partial transfer is
effected) shall be made and delivered by the Company upon surrender of this
Warrant duly endorsed, at the office of the Company referred to in Section 13
hereof. Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft or destruction, and, in such case, of indemnity or security
reasonably satisfactory to it, and upon surrender of this Warrant if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided that if the Holder hereof is an instrumentality of a state or
local government or an institutional holder or a nominee for such an
instrumentality or institutional holder an irrevocable agreement of indemnity by
such Holder shall be sufficient for all purposes of this Section 6, and no
evidence of loss or theft or destruction shall be necessary. This Warrant shall
be promptly cancelled by the Company upon the surrender hereof in connection
with any transfer or replacement. Except as otherwise provided above, in the
case of the loss, theft or destruction of a Warrant, the Company shall pay all
expenses, taxes and other charges payable in connection with any transfer or
replacement of this Warrant, other than stock transfer taxes (if any) payable in
connection with a transfer of this Warrant, which shall be payable by the
Holder. Holder will not transfer this Warrant and the rights hereunder except in
compliance with federal and state securities laws.
SECTION 7. Mergers, Consolidation, Sales. In the case of any proposed
consolidation or merger of the Company with another entity, or the proposed sale
of all or substantially all of its assets to another person or entity, or any
proposed reorganization or reclassification of the capital stock of the Company,
then, as a condition of such consolidation, merger, sale, reorganization or
reclassification, lawful and adequate provision shall be made whereby the Holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein, in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable hereunder, such
shares of stock, securities or assets as may (by virtue of such consolidation,
merger, sale, reorganization or reclassification) be issued or payable with
respect to or in exchange for the number of shares of such Common Stock
purchasable hereunder immediately before such consolidation, merger, sale,
reorganization or reclassification. In any such case appropriate provision shall
be made with respect to the rights and interests of the Holder of this Warrant
to the end that the provisions hereof shall thereafter be applicable as nearly
as may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of this Warrant. The Company shall not effect any
such consolidation, merger or sale unless (i) either (A) the
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<PAGE>
Holder shall have given its written consent thereto, or (B) the other
party to the consolidation, merger or sale is not controlled by, does not
control, and is not under common control with, the Company and the transaction
is not being undertaken with the purpose of diminishing, defeating or avoiding
the Holder's rights hereunder, and (ii) prior to 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 Holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the Holder is entitled to receive.
SECTION 8. Notice of Dissolution or Liquidation. In case of any distribution of
the assets of the Company in dissolution or liquidation (except under
circumstances when the foregoing Section 7 shall be applicable), the Company
shall give notice thereof to the Holder hereof and shall make no distribution to
shareholders until the expiration of thirty (30) days from the date of mailing
of the aforesaid notice and, in any case, the Holder hereof may exercise this
Warrant within thirty (30) days from the date of the giving of such notice, and
all rights herein granted not so exercised within such thirty-day period shall
thereafter become null and void.
SECTION 9. Notice of Dividends. If the Board of Directors of the Company shall
declare any dividend or other distribution on its Common Stock, the Company
shall mail notice thereof to the Holder hereof not less than thirty (30) days
prior to the record date fixed for determining shareholders entitled to
participate in such dividend or other distribution, and the Holder hereof shall
not participate in such dividend or other distribution unless this Warrant is
exercised prior to such record date. The provisions of this Section 9 shall not
apply to distributions made in connection with transactions covered by Section
7.
SECTION 10. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant but in any case where the Holder would, except for the
provisions of this Section 10, be entitled under the terms hereof to receive a
fractional share upon the complete exercise of this Warrant, the Company shall,
upon the exercise of this Warrant for the largest number of whole shares then
called for, pay a sum in cash equal to the excess of the value of such
fractional share (determined in such reasonable manner as may be prescribed in
good faith by the Board of Directors of the Company) over the Warrant Price for
such fractional share.
SECTION 11. Special Arrangements of the Company. The Company covenants and
agrees that during the Term of this Warrant, unless otherwise approved by the
Holder of this Warrant:
11.1. Will Reserve Shares. The Company will reserve and set apart and
have available for issuance at all times, free from preemptive or other
preferential rights, the number of shares of
-9-
<PAGE>
authorized but unissued Common Stock deliverable upon the exercise of this
Warrant.
11.2. Will Not Issue Certain Stock. The Company will not issue any
capital stock of any class which has rights to be preferred as to dividends
and/or as to the distribution of assets upon voluntary or involuntary
liquidation, dissolution or winding-up, unless (a) such rights shall be limited
to a fixed sum or percentage of par value in respect of participation in
dividends and in the distribution of assets, and (b) such stock is non-voting.
The Company will be deemed to have issued stock which is preferred as to
dividends or as to distribution of assets only if either (i) the right to
preferred dividends exceeds the amount of fifteen percent (15%) per annum of par
value or of the purchase price of such shares or (ii) the right to preferred
distribution of assets exceeds the amount of one hundred percent (100%) of par
value or of the purchase price of such shares for the first year after issuance
of such stock or one hundred and twenty-five percent (125%) thereafter.
11.3. Will Not Declare Dividends. The Company will not pay any dividend
or other distribution on any of its capital stock unless such dividend or other
distribution on such share of capital stock and all other dividends or
distributions paid during the prior one year period on such shares of capital
stock are paid out of earned surplus and the aggregate amount thereof is less
than fifteen percent (15%) of the fair market value of the shares of capital
stock (if then ascertainable) on the date of declaration of such dividend or
other distribution.
11.4. Will Not Amend Certificate. The Company will not amend its
Certificate of Incorporation to eliminate as an authorized class of capital
stock that class denominated as "Common Stock" on the date hereof.
11.5. Will Bind Successors. This Warrant shall be binding upon any
corporation or other person or entity succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
SECTION 12. Registration Rights; etc.
------------------------
12.1. Certain Definitions. As used in this Section 12, 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 Warrant Shares less any Warrant
Shares theretofore sold to the public or in a private placement.
-10-
<PAGE>
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
thereunder, and the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
in compliance with Section 12.2 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 Warrant Shares or
Registrable Securities which (except for purposes of determining "Holders" under
Section 12.7 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.
12.2. 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 12.2(b) below.
-11-
<PAGE>
(b) Underwriting. If the registration of which the Company gives 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
12.2(a)(i). In such event, the right of any Holder to registration pursuant to
Section 12.2 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. 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 12.2, 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, he 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.
12.3. 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
Warrant, 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 Warrant.
-12-
<PAGE>
12.4. Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification and
compliance by the Company pursuant to Section 12.2 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.
12.5. Registration Procedures. In the case of each registration
effected by the Company pursuant to this Section 12, 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.
12.6. Indemnification.
---------------
(a) The Company, with respect to each registration, qualification and
compliance effected pursuant to this Section 12, 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
-13-
<PAGE>
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 and relating to
action or inaction required of 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 or the like) incident to any such registration, qualification or
compliance.
(b) Each Holder and Other Shareholder will, if Registrable Securities
held by him 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.
(c) Each party entitled to indemnification under this Section 12.6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying
-14-
<PAGE>
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 12. 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.
12.7. 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 l2.
12.8. 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 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
-15-
<PAGE>
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 13. Notices. Any notice or other document required or permitted to be
given or delivered to the Holder shall be delivered at, or sent by certified or
registered mail to, the Holder at 40 Cold Spring Road, Rocky Hill, CT 06067 or
to such other address as shall have been furnished to the Company in writing by
the Holder. Any notice or other document required or permitted to be given or
delivered to the Company shall be delivered at, or sent by certified or
registered mail to, the Company at 969 High Ridge Road, Stamford, Connecticut
06905 or to such other address as shall have been furnished in writing to the
Holder by the Company. Any notice so addressed and mailed by registered or
certified mail 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.
SECTION 14. No Rights as Stockholder: Limitation of Liability. This Warrant
shall not entitle the Holder to any of the rights of a shareholder of the
Company. No provision hereof, in the absence of affirmative action by the Holder
to purchase shares of Common Stock, and no mere enumeration herein of the rights
or privileges of the Holder, shall give rise to any liability of the Holder for
the Warrant Price hereunder or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
SECTION 15. Law Governing. This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the State of Connecticut.
SECTION 16. Miscellaneous.
-------------
(a) This Warrant and any provision hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
(or any predecessor in interest thereof) against which enforcement of the same
is sought. The headings in this Warrant are for purposes of reference only and
shall not affect the meaning or construction of any of the provisions hereof;
and
(b) All capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Exchange Agreement.
-16-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer this 28th day of December, 1994.
INTERNATIONAL TELECOMMUNICATION
DATA SYSTEMS, INC.
By: ________________________________
Name:________________________________
Title: _____________________________
-17-
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 1996, in the
Registration Statement (Form S-1 No. 33-xxxxx) and related Prospectus of
International Telecommunication Data Systems, Inc. for the registration of
2,666,667 shares of its common stock.
Stamford, Connecticut
September , 1996
The foregoing consent is in the form that will be signed upon the
recapitalization described in Note 10 to the financial statements.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
August 29, 1996
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED BALANCE SHEETS FOR THE SIX MONTHS PERIOD ENDING JUNE 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000867889
<NAME> INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,031,990
<SECURITIES> 340,200
<RECEIVABLES> 2,333,856
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,028,524
<PP&E> 2,177,170
<DEPRECIATION> 997,173
<TOTAL-ASSETS> 6,500,135
<CURRENT-LIABILITIES> 1,772,465
<BONDS> 0
0
1,368,000
<COMMON> 51,248
<OTHER-SE> 532,391
<TOTAL-LIABILITY-AND-EQUITY> 6,500,135
<SALES> 7,864,461
<TOTAL-REVENUES> 7,864,461
<CGS> 0
<TOTAL-COSTS> 1,847,718
<OTHER-EXPENSES> 4,085,117
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 218,416
<INCOME-PRETAX> 1,726,205
<INCOME-TAX> 732,000
<INCOME-CONTINUING> 994,205
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 994,205
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED BALANCE SHEETS FOR THE YEAR ENDING DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000867889
<NAME> INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 1,172,692
<SECURITIES> 295,069
<RECEIVABLES> 1,348,787
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<INVENTORY> 0
<CURRENT-ASSETS> 3,116,746
<PP&E> 1,827,480
<DEPRECIATION> 709,911
<TOTAL-ASSETS> 5,433,706
<CURRENT-LIABILITIES> 1,906,624
<BONDS> 0
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1,368,000
<COMMON> 51,248
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<TOTAL-LIABILITY-AND-EQUITY> 5,433,706
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<INTEREST-EXPENSE> 452,925
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<INCOME-TAX> 378,786
<INCOME-CONTINUING> 825,594
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<EXTRAORDINARY> (223,696)
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