As filed with the Securities and Exchange Commission on February 28, 1997
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 06-1295986
(State or other (Primary Standard
jurisdiction of Industrial (I.R.S. Employer
incorporation or Classification Code Identification
organization) Number) No.)
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225 High Ridge Road, 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.
225 High Ridge Road
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 LLP 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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<TABLE>
<CAPTION>
Title of Each Proposed Maximum
Class of Proposed Maximum Aggregate Amount of
Securities to be Amount to be Offering Price per Offering Price (1) Registration
Registered Registered (1) Share (2) (2) Fee
- ------------------ ---------------- --------------------- --------------------- --------------
<S> <C> <C> <C> <C>
Common Stock, $.01
par value per 2,415,000
share shares $23.188 $55,999,020 $16,970
</TABLE>
(1) Includes 315,000 shares which the Underwriters have the option to
purchase from certain of the Selling Stockholders to cover
over-allotments, if any. See "Underwriting".
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933
based upon prices on the Nasdaq National Market on February 26, 1997.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to Section 8(a), may determine.
=============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration under the securities laws of any such State.
Subject to Completion, dated February 28, 1997
PROSPECTUS
2,100,000 Shares
[ITDS logo] ITDS
INTERNATIONAL
TELECOMMUNICATION
DATA SYSTEMS
Common Stock
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Of the 2,100,000 shares of Common Stock, par value $.01 per share, of
International Telecommunication Data Systems, Inc. ("ITDS" or the "Company")
offered, 500,000 are being offered by the Company and 1,600,000 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.
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol ITDS. On February 26, 1997, the last reported sale price of the Common
Stock on the Nasdaq National Market was $22 7/8 per share. See "Price Range
of Common Stock."
-------------
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 Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions (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 $370,000 payable by the Company.
(3) Certain of the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to an aggregate of 315,000 additional shares
of Common Stock on the same terms and conditions as set forth above
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Selling Stockholders will be $ , $ and $ ,
respectively. See "Underwriting."
The shares of Common Stock offered by this Prospectus are offered severally
by the Underwriters subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
delivery of certificates for the shares will be made at the offices of Lehman
Brothers Inc., New York, New York, on or about , 1997.
Lehman Brothers
Alex. Brown & Sons
Incorporated
Cowen & Company
, 1997
<PAGE>
[Picture of Globe in night sky
Perspective of flat plane disappearing in distance]
[ITDS logo] ITDS
INTERNATIONAL
COMMMUNICATION
DATA SYSTEMS
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF
PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
2
<PAGE>
[Photograph depicting use of ITDS Point of Sale product at remote location]
Provided to users as a complete package, the ITDS Point Of Sale product can
be installed at a carrier's home office, a mall kiosk, or on a remote laptop
computer -- virtually anywhere that subscribers demand sales, service and
activations.
[Text Representation of Chart]
(Home & Roam
Switch Call Billing Records) ITDS 10X(R) Subscriber
MTSO ----> Collector -------------------> Data Base
|
|
|
|
- ---------------------------------------------------------------------------
| | | | | | | | | |
SwitchLink | | CreditLink | | Payment | | 10XArchive
Provisioning | | | | | Options | | CD/ROM
| | | | | | | |
| | | Point | | | |
Debit/Threshold | | Of | |InventoryScan |
Billing* | | Sale | | |
| | | | | | |
| | | | | | |
General Ledger | | | Collections | 10XWrite
Interface | | | Module | Report Writer
| | | | |
| ------ -------------------------------------
| | | | | |
| | | | | |
| | | | | |
Client Credit Credit ITDS | ACH Bank
Accounting Bureau Cards PayScan | Draft
System |
Direct
Invoice
* Under Development
[Photograph depicting use of ITDS Point of Sale product at Kiosk location]
Designed to reduce the amount of keystrokes by sales clerks, ITDS' fully
integrated Point Of Sale system is an intelligent sales processing system.
[Photo of Globe] INNOVATION, QUALITY, AND SERVICE EXCEEDING EXPECTATIONS
Innovation, Quality, and Service Exceeding Expectations is ITDS' corporate
mission statement. These components form the foundation upon which ITDS' staff
rely 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 assumes no exercise of the
Underwriters' over-allotment option.
The Company
ITDS is a leading provider of 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 54% 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, $10.8 million and $16.7 million in
1994, 1995 and 1996, respectively. For the year ended December 31, 1996,
recurring revenues accounted for over 92.1% of total revenues, and 82.7% 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 dedicated
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 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.
Since the Company's initial public offering in October 1996 (the "Initial
Public Offering"), the Company has relocated and consolidated its corporate
headquarters; introduced the next release of the ITDS 10X system; hired
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<PAGE>
13 additional employees, increasing its sales and marketing team and adding a
key member of management; increased sales to larger service providers; and
expanded its subscriber base.
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
expanding its sales and marketing 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 225 High Ridge Road, 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 Company 500,000 shares
Common Stock offered by the Selling 1,600,000 shares
Stockholders
Common Stock to be outstanding 8,936,941 shares (1)
after this offering
Use of proceeds by the Company For working capital and other
general corporate purposes,
including the payment of expenses
related to this offering. See
"Use of Proceeds."
Nasdaq National Market symbol ITDS
- -------------
(1) Includes the number of shares outstanding as of February 25, 1997.
Excludes 389,563 shares of Common Stock issuable upon the exercise of
outstanding options as of February 25, 1997, and an additional 610,000
and 200,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Incentive Plan and 1996 Employee Stock Purchase
Plan, respectively. See "Management--1996 Stock Incentive Plan" and
"--1996 Employee Stock Purchase Plan."
4
<PAGE>
Summary Financial Information
Year Ended December 31,
-----------------------------
1994 1995 1996
---------- -------- --------
(in thousands, except per
share data)
Statements of Operations
Data:
Revenue $6,324 $10,821 $16,689
Operating income 1,106 1,608 2,714
Income before extraordinary
item (1) 708 826 1,502
Per common share data (2):
Pro forma income before
extraordinary item .13 .23
Extraordinary loss (.03) --
-------- --------
Pro forma net income $ .10 $ .23
======== ========
Shares used in determining
pro forma net
income per share 6,194 6,593
======== ========
As of December 31, 1996
--------------------------
Actual As Adjusted (3)
-------- ----------------
(in thousands)
Balance Sheet Data:
Cash, cash equivalents and
short-term investments $ 4,487 $14,925
Securities available for sale at
estimated market value 25,023 25,023
Working capital 31,639 42,077
Total assets 38,398 48,836
Long-term capital lease obligations 878 878
Stockholders' equity 34,717 45,155
- -------------
(1) In 1995, the Company experienced an extraordinary loss of $223,696 (net
of $158,038 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 500,000 shares of
Common Stock offered hereby at an assumed offering price of $22 7/8
(after deducting the underwriting discount and commission and estimated
offering expenses) and the application of the net proceeds therefrom. See
"Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
The following risks factors should be considered carefully in addition to
the other information in this Prospectus before purchasing the Common Stock
offered by this Prospectus. Except for the historical information contained
herein, the discussion in this Prospectus contains certain forward-looking
statements that involve risks and uncertainties. The cautionary statements
made in this Prospectus should be read as being applicable to all related
forward-looking statements wherever they appear in this Prospectus. The
Company's actual results could differ materially from those discussed here.
Important factors that could cause or contribute to such differences include
those discussed below, as well as those discussed elsewhere herein.
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 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. Such developments 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. In addition, 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 $16.7 million in 1996. 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.
The number of the Company's employees has increased from 26 as of January
1993 to 188 as of February 1997. 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 of new products or
services by third parties could render the Company's existing products and
6
<PAGE>
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 the development of new or enhanced products or
services on a timely or successful basis or successfully manage transitions
from one product release to the next, that the Company will not encounter
difficulties or delays in the introduction 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
For the year ended December 31, 1996, revenue from Aliant Communications
Co. (formerly, The Lincoln Telephone and Telegraph Company) and its
affiliated companies represented approximately 19.1% (reflects the
acquisition of Nebraska Cellular by Aliant in 1996) of the Company's total
revenue, and revenue from Horizon Cellular Group represented approximately
12.5% of the Company's total revenue. 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. Since October 1996,
Horizon Cellular Group has divested certain of its remaining cellular
markets, the majority of which were acquired by existing customers of the
Company. Because the majority of these markets were acquired by the Company's
existing customers, the Company does not expect that the significant
reduction in revenue from Horizon Cellular Group expected in 1997 will have a
material adverse effect on the business, financial condition or results of
operations of the Company. See "Business--Sales and Marketing."
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 a number of larger telecommunications
services providers as customers. In order to do so, and to expand its
business generally, the Company believes that it must expand the sales and
marketing organization. While the Company is still in the process of hiring
sales and marketing personnel, it currently has five persons dedicated to
sales and marketing efforts. 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
7
<PAGE>
marketing organization. Failure to achieve any one or more of the foregoing
goals could have a material adverse effect on the Company's business,
financial condition and results of operations. See "--Management of Growth."
Dependence on Key Personnel
The Company's performance depends substantially on the performance of its
executive officers and key employees. The Company's 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 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 certain other executive officers have been primarily responsible for the
development and expansion of the Company's business. In November 1996, Joseph
Juliano joined the Company as Executive Vice President of Strategic Product
Management. Mr. Juliano is party to an employment agreement with the Company
and none of Messrs. C. Bakes, Spitzer or L. Bakes is party to an employment
agreement with the Company. The Company does not maintain any key person
insurance. 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. See "Business--Employees", "Management" and
"Certain Transactions."
In January 1997, David Wells resigned as Executive Vice President, Chief
Information Officer and director of the Company to pursue other
opportunities. In connection with his departure, Mr. Wells' duties have been
assumed by the other executive officers of the Company.
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.
8
<PAGE>
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 longer sales cycles typically associated with
larger customers, which requires the Company to make a larger investment in
the conversion process prior to the generation of revenue; 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."
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
31.6% of the outstanding Common Stock, assuming no exercise of the
Underwriters' over-allotment option and approximately 28.1% of the
outstanding Common Stock assuming full exercise of the Underwriters'
over-allotment option. 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."
Limited Public Market; Possible Volatility of Stock Price
The Common Stock has traded on the Nasdaq National Market since October
1996 and has a limited public market history. There can be no assurance that
future market prices for the shares will equal or exceed the price to public
set forth on the cover page of this Prospectus. The price at which the Common
Stock will trade is likely to be highly volatile and could be subject to wide
fluctuations in response to quarterly fluctuations in operating results;
announcements of technological innovations or new products by the Company or
its competitors; changes in financial estimates by securities analysts;
fluctuations in economic and financial market conditions, 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 "--Fluctuations in Quarterly
Performance" and "Underwriting."
Discretionary Use of Unallocated Net Proceeds
The principal purposes of this offering are to provide liquidity for the
Company's existing stockholders, to increase the Company's equity capital and
to increase the Company's visibility in the marketplace. As of the date of
this Prospectus, the Company has no specific plans for the use of a
substantial portion of the net proceeds of this offering. The Company expects
to use such unallocated proceeds for working capital and other general
corporate
9
<PAGE>
purposes, including payment of expenses related to this offering and
potential acquisitions. Consequently, the Board of Directors and management
of the Company will have significant flexibility in applying the unallocated
net proceeds of this offering. See "Use of Proceeds."
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."
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 has the authority, without further action by the
stockholders, to fix the rights and preferences of, and issue shares of, the
Company's authorized Preferred Stock. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of any
holders of Preferred Stock that may be issued in the future. The Company has
no present plans to issue any shares of the Company's Preferred Stock. In
addition, the Company is subject to the anti-takeover provisions of Section
203 of the Delaware General Corporation Law, which prohibit the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which such
stockholder became an "Interested Stockholder" unless the business
combination is approved in a prescribed manner. The application of Section
203 could have the effect of delaying or preventing a change of control of
the Company. These provisions, and the provisions of the Certificate of
Incorporation and By-laws, may have the effect of deterring hostile takeovers
or delaying or preventing changes in control or management of the Company,
including transactions in which stockholders might otherwise receive a
premium for their shares over then current market prices. In addition, these
provisions may limit the ability of stockholders to approve transactions that
they may deem to be in their best interests. See "Description of Capital
Stock--Preferred Stock" and "--Delaware Law and Certain Charter and By-law
Provisions."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 500,000 shares of Common
Stock offered by the Company hereby at an assumed offering price of $22 7/8
per share are estimated to be $10,438,437, after deducting the 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 Company may seek acquisitions of businesses, products and technologies
that are complementary to those of the Company, and a portion of the net
proceeds may be used for such acquisitions. While the Company, engages, from
time to time, in discussions with respect to potential acquisitions, the
Company has no plans, commitments or agreements with respect to any such
acquisitions as of the date of this Prospectus, and there can be no
assurances that any such acquisitions will be made. Pending such uses, the
Company intends to invest the net proceeds from this offering in short-term,
investment grade, interest-bearing instruments. See "Risk
Factors--Discretionary Use of Unallocated Net Proceeds."
PRICE RANGE OF COMMON STOCK
The Common Stock has been quoted on the Nasdaq National Market under the
symbol "ITDS" since the Initial Public Offering on October 24, 1996.
The following table sets forth the high and low sale prices of the Common
Stock on the Nasdaq National Market for the periods indicated.
High Low
---------- ----------
Fiscal Year Ended December 31, 1996:
Fourth Quarter (from October 24, 1996) $24-1/2 $ 15
Fiscal Year Ending December 31, 1997:
First Quarter (through February 26 1997) $ 24 $20-1/2
On February 26, 1997, the last reported sale price for the Common Stock as
reported by the Nasdaq National Market was $22 7/8 per share. As of February
26, 1997, there were approximately 94 holders of record of the Common Stock.
DIVIDEND POLICY
In 1995 and 1996, the Company paid cash dividends to the holders of Class
A Preferred Stock in the aggregate amounts of $33,750 and $36,000,
respectively, and in 1996, it paid cash dividends of $46,080 to the holders
of Class C Convertible Preferred Stock. 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 the capitalization of the Company at
December 31, 1996 and as adjusted to reflect the sale of 500,000 shares of
Common Stock offered hereby by the Company 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.
As of December 31, 1996
---------------------------
Actual As Adjusted (1)
--------- ----------------
(in thousands)
Long-term capital lease obligations $ 878 $ 878
Stockholders' equity (deficit):
Preferred Stock, $.01 par value;
2,000,000 shares authorized, none
issued and outstanding, actual and
as adjusted -- --
Common Stock, $.01 par value;
40,000,000 shares authorized,
8,412,504 shares issued and
outstanding, actual; 8,912,504
shares issued, and outstanding, as
adjusted 84 89
Additional paid-in capital 43,472 53,905
Retained deficit (8,802) (8,802)
Unrecognized loss on securities
available for sale, net of tax (37) (37)
--------- ----------------
Total stockholders' equity 34,717 45,155
--------- ----------------
Total capitalization $35,595 $46,033
========= ================
(1) Excludes 392,200 shares of Common Stock issuable upon the exercise of
outstanding options as of December 31, 1996, and an additional 607,800
and 200,000 shares of Common Stock reserved for issuance pursuant to the
Company's 1996 Stock Incentive Plan and 1996 Employee Stock Purchase
Plan, respectively.
12
<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, 1995
and 1996 and with respect to the Company's balance sheets as of December 31,
1993, 1994, 1995 and 1996 have been derived from the Company's Financial
Statements, which have been audited by Ernst & Young LLP, independent
auditors, and, except for the statements of operations for the year ended
December 31, 1993 and the balance sheets as of December 31, 1993 and 1994,
appear elsewhere in this Prospectus. The selected financial information with
respect to the Company's statements of operations for the year ended December
31, 1992 and with respect to the Company's balance sheet as of December 31,
1992 has been derived from the Company's unaudited financial statements. 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.
Year Ended December 31,
---------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
Statements of Operations
Data:
Revenue $1,646 $3,146 $6,324 $10,821 $16,689
Costs and expenses:
Operating expenses 568 834 1,647 2,788 4,283
General, administrative and
selling expenses 1,218 1,575 2,410 4,601 6,523
Depreciation and
amortization 114 242 406 641 1,054
Systems development and
programming costs 6 298 755 1,183 2,115
-------- -------- -------- -------- --------
Total cost and expenses 1,906 2,949 5,218 9,213 13,975
-------- -------- -------- -------- --------
Operating income (loss) (260) 197 1,106 1,608 2,714
Other income 5 50 29 49 316
Interest expense (210) (329) (390) (453) (416)
-------- -------- -------- -------- --------
Income (loss) before income
tax expense and
extraordinary item (465) (82) 745 1,204 2,614
Income tax expense -- -- 37 378 1,112
-------- -------- -------- -------- --------
Income (loss) before
extraordinary item (465) (82) 708 826 1,502
Extraordinary loss (net of
$158 tax benefit) -- -- -- (224) --
-------- -------- -------- -------- --------
Net income (loss) $ (465) $ (82) $ 708 $ 602 $ 1,502
======== ======== ======== ======== ========
Per common share data (1):
Pro forma income before
extraordinary item $ .13 $ .23
Extraordinary loss (.03) --
-------- --------
Pro forma net income $ .10 $ .23
======== ========
Shares used in computing pro
forma income per common
share 6,194 6,593
======== ========
13
<PAGE>
December 31, December 31, 1996
------------------------------ ---------------------
As
1992 1993 1994 1995 Actual Adjusted (2)
------ ------ ------ -------- -------- ------------
Balance Sheet Data:
Cash, cash equivalent
and short-term
investments $ 308 $ 457 $ 512 $1,468 $ 4,487 $14,925
Securities available for
sale at estimated
market value -- -- -- -- 25,023 25,023
Working capital 243 164 157 1,210 31,639 42,077
Current assets 671 971 1,457 3,117 33,942 44,380
Current liabilities 429 807 1,300 1,907 2,303 2,303
Total assets 1,193 1,917 2,651 5,434 38,398 48,836
Total long-term debt
and capital lease
obligations 1,055 1,501 1,353 2,437 878 878
Redeemable Preferred
Stock--Class C -- -- -- 640 -- --
Total stockholders'
equity (deficit) (310) (503) (186) 379 34,717 45,155
- -------------
(1) Computed on the basis described in Note 1 of Notes to Financial
Statements.
(2) As adjusted to give effect to the sale by the Company of Common Stock
offered hereby and the application of the net proceeds therefrom.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is a leading provider of 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 typically ranging from three to four years.
The Company derives revenue (i) primarily from service contracts, whereby
a customer contracts with the Company to install, 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 93.5%,
97.4% and 96.6% of total revenue for 1994, 1995 and 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 and 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 has grown rapidly in recent years, increasing from
approximately $6.3 million in 1994 to $10.8 million and $16.7 million in 1995
and 1996, respectively.
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
development costs in accordance with Statement of Financial Accounting
Standards (SFAS) No. 86. Amounts capitalized are amortized over five years.
15
<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,
1994, 1995 and 1996.
Year Ended December 31,
----------------------------
1994 1995 1996
-------- -------- ---------
Revenue 100.0% 100.0% 100.0%
Costs and expenses:
Operating expenses 26.0 25.8 25.7
General, administrative and selling expenses 38.1 42.5 39.1
Depreciation and amortization 6.4 5.9 6.3
Systems development and programming costs 12.0 10.9 12.6
-------- -------- ---------
Total costs and expenses 82.5 85.1 83.7
-------- -------- ---------
Operating income 17.5 14.9 16.3
Other income 0.5 0.4 1.9
Interest expense (6.2) (4.2) (2.5)
-------- -------- ---------
Income before income tax expense and
extraordinary item 11.8 11.1 15.7
Income tax expense 0.6 3.5 6.7
-------- -------- ---------
Income before extraordinary item 11.2 7.6 9.0
Extraordinary loss -- (2.0) --
-------- -------- ---------
Net income 11.2% 5.6% 9.0%
======== ======== =========
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenue
Revenue increased 54.2% from $10,820,815 in 1995 to $16,689,401 in 1996,
due primarily to the addition of new customers and the continued growth of
recurring revenue from existing customers.
Operating expenses
Operating expenses increased 53.7% from $2,787,687 in 1995 to $4,283,364
in 1996, 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 25.8% in 1995 to 25.7% in 1996.
General, administrative and selling expenses
General, administrative and selling expenses increased 41.8% from
$4,601,242 in 1995 to $6,522,900 in 1996. This increase was primarily due to
one time charges of $1,206,548, related to compensation paid to two newly
hired employees ($909,548), a lawsuit settlement ($97,000) and a payment to
Connecticut Innovations, Incorporated ("CII") ($200,000) (See Note 3 of the
Notes to the Financial Statements). Other changes from 1995 to 1996 relate to
increased employee compensation benefits of $606,535, additional rent expense
of $260,815 and other administrative expenses resulting from the growth of
the Company. These expenses were partially offset by decreases in salaries
and bonuses paid to senior management of approximately $413,086. As a
percentage of revenue, general, administrative and selling expenses decreased
from 42.5% in 1995 to 39.1% in 1996.
Depreciation and amortization
Depreciation and amortization increased 64.4% from $640,917 in 1995 to
$1,053,472 in 1996 primarily due to the purchase of computer equipment and
the increased spending on 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 increased as a percentage of revenue from 5.9% in 1995 to 6.3% in
1996.
Systems development and programming costs
Systems development and programming costs increased 78.8% from $1,183,141
in 1995 to $2,115,305 in 1996, primarily due to increased programming support
required by the Company's customers. As a percentage of revenue, system
development and programming costs increased from 10.9% in 1995 to 12.6% in
1996. In addition, the Company capitalized $479,316 and $858,827 in software
development costs, in 1995 and 1996, respectively.
16
<PAGE>
Interest expense
Interest expense decreased 8.1% from $452,925 in 1995 to $416,148 in 1996,
as a result of lower overall debt balances in 1996 as compared to 1995. This
was partially offset by an increase in capitalized lease obligations in 1996.
Income tax expense
The Company's effective tax rate increased from 31.5% in 1995 to 42.5% in
1996 due primarily to debt consolidation expense benefits in 1995 which did
not recur in 1996.
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 continued growth of
recurring revenue from existing customers.
Operating expenses
Operating expenses increased 69.3% from $1,646,852 in 1994, to $2,787,687
in 1995, due primarily to the addition of new personnel required to support
the growth of the Company's business. As a percentage of revenue, such
expenses decreased slightly from 26.0% in 1994, to 25.8% in 1995.
General, administrative and selling expenses
General, administrative and selling expenses increased 91.0% from
$2,409,683 in 1994, to $4,601,242 in 1995. As a percentage of revenue,
general, administrative and selling expenses increased from 38.1% in 1994 to
42.5% in 1995. This increase was due primarily to increases in executive
officers salaries, bonuses and other benefits of $1,263,600, general office
expenses of $368,300, employee compensation and benefits, including
employment agency fees and relocation costs, of $324,600, advertising
expenses of $65,000 and other administrative expenses as a result of the
growth of the Company.
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 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. 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, the Company
capitalized $288,602 and $479,316 in software development costs in 1994 and
1995, respectively.
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
The Company's effective tax rate was 31.5% in 1995 and 4.9% in 1994. The
increase in the rate was primarily due to the fact that in 1994 the Company
fully utilized its net operating loss carryforward credits for which
valuation allowances had previously been recorded.
17
<PAGE>
Extraordinary loss
On June 30, 1995, the Company refinanced existing debt with CII and
recorded an extraordinary loss of $223,696, net of $158,038 in tax benefits.
Such extraordinary loss was due to negotiated acceleration of payments in
connection with the early termination of the debt agreement.
Liquidity and Capital Resources
The Company has financed its operations to date primarily through its
Initial Public Offering, private placements of debt and equity securities,
cash generated from operations and equipment financing.
As of December 31, 1996, the Company had $4,138,575 of cash and cash
equivalents, $25,023,454 in securities available for sale (United States
Treasury Notes), $3,232,967 in net trade accounts receivable (including
$1,396.412 for services provided prior to December 31, 1996 which were not
billable at that date), and $31,639,397 of working capital.
In the twelve months ended December 31, 1996, the Company generated
$1,445,792 in net cash from operating activities and $29,345,172 in net cash
from financing activities including the sale of shares of Common Stock in the
Company's Initial Public Offering in October 1996 for $32,502,706 in net
proceeds. The cash generated from operations and the net proceeds from the
Initial Public Offering enabled the Company to fund its operations, apply
$858,827 to product development costs, purchase $25,413,553 of investments,
and make $2,173,496 in principal payments on long-term debt and capital lease
obligations.
The Company maintains a bank line of credit with First Union Bank of
Connecticut providing for borrowings of up to $250,000. To date, the Company
has made no borrowings under this line of credit. In addition, the Company
has a letter of credit with First Union in the amount of $362,000 as security
for the Company's lease of its headquarters. The line of credit and the
letter of credit are secured by substantially all of the assets of the
Company. The line of credit expires in August 1997 and bears interest at the
bank's prime lending rate and the letter of credit is renewable annually and
is subject to an annual fee of 1%.
The Company believes that its existing capital resources as well as the
letter of credit and credit facility described in Note 8 of the Notes to the
Financial Statements are adequate to meet its cash requirements for the
foreseeable future. There can be no assurance, however, that changes in the
Company's plans or other events affecting the Company's operations will not
result in accelerated or unexpected expenditures.
In addition to the proceeds to the Company from this offering, 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.
Quarterly Results
The following table sets forth certain unaudited quarterly financial data
for 1995 and 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.
18
<PAGE>
Three Months Ended
-------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31,
1995 1995 1995 1995
--------- --------- ---------------------
(in thousands)
Statements of Operations:
Revenue $2,179 $2,707 $2,958 $2,977
Costs and Expenses:
Operating expenses 584 609 809 786
General, administrative and
selling expenses 902 1,169 1,246 1,284
Depreciation and amortization 131 144 175 191
Systems development and
programming costs 226 227 328 402
--------- --------- ---------------------
Total costs and expenses 1,843 2,149 2,558 2,663
--------- --------- ---------------------
Operating income (loss) 336 558 400 314
Other income 8 15 14 13
Interest expense (126) (110) (77) (140)
--------- --------- ---------------------
Income (loss) before income
tax expense and
extraordinary item 218 463 337 187
Income tax expense (benefit) 68 146 106 59
--------- --------- ---------------------
Income (loss) before
extraordinary item 150 317 231 128
Extraordinary loss -- (224) -- --
--------- --------- ---------------------
Net income (loss) $ 150 $ 93 $ 231 $ 128
--------- --------- ---------------------
Mar. 31, June 30, Sept. 30, Dec. 31,
1996 1996 1996 1996
--------- --------- ---------------------
Statements of Operations:
Revenue $3,934 $3,931 $4,139 $4,685
Costs and Expenses:
Operating expenses 921 927 1,228 1,207
General, administrative and
selling expenses 1,326 1,357 2,327 1,513
Depreciation and amortization 206 232 305 311
Systems development and
programming costs 427 538 552 598
--------- --------- ---------------------
Total costs and expenses 2,880 3,054 4,412 3,629
--------- --------- ---------------------
Operating income (loss) 1,054 877 (273) 1,056
Other income 8 5 9 294
Interest expense (109) (109) (118) (80)
--------- --------- ---------------------
Income (loss) before income
tax expense and
extraordinary item 953 773 (382) 1,270
Income tax expense (benefit) 404 328 (142) 522
--------- --------- ---------------------
Income (loss) before
extraordinary item 549 445 (240) 748
Extraordinary loss -- -- -- --
--------- --------- ---------------------
Net income (loss) $ 549 $ 445 $ (240) $ 748
--------- --------- ---------------------
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."
19
<PAGE>
BUSINESS
ITDS is a leading provider of 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
$208 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
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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
500,000 in June 1986 to 38.2 million in June 1996. In the twelve months ended
June 1996, cellular providers generated more than $21 billion in revenue in
the United States, while in 1995, paging providers generated approximately $4
billion in revenue from approximately 34 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 50% from December 1987 to June 1996. 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 155 million customers in the U.S.,
generating more than $163 billion in 1995. 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.
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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 the 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;
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(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 services 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. In February
1997, the Company, through its subsidiary ITDS LTDA, a Brazilian
limitada, agreed to provide billing services to MCOMCAST, S.A., a
Brazilian limitada owned by COMCAST International Holdings, Inc.
and MCOM Wireless, S.A. ITDS LTDA will establish a service bureau
operation in Sao Paulo, Brazil from which it will provide billing
services and support. The Company intends to pursue additional
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
sales and marketing 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
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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.
Recent Developments
Since the Company's Initial Public Offering in October 1996, the Company
has relocated and consolidated its corporate headquarters; introduced the
next release of the ITDS 10X system; hired additional employees, increasing
its sales and marketing team and adding a key member of management; increased
sales and marketing efforts to larger service providers; and expanded its
subscriber base. In November 1996, the Company relocated its corporate
headquarters and consolidated each of its Connecticut offices into 48,222
square feet of office space in Stamford, Connecticut. The new facility's
state-of-the-art data center has enhanced the Company's technical development
and support and training capabilities, enabling the Company to provide more
complex services and meet the needs of a larger customer base. This
consolidation has also improved communication among employees leading to
better coordination of the Company's sales and marketing efforts with larger
customers and more timely and efficient configuration of the Company's
technology and products to provide appropriate solutions for customers'
requirements. Beginning in October 1996, the Company has provided its new
customers with, and converted certain of its existing customers to, its new
version 4.0 of the ITDS 10X system. Version 4.0 includes more flexible
table-driven rating capabilities and other improved functionality. Between
the Initial Public Offering and February 15, 1997, the number of Company
employees has increased from 175 to 188. In November 1996, Joseph Juliano
joined the Company as Executive Vice President of Strategic Product
Management. Mr. Juliano, who has over 13 years of experience in the wireless
transactional billing industry, is responsible for the direction and
development of products and services, assisting the Company's sales and
marketing efforts and providing the Company's customers with expert advice in
the rapidly changing wireless industries. Since the Initial Public Offering,
the Company has entered the PCS market and added several customers including
Cellular Properties, Inc., PCS One, Inc. and MCOMCAST, S.A. and has renewed
its existing contracts with Dobson Cellular Systems and Columbia River
Cellular L.P. In February 1997, the Company, through its subsidiary ITDS
LTDA, agreed to provide billing services to MCOMCAST, S.A. under a five-year
agreement. ITDS LTDA will establish a service bureau operation in Sao Paulo,
Brazil from which it will provide billing services and support.
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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 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, CDMA and TDMA wireless systems in the U.S. and the
TAP standard for international clearinghouse for GSM cellular systems. The
Company also interfaces with major U.S. credit bureaus, the Federal Reserve
system and various U.S. banks for electronic funds transfer and credit card
transactions. The ITDS 10X system includes a complete library of billing and
financial reports for production as part of the month-end billing process.
These reports provide customers with critical transactional billing data and
can be modified or configured by customers to respond most appropriately to
their specific information requirements. The following diagram illustrates
the integrated features and interfaces of the Company's core technology:
[Text Representation of Chart]
(Home & Roam
Switch Call Billing Records) ITDS 10X(R) Subscriber
MTSO ----> Collector -------------------> Data Base
|
|
|
|
- ---------------------------------------------------------------------------
| | | | | | | | | |
SwitchLink | | CreditLink | | Payment | | 10XArchive
Provisioning | | | | | Options | | CD/ROM
| | | | | | | |
| | | Point | | | |
Debit/Threshold | | Of | |InventoryScan |
Billing* | | Sale | | |
| | | | | | |
| | | | | | |
General Ledger | | | Collections | 10XWrite
Interface | | | Module | Report Writer
| | | | |
| ------ -------------------------------------
| | | | | |
| | | | | |
| | | | | |
Client Credit Credit ITDS | ACH Bank
Accounting Bureau Cards PayScan | Draft
System |
Direct
Invoice
* Under Development
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The ITDS 10X system performs each of the following transactional billing,
subscriber management and information functions, while updating the 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 Interface Equipment Inventory Assignment & 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 Reminders Multiple Search Keys at Account or 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 Switch
Types Polling or Receipt of Near Real Time Records
Roamer In/Out Collect Processing Up to 999 Rate Plans per Market
Error Management & Reporting Rating, Re-rating and "Pseudo Roaming"
Support
Discounts by Amount or
Percentage Variable Time Periods for Air and/or Toll
Selective or Global Exceptions Unlimited Toll Plans On-line
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 provide 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:
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<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 into the ITDS 10X system of a Windows
95-compatible user interface and an Oracle relational database management
system; debit/ threshold billing; 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 anticipation of possible
future enhancements, the Company continually reviews technological
innovations and changing standards and services in the industry. See "System
Development."
Point of Sale System
In addition to the ITDS 10X system and related products, the Company
offers a point of sale package (the "ITDS Point of Sale System"), 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.
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
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<PAGE>
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 January 1997, the Company's customer service and support department
consisted of 33 persons, with an additional 13 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 Aliant Communications Co., COMSAT Mobile
Communications, Dobson Cellular Systems, France Caraibes Mobiles (formerly,
France Telecom FCR), HighwayMaster Corporation, MCOMCAST, S.A., Point
Communications Company, Sygnet Communications and TRICOM, SA. For the year
ended December 31, 1996, revenue from Aliant Communications Co. and its
affiliated companies represented approximately 19.1% (reflects the
acquisition of Nebraska Cellular by Aliant in 1996) of the Company's total
revenue, and revenue from Horizon Cellular Group represented approximately
12.5% of the Company's total revenue. 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
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<PAGE>
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. Since October 1996, Horizon
Cellular Group has divested certain of its remaining cellular markets, the
majority of which were acquired by existing customers of the Company. Because
the majority of these markets were acquired by the Company's existing
customers, the Company does not expect that the significant reduction in
revenue from Horizon Cellular Group expected in 1997 will have a material
adverse effect on the business, financial condition or results of operations
of the Company. See "Risk Factors--Reliance on Significant Customers."
Although historically, the Company has achieved substantial growth with a
core marketing team of senior executives, the Company has recently begun to
expand its sales and marketing group 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 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 team 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 into the ITDS 10X system of a Windows 95 compatible user
interface and an Oracle relational database management system;
debit/threshold billing; 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, 1994, 1995 and 1996, the Company incurred
cash expenditures of $1,043,989, $1,662,457 and $2,974,132 respectively, on
systems development, of which $288,602, $479,316 and $858,827, respectively,
were capitalized as software development costs in each of such years. In
January 1997, the Company employed 86 people in product and systems
programming and development.
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
29
<PAGE>
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 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 February 1997, the Company had a total of 188 employees, of whom 33
were engaged in customer service, 86 were engaged in systems programming and
development, 13 in quality assurance, 29 in new customer conversions, 5 in
sales and marketing and 22 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 subleases a 48,222 square foot facility in Stamford,
Connecticut for its corporate headquarters, systems and programming, client
service, operations, quality assurance, documentation and training, and
administration. 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.
30
<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 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 39 Executive Vice President, Chief
Operating Officer, Secretary and
Director
Barry K. Lewis 41 Senior Vice President of Customer
Services
Joseph A. Juliano 47 Executive Vice President of
Strategic Product Management
Stuart L. Bell(1)(2) 43 Director
Michael E. Kalogris(1)(2) 47 Director
Additional Management
James V. O'Neill 67 Senior Vice President
Peter L. Masanotti 42 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 and a director since that time. In 1983, Mr. C. Bakes
co-founded the Clinton Financial Group, Inc., a broker/dealer specializing in
the marketing of private placement equity investments, where he served as a
Vice President until 1990.
Mark D. Spitzer co-founded the Company in 1990 and has served as Executive
Vice President, Chief Financial Officer and a director since that time. In
1983, Mr. Spitzer co-founded the Clinton Financial Group, Inc. along with Mr.
C. Bakes and served as its President until joining the Company. From 1983 to
1990, Mr. Spitzer also served as a principal of The Clinton Companies, an
investor and developer of commercial and residential properties.
Lewis D. Bakes co-founded the Company in 1990 and has served as Executive
Vice President, Chief Operating Officer and a director since that time. Mr.
L. Bakes served as an attorney at the law firm of Kleban & Samor P.C. from
1984 until 1987, and served as General Counsel to The Clinton Companies from
1987 to 1990.
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 Customer Services. 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.
Joseph A. Juliano joined the Company in November 1996 and has served as
Executive Vice President of Strategic Product Management since that time. Mr.
Juliano has been involved with the wireless industry since 1983. He served as
Industry Consultant-Wireless Strategies at GTE TSI, a service provider for
wireless carriers, from December 1995 to October 1996 and as Director
Industry Matters for SNET Cellular from 1983 until 1995. In recent years, Mr.
Juliano has been a participant in a number of industry advisory boards,
including the CIBERNET Advisory Committee, CIBERNET DMH Working Group, CTIA
Roamer Committee, CTIA Fraud Task Force (including as Chairperson of the
Fraud Technology Working Group), and CTIA Authentication Working Group. In
addition, Mr. Juliano is a Certified Management Accountant.
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
31
<PAGE>
Executive Officer of CUC International, a membership services company, and as
a director of Harbinger Corporation, an electronic commerce company. From
1981 to 1995, he served as Chief Financial Officer, Treasurer and Executive
Vice President, Office of the President, of CUC International.
Michael E. Kalogris has been a director of the Company since August 1996.
He has been President and Chief Executive Officer of Horizon Cellular Group,
an owner and operator of cellular telephone systems, since September 1991. He
previously served as President and Chief Executive Officer of Metrophone, a
non-wireline carrier in Philadelphia, from May 1988 to September 1991. Prior
to 1988, he held numerous positions with International Business Machines. Mr.
Kalogris is active in the CTIA, and is currently an officer and a member of
CTIA's Executive Committee. Mr. Kalogris also serves on the board of
directors of both Systems/Link Corporation, a provider of fraud technology
and fraud technology services, and Horizon Cellular Group.
James V. O'Neill joined the Company is 1992 and has served as Senior Vice
President since that time. Prior to joining the Company, Mr. O'Neill was Vice
President of Telecommunications at IMI Systems Inc., an international
consulting firm, from 1987 until 1992; Director of Data Systems at NYNEX
Mobile Communications from 1984 to 1987; and General Manager MIS at AT&T AMPS
in 1983. Prior to 1983, Mr. O'Neill held various management positions at New
York Telephone. Mr. O'Neill is a member of the CIBERNET Advisory Committee, a
wireless industry standards organization.
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.
The Board of Directors is divided into three classes, each of whose
members serve for a staggered three-year term. The Board consists of two
Class I Directors (Messrs. Kalogris and Bell), two Class II Directors
(Messrs. L. Bakes and Spitzer) and one Class III Director (Messrs. C. Bakes).
At each annual meeting of stockholders, a class of directors is elected for a
three-year term to succeed the directors or director of the same class whose
terms are then expiring. The terms of the Class I Directors, Class II
Directors and Class III Directors expire upon the election and qualification
of successor directors at the annual meeting of stockholders held during the
calendar years 1997, 1998 and 1999, respectively.
Each officer serves at the discretion of the Board of Directors. Charles
L. Bakes is the father of Lewis D. Bakes.
Board Committees
The Board of Directors has a Compensation Committee and an Audit
Committee. The Compensation Committee makes recommendations concerning
salaries and incentive compensation and benefits for executive officers,
directors, employees and consultants of the Company and administers and
grants stock options pursuant to the Company's 1996 Stock Incentive Plan and
1996 Employee Stock Purchase Plan. The Audit Committee reviews the results
and scope of the audit and other services provided by the Company's
independent public accountant.
Board Compensation
All of the directors are reimbursed for expenses incurred in connection
with their attendance at Board and committee meetings. Directors are not
entitled to compensation in their capacities as directors. On September 30,
1996, the Company granted to each of Messrs. Bell and Kalogris an option to
purchase up to 25,000 shares of Common Stock at an exercise price of $12.00
per share, exercisable in four equal annual installments beginning September
30, 1997.
Executive Compensation
Summary Compensation
The following table sets forth the compensation for the years ended
December 31, 1995 and 1996 for the Company's Chief Executive Officer and its
three most highly compensated executive officers during fiscal 1996 (the
Chief Executive Officer and such other executive officers are hereinafter
referred to as the "Named Executive Officers"):
32
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards (1)
------------------------------ -------------------------
Restricted Securities
Stock Underlying All Other
Name and Principal Position Year Salary Bonus Awards Options Compensation
----------------------------- ------ ----------- ----------- ------------ ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Charles L. Bakes 1996 $362,136 $ 87,084 -- -- --
President, Chief Executive
Officer and Director 1995 $239,950 $308,825 -- -- --
Mark D. Spitzer 1996 $376,647 $ 87,083 -- -- --
Executive Vice President,
Chief Financial Officer,
Treasurer and Director 1995 $322,887 $294,798 -- -- --
Lewis D. Bakes 1996 $376,647 $ 87,083 -- -- --
Executive Vice President
Chief Operating Officer,
Secretary and Director 1995 $321,172 $290,913 -- -- --
Barry K. Lewis 1996 $129,588 -- $293,145 14,000 $275,000 (1)
Senior Vice President of
Customer Services 1995 $115,000 $ 7,500 -- -- --
</TABLE>
- -------------
(1) Mr. Lewis received a one-time payment of $275,000 on November 7, 1996
pursuant to the terms of his employment agreement with the Company.
Option Grants Table
The following table sets forth certain information concerning grants of
stock options made during fiscal 1996 to each of the Named Executive
Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------
Percentage Potential Realizable
of Total Value at Assumed
Number of Options Exercise Annual Rates of Stock
Securities Granted Price Price Appreciation for
Underlying to Employees Per Expiration Option Term (2)
Name Options Granted in Fiscal Year Share Date (1) 5% 10%
----------------- ---------------- --------------- --------- ------------ -----------------------
<S> <C> <C> <C> <C> <C>
Charles L. Bakes -- -- -- -- --
Mark D. Spitzer -- -- -- -- --
Lewis D. Bakes -- -- -- -- --
Barry K. Lewis 12,000 (3) 3.0% $14.00 9/30/06 $105,654/$267,749
2,000 (4) 0.5% $21.00 12/17/06 $ 26,413/$66,937
</TABLE>
(1) The expiration date of an option is the tenth anniversary of the date on
which the option was originally granted.
(2) The amounts shown in these columns represent hypothetical gains that
could be achieved for the respective options if exercised at the end of
the option term. These gains are based on assumed rates of stock
appreciation of 5% and 10%, compounded annually from the date the
respective options were granted to their expiration date. The gains shown
are net of the option exercise price, but do not include deductions for
taxes or other expenses associated with the exercise. Actual gains, if
any, on stock option exercises will depend on the future performance of
the Common Stock, the optionholders' continued employment through the
option period, and the date on which the options are exercised.
(3) Options become exercisable in 16 equal quarterly installments beginning
on the date of grant.
(4) Options were immediately exercisable upon grant.
33
<PAGE>
Aggregated Option Exercises and Year-End Option Table
The following table sets forth certain information concerning each
exercise of a stock option during the fiscal year ended 1996 by each of the
Named Executive Officers and the number and value of unexercised options held
by each of the Named Executive Officers on December 31, 1996:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of
Shares Unexercised
Underlying in the Money
Option at Options at Fiscal
Fiscal Year-End Year-End (1)
---------------- -----------------------
Number
of Shares
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
----------------- -------------- --------------------------- -----------------------
<S> <C> <C> <C> <C>
Charles L. Bakes -- -- -- --
Mark D. Spitzer -- -- -- --
Lewis D. Bakes -- -- -- --
Barry K. Lewis -- -- 2,750/11,250 $14,187.50/$115,312.50
</TABLE>
- -------------
(1) Based on the difference between each option exercise price and the fair
market value of the Common Stock as of December 31, 1996 ($24 1/4 per
share as quoted on the Nasdaq National Market), multiplied by the number
of shares underlying the options.
Employment Agreements
The Company has an employment agreement, dated June 1994, as amended on
September 30, 1996, with Barry K. Lewis, Senior Vice President of Customer
Services. The agreement terminates on July 4, 1997, unless sooner terminated
as provided therein. The agreement provides for an annual base salary of
$135,000 per year (plus performance bonuses to be determined in the sole
discretion of the Board of Directors). 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.
The Company has an employment agreement, dated October 5, 1996, with
Joseph Juliano, Executive Vice President of Strategic Product Management. The
agreement terminates on October 31, 2000, unless sooner terminated as
provided therein. The agreement provides for an annual base salary of
$175,000 per year (plus a performance bonus of up to 10% of Mr. Juliano's
annual base salary, in the sole discretion of the Board of Directors).
Pursuant to the agreement, Mr. Juliano received on the commencement of his
employment 24,000 shares of restricted Common Stock, of which, 25% vest on
April 1, 1997, and an additional 25% vest on October 31 of each of 1998, 1999
and 2000, provided that vesting will accelerate upon the sale of the Company.
The agreement also contains a non-competition provision pursuant to which Mr.
Juliano 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
34
<PAGE>
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 selects 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 are generally nontransferable. Stock options are generally
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")
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
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.
CERTAIN TRANSACTIONS
Pursuant to Software License Agreements entered into by the Company in the
normal course of its business, in January 1994 and May 1994, Horizon Cellular
Group ("Horizon") paid the Company approximately $545,925 for billing software
and services rendered in 1994 and $1,492,862 and $2,014,571 for such services
rendered in 1995 and 1996, respectively. As of February 27, 1997, Horizon paid
the Company $246,304 for such services rendered in 1997. Mr. Kalogris, who
became a director of the Company in August 1996, serves as President, Chief
Executive Officer and a director of Horizon.
In connection with its recapitalization (the "Recapitalization") in 1996,
the Company was reincorporated in the State of Delaware pursuant to a merger
and an 800-for-1 stock split was effected. Pursuant to the Recapitalization,
the Company's treasury shares and Class A and Class B Preferred Stock were
retired, and the holders of shares of Class A and Class B Preferred Stock
were issued as merger consideration an aggregate of 852,812 shares of Common
Stock valued at $12 per share (for an aggregate of $10,233,744, treated as a
distribution to such shareholders) and promissory notes in the aggregate
amount of $825,000, evidencing the Company's obligations to repay capital.
The promissory notes were repaid in full at the time of the Initial Public
Offering in October 1996.
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 in connection with the Recapitalization. Each share of Series
C Convertible Preferred Stock automatically converted into 800 shares of
Common Stock upon the closing of the Initial Public Offering. The holder of
such shares of Common Stock is entitled to certain registration rights with
respect thereto. See "Shares Eligible for Future Sale."
In addition, immediately prior to the Initial Public Offering, CII
exercised warrants to purchase an aggregate of 334,524 shares of Common Stock
at an aggregate purchase price of $822,959.
35
<PAGE>
The Company believes that the securities issued in the transactions with
CII 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.
In October 1996, the Company issued to Barry K. Lewis, 18,333 shares of
Common Stock at a purchase price of $.01 per share, pursuant to the terms of
Mr. Lewis' employment agreement.
Pursuant to his employment agreement, Mr. Juliano received on the
commencement of his employment 24,000 shares of restricted Common Stock, of
which, 25% vest on April 1, 1997, and an additional 25% vest on October 31 of
each of 1998, 1999 and 2000, provided that vesting will accelerate upon the
sale of the Company.
On December 31, 1996 and January 1, 1997, the Company loaned to Mr.
Juliano, an executive officer of the Company, an aggregate of $106,000, at an
interest rate of 8.5% per annum pursuant to three promissory notes. Of the
total amount, $40,000 was due on February 28, 1997 and was repaid in February
1997. Of the remaining $66,000 outstanding, $54,000 is payable on November 2,
1998 and $12,000 is payable on demand. The $54,000 is secured by a pledge of
24,000 shares of Common Stock held by Mr. Juliano.
For a description of certain additional employment and other arrangements
between the Company and its executive officers, see "Management--Executive
Compensation" and "--Employment Agreements."
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.
36
<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 December 31,
1996, and as adjusted to reflect the sale of the shares of Common Stock
offered hereby, by (i) each person or entity known to the Company to own
beneficially more than 5% of the Common Stock, (ii) each of the Company's
directors and Named Executive Officers, (iii) each Selling Stockholder and
(iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Beneficially Owned Stock Beneficially
Prior Owned After the
to the Offering (2) Offering (2)
--------------------- -------------------
Number of
Shares of
Name and Address (1) of Common Stock
Beneficial Owner Number Percent Being Offered Number Percent
------------------------------------------ --------- --------------- ---------- --------
<S> <C> <C> <C> <C> <C>
5% Stockholders
Connecticut Innovations,
Incorporated 437,724 5.2% 295,614 142,110 1.6%
845 Brook Street
Rocky Hill, CT 06067
Essex Investment Management
Company 1,079,100 12.8% -- 1,079,100 12.1%
125 High Street
South Boston, MA 02110
Anne Wells (3) 588,391 7.0% 103,290 485,101 5.4%
45 Augur Lane
Durham, CT 06422
Named Executive Officers and
Directors
Charles L. Bakes (4) 1,301,573 15.4% 204,490 1,097,083 12.3%
Mark D. Spitzer 1,039,960 12.3% 182,560 857,400 9.6%
Lewis D. Bakes (5) 998,500 11.8% 175,290 823,210 9.2%
Barry K. Lewis (6) 21,083 * 3,700 17,383 *
Stuart L. Bell 10,000 * -- 10,000 *
Michael E. Kalogris 0 * -- -- --
Additional Selling Stockholders
Richard and Ruth Atkins 21,867 * 21,867 -- --
George Bakes 47,620 * 24,000 23,620 *
Jennifer Bakes 29,156 * 23,325 5,831 *
Philip J. Brust 58,312 * 312 58,000 *
Carlo D. Cavaliere, Vincent C.
Cavaliere
and Christopher A. Cavaliere 21,867 * 21,867 -- --
Church of the Annunciation 2,500 * 2,500 -- --
Church of the Archangels 37,500 * 37,500 -- --
Louis Clemenza and Anthony
Clemenza 21,867 * 21,867 -- --
Mary Ann Curtis, William R.
Mackey and Daniel S.
Huntington, Tenants in Common 21,867 * 21,867 -- --
Domenic Iorfino, IRA 21,867 * 21,867 -- --
The Elias N. Kulukundis
Irrevocable Trust
UAD 12/24/92 29,156 * 29,156 -- --
Fairfield Grace Methodist Church 300 * 300 -- --
First Presbyterian Nursery
School 1,000 * 1,000 -- --
Burton C. Firtel 29,156 * 29,156 -- --
Francis Graf 40,089 * 39,089 1,000 *
Ward L. Johnson 6,560 * 3,280 3,280 *
Jean T. Johnson 8,747 * 4,373 4,374 *
Jean T. Johnson and Ward L.
Johnson, Jr., TTEES f/b/o Jean
T. Johnson U/A 12/11/72 6,560 * 3,280 3,280 *
George A. Khouri 29,156 * 29,156 -- --
37
<PAGE>
Beneficially Owned Stock Beneficially
Prior Owned After the
to the Offering (2) Offering (2)
--------------------- -------------------
George A. Khouri, Custodian for
Alexander and Christopher
Khouri 21,867 * 21,867 -- --
George A. and Barbara Khouri 21,867 * 21,867 -- --
Kleban & Samor, P.C. 29,156 * 14,578 14,578 *
Robert D. Lombardo 29,156 * 29,156 -- --
Marcello Rondano Irrevocable
Trust 21,867 * 21,867 -- --
Muhlenberg College 4,642 * 4,642 -- --
James V. O'Neill 36,982 * 6,670 30,312 *
Louise M. Rondano and Dorothy
Miller 21,867 * 21,867 -- --
Rondo, Inc. Profit Sharing Plan 43,734 * 43,734 -- --
Robert D. Russo, Jr. 21,867 * 21,867 -- --
Robert D. Russo, Sr., MD 21,867 * 21,867 -- --
Barry A. Saunders 29,156 * 29,156 -- --
Trustees of the University of
Pennsylvania 11,000 * 11,000 -- --
Thomas Vallani 29,156 * 29,156 -- --
All directors and executive
officers as a group (7
persons) 3,395,116 40.2% 566,040 2,829,076 31.6%
</TABLE>
- -------------
*Less than 1%
(1) The address of each person in the table under the caption Named Executive
Officers and Directors is 225 High Ridge Road, Stamford, Connecticut
06905.
(2) The number of shares beneficially owned by each director and executive
officer is determined under rules promulgated by the Securities and
Exchange Commission (the "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 December 31, 1996 through the exercise of any stock option or
other right. 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. The number of shares outstanding includes 8,412,504 shares of
Common Stock outstanding as of December 31, 1996, plus any shares subject
to outstanding stock options held by the person in question. Assumes no
exercise of the Underwriters' over-allotment options.
(3) Includes 177,600 shares beneficially owned by Ms. Wells' husband, as to
which shares Ms. Wells disclaims beneficial ownership. Shares being
offered include 31,194 shares owned by Ms. Wells' husband.
(4) Consists of 1,301,573 shares beneficially owned by Mr. C. Bakes' wife, as
to which shares Mr. C. Bakes disclaims beneficial ownership.
(5) Consists of 998,500 shares beneficially owned by Mr. L. Bakes' wife, as
to which shares Mr. L. Bakes disclaims beneficial ownership.
(6) Includes 2,750 shares issuable pursuant to outstanding options
exercisable within 60 days.
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 40,000,000 shares of Common Stock, $.01
par value per share, of which, on February 25, 1997, 8,436,941 shares were
issued and outstanding, and 2,000,000 of undesignated Preferred Stock, $.01
par value per share, of which no shares are issued and outstanding.
Common Stock
The Company's Certificate of Incorporation authorizes 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
The Certificate of Incorporation authorizes 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.
39
<PAGE>
The Certificate of Incorporation also provides that 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.
40
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have approximately
8,936,941 outstanding shares of Common Stock (based on the number of shares
outstanding on February 25, 1997). Of these 8,936,941 shares, excluding the
3,066,667 shares sold in the Initial Public Offering and the 2,100,000 shares
to be sold in this offering (assuming the Underwriters' over-allotment option
is not exercised), 3,769,837 of the remaining 3,770,274 shares are subject to
lock-up agreements with the Underwriters. Of these shares, 38,473, 53,861 and
61,556 shares, respectively, will become eligible for resale in the public
market subject to the provisions of Rule 144 under the Securities Act of
1933, as amended (the "Securities Act"), beginning on each of April 23, 1997,
July 22, 1997 and October 24, 1997, the expiration dates of the lock-up
agreements executed in connection with the Company's Initial Public Offering
(the "First Lock-up Agreements"). In addition, upon expiration of the lock-up
agreements executed in connection with this offering, which are further
described below, approximately 848,254 and 2,777,693 additional shares will
become eligible for resale in the public market, subject to the provisions of
Rules 144 and 701 under the Securities Act on the dates 180 days and one year
after the date of this Prospectus, respectively.
In general, under Rule 144 (as recently modified by the Commission) a
person (or persons whose shares are aggregated), including an affiliate as
that term is defined in Rule 144 (an "Affiliate"), who has beneficially owned
"restricted securities" (as that term is defined in Rule 144) for a period of
at least one year from the later of the date such restricted securities were
acquired from the Company or the date they were acquired from an Affiliate,
is entitled to sell, within any three-month period, a number of such
securities that does not exceed the greater of 1% of the then outstanding
shares of the Company's Common Stock (approximately 89,369 shares immediately
after the offering) or the average weekly trading volume in the Company's
Common Stock during the four calendar weeks preceding the filing of notice of
such sale. Sales under Rule 144 are also subject to certain restrictions on
the manner of sale, notice requirements, and the availability of current
public information about the Company.
Further, under paragraph (k) of Rule 144, if a period of at least two
years has elapsed between the later of the date restricted securities were
acquired from the Company and the date they were acquired from an Affiliate
of the Company, a holder of such restricted securities who is not an
Affiliate of the Company at the time of the sale and has not been an
Affiliate of the Company for at least three months prior to the sale would be
entitled to sell the shares immediately without regard to the volume
limitations and other conditions described above.
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 became eligible for resale by persons other than Affiliates,
beginning 90 days after the Initial Public Offering, subject only to the
manner of sale provisions of Rule 144, and by Affiliates, beginning 90 days
after the Initial Public Offering, subject to all provisions of Rule 144
except its one-year minimum holding period.
In addition, the Company has registered 1,200,000 shares of Common Stock
issuable pursuant to its stock option plans. As of February 25, 1997, options
to purchase 389,563 shares were outstanding, of which options to purchase
21,688 shares were exercisable or become exercisable within 60 days, and
810,000 shares were reserved for future awards. Shares issued upon the
exercise of options generally will be eligible for sale in the public market,
subject, in certain cases, to the lock-up agreements described below and
volume and other restrictions.
The Company has agreed, subject to certain exceptions, not to offer, sell
or otherwise dispose of any shares of Common Stock for the period ending 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 period referenced in
the preceding sentence.
The directors of the Company, Selling Stockholders and certain other
stockholders of the Company have agreed that they will not, without the prior
written consent of Lehman Brothers Inc., sell or otherwise transfer or
dispose of an aggregate of approximately 851,004 shares of Common Stock
beneficially owned by them (including approximately 657,511 shares which
would be freely tradeable under Rule 144(k) and approximately 193,493 shares
eligible for sale under Rule 144) after this offering for a period of 180
days from the date of this Prospectus. Each of Charles Bakes, Lewis Bakes,
Portia Bakes, Sandra Bakes and Mark Spitzer have agreed that they will not,
without the prior written consent of Lehman Brothers Inc., sell or otherwise
transfer or dispose of an aggregate of approximately 2,777,693 shares of
Common Stock beneficially owned by them (all of which would be eligible
41
<PAGE>
for resale under Rule 144) after this offering for a period of one year from
the date of this Prospectus. The agreement executed by CII shall not restrict
the transfer of shares of Common Stock beneficially owned by CII in the event
the Company relocates outside of Connecticut. The lock-up agreements executed
by the Selling Stockholders in connection with this offering replace the
First Lock-Up Agreements executed by the Selling Stockholders at the time of
the Initial Public Offering.
The Company granted to CII rights with respect to the registration under
the Securities Act (the "Registration Rights") of up to 437,724 shares of
Common Stock of which 295,614 shares are being offered by CII hereby. Under
the terms of the Registration Rights, if the Company proposes to register any
of its securities under the Securities Act either for its own account or for
the account of a security holder or holders, CII is entitled to notice of
such registration and is entitled to include such shares of Common Stock in
such registration. In addition, CII is entitled to demand up to two
registrations, the expenses of which will be borne by the Company. The
Registration Rights are subject to certain conditions and limitations, among
them the right of the underwriters of a registered offering to limit the
number of shares included in such registration.
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.
42
<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., Alex. Brown & Sons Incorporated
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
Underwriters Common Stock
----------------------------------- ---------------
Lehman Brothers Inc.
Alex. Brown & Sons Incorporated
Cowen & Company
---------------
Total 2,100,000
===============
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 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.
Certain of the Selling Stockholders have granted to the Underwriters an
option to purchase up to an aggregate of 315,000 additional shares of Common
Stock, 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 option may be
exercised at any time until 30 days after the date of the Underwriting
Agreement. To the extent that the 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 Selling Stockholders
will be obligated, pursuant to such over-allotment option 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 the period ending 180 days after the date of this
Prospectus. All of the executive officers and directors of the Company and
the Selling Stockholders have agreed pursuant to lock-up agreements 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 any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for any such shares for the period ending
180 days after the date of this Prospectus. In addition, each of Charles
Bakes, Lewis Bakes,
43
<PAGE>
Portia Bakes, Sandra Bakes and Mark Spitzer have agreed pursuant to lock-up
agreements 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 any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for any such
shares for the period ending one year after the date of this Prospectus.
These restrictions on transfer shall not apply to shares of Common Stock
beneficially owned by CII in the event the Company relocates outside of
Connecticut.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act and to contribute, under certain circumstances, to payments
that the Underwriters may be required to make in respect thereof.
Certain persons participating in this offering may engage in transactions,
including syndicate covering transactions or the imposition of penalty bids,
which may involve the purchase of Common Stock of the Company on the Nasdaq
National Market or otherwise. Such transactions may stabilize or maintain the
market price of the Common Stock at a level above that which might otherwise
prevail in the open market and, if commenced, may be discontinued at any
time.
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 LLP, Boston,
Massachusetts, and for the Underwriters by Chadbourne & Parke LLP, New York,
New York.
EXPERTS
The financial statements of the Company at December 31, 1996 and 1995, and
for each of the three years in the period ended December 31, 1996, 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.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed by the Company can be inspected
and copied at the public facilities of the Commission at its principal office
at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and at its regional offices in Chicago (Citicorp Center, Suite 1400,
500 West Madison Street, Chicago, Illinois 60611), and in New York (Seven
World Trade Center, New York, New York 10007). Any interested party may
obtain copies of all or any portion of the Registration Statement at
prescribed rates from the Public Reference Section of the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. The Commission also maintains a Web site that
contains reports, proxy and information statement and other information
regarding registrants, such as the Company, that file electronically with the
Commission. Any interested party may access such information at Web site
http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act, with respect to the shares. For the purposes
hereof, the term "Registration Statement" means the original Registration
Statement and any and all amendments thereto, including the schedules and
exhibits to such original
44
<PAGE>
Registration Statement and any and all amendments thereto, including the
schedules and exhibits to such original Registration Statement or any such
amendment. This Prospectus does not contain all of the information set forth
in the Registration Statement, to which reference hereby is made. Each
statement made in this Prospectus concerning a document filed as an exhibit
to the Registration Statement is qualified in its entirety by reference to
such exhibit for a complete statement of its provisions. Any interested
person may inspect the Registration Statement, without charge, at the public
reference facilities of the Commission as described in the previous
paragraph.
45
<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,
1995 and 1996 F-3
Statements of Income for the years
ended December 31, 1994, 1995 and
1996 F-5
Statements of Stockholders' Equity
(Deficiency) for the years ended
December 31, 1994, 1995 and 1996 F-6
Statements of Cash Flows for the
years ended December 31, 1994, 1995
and 1996 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, 1996 and 1995, and
the related statements of income, stockholders' equity (deficiency) and cash
flows for each of the three years in the period ended December 31, 1996.
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, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Stamford, Connecticut
February 11, 1997
F-2
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
BALANCE SHEETS
December 31,
---------------------------
1995 1996
------------- -------------
Assets
Current assets:
Cash and cash equivalents $1,172,692 $ 4,138,575
Accounts receivable, net of allowance for
doubtful accounts of $52,370 in 1996 1,348,787 3,232,967
Securities available for sale, at estimated
market value (Note 2) -- 25,023,454
Prepaid expenses and other current assets 575,011 1,503,209
Deferred income taxes 20,256 44,000
------------- -------------
Total current assets 3,116,746 33,942,205
Property and equipment:
Computers, including leased property under
capital leases of $1,275,366 and $1,863,103,
respectively 1,642,697 2,986,056
Furniture and fixtures, including leased
property under capital leases of $33,119 in
1995 and 1996 90,015 446,535
Trade booth 37,809 98,854
Equipment, including leased property under
capital leases of $20,882 and $53,508,
respectively 29,933 152,996
Leasehold improvements 27,026 589,479
------------- -------------
1,827,480 4,273,920
Less: accumulated depreciation and
amortization 709,911 1,328,228
------------- -------------
1,117,569 2,945,692
Other assets:
Product development costs--at cost, net of
accumulated amortization of $286,110 and
$586,215, respectively 785,005 1,343,727
Other 185,563 165,913
Deferred income taxes 228,823 --
------------- -------------
1,199,391 1,509,640
------------- -------------
Total assets $5,433,706 $38,397,537
============= =============
See accompanying notes.
F-3
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
BALANCE SHEETS--Continued
December 31,
----------------------------
1995 1996
------------- --------------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 256,001 $ 685,739
Accrued expenses 386,137 765,713
Accrued compensation 693,386 272,059
Current portion of accrued rent liability 26,401 41,059
Current maturities of notes payable 77,198 --
Current maturities of long-term debt (Note 3) 69,240 --
Current maturities of capital lease
obligations (Note 7) 398,261 538,238
------------- --------------
Total current liabilities 1,906,624 2,302,808
Accrued rent liability 53,293 70,639
Long-term debt (Note 3) 1,742,033 --
Capital lease obligations (Note 7) 695,028 878,432
Deferred income taxes -- 407,000
Other 17,694 21,240
Commitments and contingencies (Note 8) -- --
Redeemable Preferred Stock--Class C $4,961
par value, cumulative, nonvoting 250 shares
authorized, 129 shares outstanding 640,000 --
Stockholders' equity (Note 4)
Preferred Stock--Class A (net of issuance
costs) $25,000 par value, noncumulative,
nonvoting 50 shares authorized, 18 shares
outstanding 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 --
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 and 8,412,504
shares issued, 4,875,200 and 8,412,504
shares outstanding 51,248 84,125
Additional paid-in capital -- 43,472,564
Retained deficit (184) (8,802,298)
Treasury stock, 249,600 shares (400,030) --
Unrealized loss on securities available for
sale -- (36,973)
------------- --------------
Total stockholders' equity 379,034 34,717,418
------------- --------------
Total liabilities and stockholders' equity $5,433,706 $38,397,537
============= ==============
See accompanying notes.
F-4
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
STATEMENTS OF INCOME
Year ended December 31,
-------------------------------------------
1994 1995 1996
------------- -------------- --------------
Revenue $6,324,041 $10,820,815 $16,689,401
Costs and expenses:
Operating expenses 1,646,852 2,787,687 4,283,364
General, administrative and
selling expenses 2,409,683 4,601,242 6,522,900
Depreciation and amortization 405,873 640,917 1,053,472
Systems development and
programming costs 755,387 1,183,141 2,115,305
------------- -------------- --------------
Total costs and expenses 5,217,795 9,212,987 13,975,041
------------- -------------- --------------
Operating income 1,106,246 1,607,828 2,714,360
Other income 28,413 49,477 315,914
Interest expense (389,793) (452,925) (416,148)
------------- -------------- --------------
Income before income tax expense
and extraordinary item 744,866 1,204,380 2,614,126
Income tax expense 36,666 378,786 1,111,788
------------- -------------- --------------
Income before extraordinary item 708,200 825,594 1,502,338
Extraordinary loss (net of
$158,038 tax benefit) -- (223,696) --
------------- -------------- --------------
Net income $ 708,200 $ 601,898 $ 1,502,338
============= ============== ==============
Pro forma income per common
share:
Income before extraordinary
item $ .13 $ .23
Extraordinary loss (.03) --
-------------- --------------
Pro forma net income $ .10 $ .23
============== ==============
Shares used in computing pro
forma income per common share 6,194,171 6,593,206
============== ==============
See accompanying notes.
F-5
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred Stock
-----------------------------------------------
Class A Class B Common Stock
--------------------- -------------------------
Number Number Number
of Shares $25,000 of Shares $250 of Shares
Outstanding Par Value Outstanding Par Value Outstanding
---------- ---------- ------------ ------------ ------------
Balance at
December 31,
1993 18 $ 400,400 1,500 $ 327,600 5,091,200
Issuance of
Common Stock 33,600
Net income
Preferred Stock
dividends
declared
Purchase of
treasury stock (249,600)
---------- ---------- ------------ ------------ ------------
Balance at
December 31,
1994 18 400,400 1,500 327,600 4,875,200
Issuance of
Preferred
Stock
Net income
Preferred Stock
dividends
declared
---------- ---------- ------------ ------------ ------------
Balance at
December 31,
1995 18 400,400 1,500 327,600 4,875,200
Net income
Preferred Stock
dividends
declared
Retirement of
treasury stock
Recapitalization
of
Class A & B
Preferred
Stock (18) (400,400) (1,500) (327,600) 852,812
Compensation
paid in Common
Stock 46,768
Conversion of
Class C
convertible
Preferred
Stock 103,200
Exercise of
warrants 334,524
Sale of Common
Stock, net of
expenses 2,200,000
Net unrealized
loss on
securities
available for
sale
---------- ---------- ------------ ------------ ------------
Balance at
December 31,
1996 -- $ -- -- $ -- 8,412,504
========== ========== ============ ============ ============
<TABLE>
<CAPTION>
Net
Unrealized
Loss on
$.01 Additional Treasury Retained Securities
Par Paid-in Stock at Earnings Available
Value Capital Cost (Deficit) for Sale Total
---------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1993 $50,912 $20,183 $ -- $(1,301,800) $ -- $(502,705)
Issuance of
Common Stock 336 30,429 30,765
Net income 708,200 708,200
Preferred Stock
dividends
declared (22,500) (22,500)
Purchase of
treasury stock (400,030) (400,030)
---------- ---------- ------------ ------------ ------------ ------------
Balance at
December 31,
1994 51,248 28,112 (400,030) (593,600) -- (186,270)
Issuance of
Preferred
Stock
Net income 601,898 601,898
Preferred Stock
dividends
declared (28,112) (8,482) (36,594)
---------- ---------- ------------ ------------ ------------ ------------
Balance at
December 31,
1995 51,248 -- (400,030) (184) -- 379,034
Net income 1,502,338 1,502,338
Preferred Stock
dividends
declared (79,236) (79,236)
Retirement of
treasury stock (2,496) (397,534) 400,030 --
Recapitalization
of
Class A & B
Preferred
Stock 8,528 10,119,688 (10,225,216) (825,000)
Compensation
paid in Common
Stock 468 634,081 634,549
Conversion of
Class C
convertible
Preferred
Stock 1,032 638,968 640,000
Exercise of
warrants 3,345 819,614 822,959
Sale of Common
Stock, net of
expenses 22,000 31,657,747 31,679,747
Net unrealized
loss on
securities
available for
sale (36,973) (36,973)
---------- ---------- ------------ ------------ ------------ ------------
Balance at
December 31,
1996 $84,125 $43,472,564 $ -- $(8,802,298) $(36,973) $34,717,418
========== ========== ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
Year ended December 31,
---------------------------------------
1994 1995 1996
---------- ------------- --------------
Operating activities
Income before extraordinary loss $ 708,200 $ 825,594 $ 1,502,338
Adjustments to reconcile income
before extraordinary loss to net
cash provided by operating
activities:
Depreciation and amortization 405,873 640,917 1,053,472
Compensation paid in Common Stock 30,135 -- 634,549
Deferred interest expense 342,032 -- --
Loss (gain) on disposal of
equipment 14,705 (245) 10,009
Deferred income taxes -- (93,960) 612,079
Change in operating assets and
liabilities:
Accounts receivable (429,785) (457,609) (1,884,180)
Prepaid expenses and other current
assets 8,300 (236,378) (875,072)
Accounts payable and accrued
expenses 93,574 781,049 390,831
Other assets and liabilities, net (13,310) (157,414) 1,766
---------- ------------- --------------
Net cash provided by operating
activities 1,159,724 1,301,954 1,445,792
Investing activities
Capital expenditures (144,624) (17,358) (1,852,701)
Proceeds from sale of equipment -- 13,500 --
Purchase of securities available for
sale -- -- (25,060,427)
Purchase of investments held to
maturity (200,000) (245,069) (353,126)
Proceeds from maturities of
investments 200,000 99,286 300,000
Product development costs (288,602) (479,316) (858,827)
---------- ------------- --------------
Net cash used for investing
activities (433,226) (628,957) (27,825,081)
Financing activities
Principal payments on long-term debt (292,668) (276,507) (1,811,273)
Payment to retire Preferred Stock -- -- (825,000)
Principal payments on notes payable (18,672) (76,001) (76,958)
Principal payments on capital lease
obligations (98,590) (166,297) (362,223)
Proceeds from sale of Common Stock 630 -- 32,502,706
Proceeds from sale of Preferred
Stock -- 640,000 --
Dividends paid (22,500) (33,750) (82,080)
Purchase of treasury stock (240,000) -- --
---------- ------------- --------------
Net cash provided by (used for)
financing activities (671,800) 87,445 29,345,172
Net increase in cash and cash
equivalents 54,698 760,442 2,965,883
Cash and cash equivalents at
beginning of year 357,552 412,250 1,172,692
---------- ------------- --------------
Cash and cash equivalents at end of
year $ 412,250 $1,172,692 $ 4,138,575
========== ============= ==============
Supplemental disclosures of cash
flow information:
Cash paid during the year for
interest $ 335,731 $ 447,241 $ 434,092
Cash paid during the year for taxes $ 481,700 $ 419,700 $ 819,897
Supplemental disclosure of noncash
financing activities:
Capital lease obligations totaling $234,512, $960,059 and $685,604 in the
years ended December 31, 1994, 1995 and 1996, 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
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 customer'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.
The Company acquired certain software, which is carried at cost, less
accumulated amortization computed using the straight-line method based on an
estimated life of five years.
The Company capitalizes software development costs incurred in the
development of software used in its product and service line only after
establishing commercial and technical viability and ceases when the product
is available for general release. The capitalized costs include salaries and
related payroll costs incurred in the development activities. Software
development costs are carried at cost less accumulated amortization computed
using the greater of the amount resulting from applying the ratio that
current gross revenue for the product bears to total and anticipated future
gross revenue for the product to capitalized costs or the straight-line
method over the remaining estimated useful life of the product; generally,
such deferred costs are amortized over five years. During the years ended
December 31, 1994, 1995 and 1996, $90,682, $166,292 and $300,105,
respectively, of capitalized software development costs were amortized.
Revenues and costs associated with the recurring process of providing
billing and other service/software solutions are recognized at the time
services are performed. License fees and related costs are recognized upon
execution of the licensing agreement and 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 of December 31, 1996, accounts receivable includes $118,000
relating to a license agreement that is being recorded over the expected
installation period that cannot be billed until the installation is
completed, which is expected to occur during July 1997. In addition, accounts
receivable at December 31, 1995 and 1996 include $439,433 and $1,278,412,
respectively, for services rendered prior to December 31 which were billed in
January of the following year when the billing cycles were complete.
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
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.
Pro forma net income per share of Common Stock, is calculated using the
weighted average number of shares of common stock outstanding and common
stock equivalents, if dilutive, after giving effect to the retirement of the
Company's Class A and B Preferred Stock, the issuance of 852,812 post-split
shares of Common Stock to the holders of the Class A and B Preferred Stock,
the conversion of the Series C Preferred Stock and the 800-for-1 stock split
referred to in Note 4. Common and common equivalent shares issued during the
twelve month period
F-8
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
prior to the initial public offering ("IPO") at prices below the IPO price
are included in the calculations, using the treasury stock method, as if they
were outstanding for all periods presented. There was no dilutive impact from
stock options during the periods.
Fully diluted EPS did not differ significantly from primary EPS for any
period 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 were used for debt retirement, are as follows:
Year ended
December 31,
1995 1996
--------------
Income before extraordinary item $ .17 $.24
Extraordinary item (.04) --
--------------
Net income $ .13 $.24
==============
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.
Reclassifications
Certain reclassifications were made to conform prior years' data to the
current presentation.
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 32.0%, 34.8% and 39.7% of the
Company's total revenues in 1994, 1995 and 1996, respectively. The president
and chief executive officer of one of these customers is a director of the
Company. Revenues from this customer, whose cellular territories are being
sold, many of which to existing ITDS customers, accounted for approximately
9.4%, 15.2%, and 12.5% of the Company's total revenues in 1994, 1995 and
1996, respectively. Credit losses have not been significant.
2. INVESTMENTS
Prepaid expenses and other current assets includes short-term investments
of $295,069 and $348,195 as of December 31, 1995 and 1996, respectively.
These investments are recorded at cost plus accrued interest (approximates
market), which consist of United States Treasury Bills, maturing on or before
April 3, 1997. These short-term investments are classified as held to
maturity as the Company has the ability and intent to hold the investments to
maturity. The income from these investments is included in other income.
Securities available for sale consist of United States Treasury Notes with
a 6% coupon rate maturing on August 15, 1999. These securities are recorded
at fair value, with the unrealized gains and losses, net of tax, reported in
a separate component of shareholders' equity. The net unrealized loss as of
December 31, 1996 was $36,973.
F-9
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. INVESTMENTS
The premium of approximately $64,000 paid for these investments is being
amortized into income on the straight- line basis based on the maturity date.
Amortization of the premium and accrued interest are 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 which were calculated based on revenues 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 consolidated these loans with CII into one loan with a principal
amount of $1,485,000 at a 14.5% interest rate.
The Company also had 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 included principal plus
accrued interest on the original loan. The new note was payable in equal
monthly installments over 60 months and had a balance of $326,273 at December
31, 1995.
In addition, pursuant to the August 16, 1991 debt agreement, as amended,
between the Company and CII, the Company was 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. This one-time payment was charged to
1996 operations.
With the net proceeds from the IPO, the Company retired substantially all
long-term debt and a portion of its capital lease obligations.
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
notes were paid in full in 1996.
4. CAPITAL STOCK
The Company completed its IPO in October 1996. The Company sold 2 million
shares at an initial public offering price of $16 per share, resulting in
proceeds to the Company of approximately $28.7 million, after deducting
expenses. In addition, on November 18, 1996 the Company received
approximately $3.0 million, net of expenses, upon the exercise of the
underwriters' over-allotment option to purchase 200,000 shares of Common
Stock.
In connection with the IPO, the Company's Certificate of Incorporation was
amended to authorize 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 proceeds from the Company's IPO were used to retire
substantially all of the Company's outstanding debt. In addition, the
Company's Class A and B Preferred Stock was retired and the holders of such
shares were issued an aggregate of 852,812 post-split shares of the Company's
Common Stock and were paid an aggregate amount of $825,000. The distribution
of the 852,812 shares of the Company's Common Stock, valued at $12 per share,
for an aggregate of $10.2 million, resulted in a one-time, noncash charge to
retained earnings and a corresponding increase to additional paid-in-capital.
Further, immediately prior to the IPO, CII exercised outstanding warrants to
purchase 334,524 post-split shares of the Company's Common Stock at an
aggregate
F-10
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. CAPITAL STOCK (Continued)
purchase price of $822,959. In addition, upon the closing of the IPO all of
the outstanding shares of Series C Preferred Stock of the Company (all of
which were held by CII) converted into an aggregate of 103,200 post-split
shares of Common Stock. The Company retired all shares held in treasury
immediately prior to its IPO.
Each share of Class A Preferred Stock was entitled to a noncumulative
dividend equal to 10% of the Class A par value, and a priority return on 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 of Class B Preferred Stock was entitled to a noncumulative
dividend equal to 10% of the Class B par value, and a priority return on 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 were subordinate to the shares of Class A
Preferred Stock with respect to dividends, capital transactions and
liquidating distributions.
The Class C Preferred Stock was junior to the Class A and B Preferred
Stock with regard to liquidation and dividend preference, was entitled to an
8% cumulative dividend and was convertible into Common Stock at any time at
the option of the holder on a 800-for-one basis. The stock could have been
put to the Company upon the occurrence of certain events at a price to have
been determined at the put date as defined in the agreement. In addition, the
holders of the Class C Preferred Stock could have demanded registration of
the stock in certain circumstances.
5. STOCK OPTION PLAN
The Company's 1996 Stock Incentive Plan authorizes the grant of options to
employees, directors and consultants of the Company for up to 1,000,000
shares of the Company's Common Stock. Generally, options granted have 10 year
terms and vest and become fully exercisable at the end of 4 years of
continued employment. In addition, a total of 200,000 common shares have been
authorized for issuance under the Company's 1996 Employee Stock Purchase
Plan.
A summary of the Company's activity in the stock option plans and related
information for the year ended December 31 follows:
Weighted-
Average
Options Exercise Price
--------- ---------------
Outstanding--December 31, 1995 -- --
Granted 393,700 $ 13.94
Exercised -- --
Forfeited 1,500 14.00
---------
Outstanding--December 31, 1996 392,200 13.94
=========
Exercisable at December 31, 1996 16,062 18.36
=========
Weighted-average fair value of options
granted during the year $ 7.29
Exercise prices for options outstanding as of December 31, 1996 ranged
from $12 to $21. The weighted average remaining contractual life of those
options is 9.75 years.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting
F-11
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. STOCK OPTION PLAN
for Stock-Based Compensation," requires use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of the
Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
assumptions for 1996: risk-free interest rates of 5%; no dividend yield; a
volatility factor of the expected market price of the Company's Common Stock
of 0.71; and a weighted-average expected life of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information for the year ended December 31 follows:
1996
----------
Pro forma net income $1,189,597
==========
Pro forma earnings per share $ .18
==========
These pro forma effects may not be representative of the effects on future
years because of the prospective application required by Statement No. 123,
and the fact that options vest over several years and new grants may be made
each year.
Under the employee stock purchase plan, shares of the Company's Common
Stock may be purchased at six-month intervals at 85% of the lower of the
fair market value on the first or the last business day of each six-month
period. Employees may purchase shares having a value not exceeding 10% of
their gross compensation, up to $25,000 of the fair market value of such
Common Stock, during an offering period.
6. DEFERRED COMPENSATION
The Company had 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 an aggregate value of
$51,150 were outstanding. These were paid in full as a result of the IPO of
the Company's Common Stock.
In accordance with the terms of an employment agreement, as amended on
September 30, 1996, an employee received a payment of $275,000 in 1996 and,
as a result of the public offering of the Company's Common Stock, the right
to purchase 18,333 shares of the Company's Common Stock for $.01 per share.
In addition, during 1996 an employee was given the right to purchase 28,435
shares of the Company's Common Stock for $.01 per share. During 1996, these
employees acquired the shares and the difference between the exercise price
and the fair value on the date of grant was charged to compensation expense.
In connection with an employment agreement entered into during 1996, an
employee was awarded 24,000 shares of the Company's Common Stock with a fair
value of $336,000 when awarded. The shares become vested
F-12
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. DEFERRED COMPENSATION
25% on April 1, 1997, and an additional 25% becomes vested on October 31 of
each of 1998, 1999 and 2000, provided that vesting will accelerate upon the
sale of the Company. The fair value of the shares on the date of award is
being amortized over the vesting period.
7. CAPITALIZED LEASE OBLIGATIONS
The Company leases computer equipment and office furniture under capital
leases expiring in various years through 2000. 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,
1996:
1997 $ 684,864
1998 496,628
1999 260,527
2000 169,326
------------
Total lease obligations 1,611,345
Less: amount representing interest 194,675
------------
Present value of minimum lease payments $1,416,670
============
8. COMMITMENTS AND CONTINGENCIES
On June 11, 1996, the Company entered into a noncancelable lease expiring
on August 31, 2000 for 48,222 square feet of office space in Stamford,
Connecticut. In connection therewith, the Company obtained a letter of credit
in the initial amount of $362,000 as security for the lease. The letter of
credit is renewable annually and is subject to an annual fee of 1%. Minimum
future rental payments due under such lease are $723,330 per year. In
addition, the Company obtained a $250,000 credit facility. The credit
facility expires on August 31, 1997 and bears interest at the bank's prime
lending rate. The letter of credit and credit facility is secured by
substantially all of the assets of the Company.
The Company also leases Connecticut office facilities, which have been
sublet, under a noncancelable operating lease expiring in April 1999. The
Company recognizes rental expense on a straight line basis over the term of
the lease.
Rent expense was $221,225, $330,914 and $591,729 for the years ended
December 31, 1994, 1995 and 1996, respectively.
Minimum future rental payments due under such leases as of December 31,
1996 are as follows:
1997 $ 922,958
1998 922,958
1999 773,237
2000 482,220
-----------
3,101,373
Less: sublease income (423,453)
-----------
$2,677,920
===========
The Company is also obligated to pay utilities and property taxes above
the landlords' base year costs.
F-13
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. COMMITMENTS AND CONTINGENCIES
The Company has entered into employment contracts with various officers
and other employees. The contracts expire in one to four years and require
the Company to pay base compensation of $435,200 during 1997 plus ordinary
bonuses and other benefits.
The Company maintains an employee savings plan that qualifies as a cash or
deferred salary arrangement under Section 401(k) of the Internal Revenue
Code. Under the plan, participating employees may defer up to 15% of their
pre-tax compensation, but not more than $9,500 per calendar year. The Company
does not contribute to the plan.
The Company is not party to any material legal proceedings.
9. 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 which is net of a $158,038 tax benefit. Such extraordinary loss was
due to a negotiated acceleration of payments due to early termination of the
debt agreement.
10. INCOME TAXES
Significant components of income tax expense (benefit) before
extraordinary item are as follows:
Year ended December 31,
-----------------------------------
1994 1995 1996
-------------------- ------------
Current:
Federal $28,828 $344,360 $ 334,029
State 7,838 128,386 118,333
-------------------- ------------
36,666 472,746 452,362
-------------------- ------------
Deferred:
Federal -- (62,640) 484,036
State -- (31,320) 175,390
-------------------- ------------
-- (93,960) 659,426
-------------------- ------------
Total tax expense $36,666 $378,786 $1,111,788
==================== ============
A reconciliation of the applicable federal statutory rate to the Company's
effective tax (benefit) rate from income before income tax expense and
extraordinary item follows:
1994 1995 1996
-------- -------- --------
Statutory rate 34.0% 34.0% 34.0%
State income taxes, net of federal income tax
benefit 0.7 5.3 7.4
Debt consolidation expenses -- (10.1) --
Net operating loss carryforwards (41.9) -- --
Alternative minimum tax 2.5 -- --
Nondeductible interest expense 6.4 -- --
Other, net 3.2 2.3 1.1
-------- -------- --------
4.9% 31.5% 42.5%
======== ======== ========
F-14
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. INCOME TAXES
Significant components of the Company's deferred tax assets and
liabilities are as follows:
December 31
-------------------------
1995 1996
----------- -------------
Deferred tax liabilities:
Software development costs $443,709 $ 798,862
Capitalized leases 173,026 382,521
----------- -------------
Total deferred tax liabilities 616,735 1,181,383
----------- -------------
Deferred tax assets:
Deferred charges 33,013 46,092
Depreciation and amortization 323,010 719,748
Accrued compensation 26,408 26,937
Reserve for doubtful accounts -- 21,521
Interest 483,383 4,085
Total deferred tax assets 865,814 818,383
----------- -------------
Net deferred tax asset (liability) $249,079 $ (363,000)
=========== =============
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of
operations for the two years ended December 31, 1996 (in thousands, except
per-share data):
Three Months Ended
-------------------------------------------
3/31/96 6/30/96 9/30/96 12/31/96
--------- --------- --------------------
Revenue $3,934 $3,931 $4,139 $4,685
Operating income (loss) 1,054 877 (273) 1,056
Net income (loss) 549 445 (240) 748
Pro forma net income (loss)
per share .09 .07 (.04) .10
Three Months Ended
-------------------------------------------
3/31/95 6/30/95 9/30/95 12/31/95
--------- --------- --------------------
Revenue $2,179 $2,707 $2,958 $2,977
Operating income 336 558 400 314
Income before extraordinary
item 150 317 231 128
Net income 150 93 231 128
Pro forma income before
extraordinary item per
share .02 .05 .04 .02
Pro forma net income per
share .02 .02 .04 .02
The sum of the quarters' net income per share may not equal the full year
per-share amounts due to rounding differences resulting from changes in the
number of common shares outstanding.
During the third quarter of 1996, the Company incurred a one-time charge
for compensation related to two newly hired employees of $909,548 or $.09 per
share. The fourth quarter of 1996 includes a one-time charge associated with
the IPO of $200,000 or $.01 per share.
12. SUBSEQUENT EVENTS
During 1997, the Company anticipates selling up to 500,000 shares of its
Common Stock in a follow-on offering.
F-15
<PAGE>
[Inside Back cover of Prospectus]
[Picture of Globe with ITDS Family of Products]
The ITDS Family of Products
ITDS 10X(R)
CORD Compliant SwitchLink
GSM/PCS
Compliant CreditLink
10XArchive [Photo of Globe] InventoryScan
10XWrite General Ledger
Report Writer [ITDS logo] Interface
INTERNATIONAL
Debit/Threshold TELECOMMUNICATION Collections
Billing* DATA SYSTEMS Module
PayScan Point Of Sale
* Under Development
ITDS provides comprehensive transactional billing and management
information solutions to providers of wireless, long distance and satellite
telecommunications services. The Company uses its robust and flexible
proprietary software technology to develop billing solutions which address
customer requirements as they evolve, regardless of market segment,
geographic area or mix of network features or billing options.
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company, any of the
Selling Stockholders or any of the Underwriters. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy 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 2,100,000 Shares
Risk Factors 6
Use of Proceeds 11 [ITDS logo] ITDS
Price Range of Common Stock 11 INTERNATIONAL
Dividend Policy 11 TELECOMMUNICATION
Capitalization 12 DATA SYSTEMS
Selected Financial Data 13
Management's Discussion and Common Stock
Analysis of Financial Con-
dition and Results of Op- -------------
erations 15 PROSPECTUS
Business 20 , 1997
Management 31 -------------
Certain Transactions 35
Principal and Selling Lehman Brothers
Stockholders 37 Alex. Brown & Sons
Description of Capital Incorporated
Stock 39 Cowen & Company
Shares Eligible for Future
Sale 41
Underwriting 43
Legal Matters 44
Experts 44
Available Information 44
Index to Financial State-
ments F-1
================================================================================
<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 $ 16,970
NASD Filing Fee 6,100
Nasdaq National Market Listing Fee 17,500
Blue Sky Fees and Expenses 5,000
Transfer Agent and Registrar Fees 3,500
Accounting Fees and Expenses 80,000
Legal Fees and Expenses 80,000
Printing, Engraving and Mailing Expenses 150,000
Miscellaneous 10,930
----------
Total $370,000
Item 14. Indemnification of Directors and Officers
Article SEVENTH of the Registrant's Certificate of Incorporation (the
"Certificate of Incorporation") provides that no director of the Registrant
shall be personally liable for any monetary damages for any breach of
fiduciary duty as a director, except to the extent that the Delaware General
Corporation Law prohibits the elimination or limitation of liability of
directors for breach of fiduciary duty.
Article EIGHTH of the Registrant's Certificate of Incorporation provides
that a director or officer of the Registrant (a) shall be indemnified by the
Registrant against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement incurred in connection with any litigation or
other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys'
fees) and amounts paid in settlement incurred in connection with any action
by or in the right of the Registrant brought against him by virtue of his
position as a director or officer of the Registrant if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Registrant, except that no indemnification shall be made
with respect to any matter as to which such person shall have been adjudged
to be liable to the Registrant, unless a court determines that, despite such
adjudication but in view of all of the circumstances, he is entitled to
indemnification of such expenses. Notwithstanding the foregoing, to the
extent that a director or officer has been successful, on the merits or
otherwise, including, without limitation, the dismissal of an action without
prejudice, he is required to be indemnified by the Registrant against all
expenses (including attorneys' fees) incurred in connection therewith.
Expenses shall be advanced to a Director or officer at his request, provided
that he undertakes to repay the amount advanced if it is ultimately
determined that he is not entitled to indemnification for such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director
or officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification
payment within 60 days after such payment is claimed by such person, such
person is permitted to petition the court to make an independent
determination as to whether such person is entitled to indemnification. As a
condition precedent to the right of indemnification, the director or officer
must give the Registrant notice of the action for which indemnity is sought
and the Registrant has the right to participate in such action or assume the
defense thereof.
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
II-1
<PAGE>
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
January 1, 1994. 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 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.
On December 29, 1994, the Company issued to Connecticut Innovations,
Incorporated ("CII") a warrant (the "1994 Warrant") in connection with the
issuance by the Company of the promissory note in the amount of $389,500.
Immediately prior to the Company's Initial Public Offering, CII exercised the
1994 Warrant to purchase 116,193 shares of Common Stock at a price of $3.31345
per share.
On December 29, 1994, the Company issued a substitute warrant originally
issued to CII on July 21, 1992 (the "Substitute 1992 Warrant"). Immediately
prior to the Company's Initial Public Offering, CII exercised the Substitute
1992 Warrant to purchase 218,331 shares of Common Stock at an exercise price
of $2.00594 per share.
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. Such
shares converted into an aggregate of 103,200 shares of Common Stock upon the
consummation of the Company's Initial Public Offering in October 1996.
On September 27, 1996 as part of the Company's recapitalization, (i) all
of the Company's Series A Preferred Stock was converted into an aggregate of
524,808 shares of Common Sock and promissory notes in the aggregate amount of
$450,000 and (ii) all of the Company's Series B Preferred Stock was converted
into an aggregate of 328,004 shares of Common Stock and promissory notes in
the aggregate amount of $375,000.
On January 1, 1997, the Company loaned to Mr. Juliano, an executive
officer of the Company, a promissory note in the principal amount of $54,000,
due and payable on November 2, 1998, at an interest rate of 8.5%, secured by
a pledge of 24,000 shares of Common Stock held by Mr. Juliano.
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.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
----- -----------------------------------------------------
1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation of the Registrant, as
amended.
*3.2 By-Laws of the Registrant.
*4.1 Specimen Certificate for shares of Common Stock, $.01
par value, of the Registrant.
5 Opinion of Hale and Dorr LLP with respect to validity
of the securities being offered.
*10.1 Form of 1996 Equity Incentive Plan.
*10.2 1996 Employee Stock Purchase Plan.
*10.3 Employment Agreement between the Registrant and Barry
K. Lewis.
10.4 Employment Agreement between the Registrant and
Joseph Juliano.
*10.5 Stock Purchase Agreement dated December 11, 1995, as
amended, between the Registrant and Connecticut
Innovations, Incorporated relating to Class C
Convertible Preferred Stock.
*10.6 Form of Lease between the Company and 969 Associates,
dated December 1990.
*10.7 Sublease dated June 11, 1996 between the Registrant
and Learning International, relating to
225 High Ridge Road, Stamford, Connecticut.
21 Subsidiaries of the Registrant.
23.1 Consent of Hale and Dorr LLP (included in Exhibit 5).
23.2 Consent of Ernst & Young LLP.
24 Power of Attorney (included on the signature page of
this Registration Statement).
- -------------
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 333-11045), as amended, originally filed with the
Securities and Exchange Commission on August 29, 1996.
(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.
II-3
<PAGE>
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 27th day of February, 1997.
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-effective amendments to said Registration Statement,
and any subsequent Registration Statement for the same offering which may be
filed under Rule 461(d) 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
- ------------------------ ---------------------------- ------------------
/s/ Charles L. Bakes President, Chief Executive
-------------------- Officer and Director
Charles L. Bakes (Principal Executive Officer) February 27, 1997
Chief Financial Officer
/s/ Mark D. Spitzer (Principal Financial and
-------------------- Accounting Officer) and
Mark D. Spitzer Director February 27, 1997
/s/ Lewis D. Bakes
--------------------
Lewis D. Bakes Director February 27, 1997
/s/ Stuart L. Bell
--------------------
Stuart L. Bell Director February 27, 1997
/s/ Michael E. Kalogris
--------------------
Michael E. Kalogris Director February 27, 1997
II-5
[ ] Shares
International Telecommunication Data Systems, Inc.
Common Stock
UNDERWRITING AGREEMENT
March __, 1997
LEHMAN BROTHERS INC.
ALEX. BROWN & SONS INCORPORATED
COWEN & COMPANY
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
International Telecommunication Data Systems, Inc., a Delaware
corporation (the "Company"), proposes and certain stockholders of the Company
named in Schedule 2 hereto (the "Selling Stockholders"), propose to sell an
aggregate of [ ] shares (the "Firm Stock") of the Company's Common Stock, par
value $0.01 per share (the "Common Stock"). Of the [ ] shares of the Firm Stock,
[ ] are being sold by the Company and [ ] by the Selling Stockholders. In
addition, the Company and the Selling Stockholders propose to grant to the
Underwriters named in Schedule 1 hereto (the "Underwriters") an option to
purchase up to an additional [ ] shares of the Common Stock on the terms and for
the purposes set forth in Section 3 (the "Option Stock"). The Firm Stock and the
Option Stock, if purchased, are hereinafter collectively called the "Stock."
This is to confirm the agreement concerning the purchase of the Stock from the
Company and the Selling Stockholders by the Underwriters.
1. Representations, Warranties and Agreements of the Company.
The Company represents, warrants and agrees that:
(a) A registration statement on Form S-1 and an amendment
thereto, with respect to the Stock has (i) been prepared by the Company
in conformity with the requirements of the United States Securities Act
of 1933, as amended (the "Securities Act"), and the rules and
regulations (the "Rules and Regulations") of
<PAGE>
the United States Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission under
the Securities Act and (iii) become effective under the Securities
Act. Copies of such registration statement and the amendment thereto
have been delivered by the Company to you as the representatives (the
"Representatives") of the Underwriters. As used in this Agreement,
"Effective Time" means the date and the time as of which such
registration statement, or the most recent post-effective amendment
thereto, if any, was declared effective by the Commission; "Effective
Date" means the date of the Effective Time; "Preliminary Prospectus"
means each prospectus included in such registration statement, or
amendments thereof, before it became effective under the Securities
Act and any prospectus filed with the Commission by the Company with
the consent of the Representatives pursuant to Rule 424(a) of the
Rules and Regulations; "Registration Statement" means such
registration statement, as amended at the Effective Time, including
all information contained in the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations in
accordance with Section 6(a) hereof and deemed to be a part of the
registration statement as of the Effective Time pursuant to paragraph
(b) of Rule 430A of the Rules and Regulations; and "Prospectus" means
such final prospectus, as first filed with the Commission pursuant to
paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations. The
Commission has not issued any order preventing or suspending the use
of any Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement
or the Prospectus will, when they become effective or are filed with
the Commission, as the case may be, conform in all respects to the
requirements of the Securities Act and the Rules and Regulations and do
not and will not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided that
no representation or warranty is made as to information contained in or
omitted from the Registration Statement or the Prospectus in reliance
upon and in conformity with written information furnished to the
Company through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein.
(c) The Company has registered the Common Stock with the
Commission pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and all documents filed with the
Commission
2
<PAGE>
under the Exchange Act, when they were filed, conformed in all
respects to the requirements of the Exchange Act and the Rules and
Regulations thereunder and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
(d) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction in which its ownership or
lease of property or the conduct of its business requires such
qualification, except where the failure so to qualify would not have a
material adverse effect on the consolidated financial position,
stockholders' equity, results of operations or business of the Company,
taken as a whole (herein, a "Material Adverse Effect"), and has all
power and authority necessary to own or hold its properties and to
conduct the business in which it is engaged; and the Company has no
subsidiaries.
(e) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable and conform to the description thereof
contained in the Prospectus.
(f) The shares of the Stock to be issued and sold by the
Company to the Underwriters hereunder have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued, fully paid and
non-assessable and the Stock will conform to the description thereof
contained in the Prospectus under the section entitled "Description of
Capital Stock"; and the issuance of the Stock is not subject to
preemptive or other similar rights that have not been waived.
(g) This Agreement has been duly authorized, executed and
delivered by the Company.
(h) The execution, delivery and performance of this Agreement
by the Company and the consummation of the transactions contemplated
hereby will not conflict with or result in a breach or violation of any
of the terms or provisions of, or constitute a default under, any
material indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument to which the Company is a party or by
which the Company is bound or to which any of the property or assets of
the Company is subject, nor will such actions result in any violation
of the provisions of the certificate of incorporation or by-laws of the
Company or any
3
<PAGE>
statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or any of its
properties or assets; and except for the registration of the Stock
under the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
applicable state securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby.
(i) Except as described in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person or the
right (other than rights which have been waived or satisfied) to
require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities
being registered pursuant to any other registration statement filed by
the Company under the Securities Act.
(j) Except as described in the Prospectus, the Company has not
sold or issued any shares of Common Stock during the six-month period
preceding the date of the Prospectus, including any sales pursuant to
Rule 144A under, or Regulations D or S of, the Securities Act, other
than shares issued pursuant to employee benefit plans, qualified stock
option or equity plans or other employee compensation plans or pursuant
to outstanding options, rights or warrants outstanding prior to the
commencement of such six-month period.
(k) The Company has not sustained, since the date of the
latest audited financial statements included in the Prospectus, any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and,
since such date, there has not been any change in the capital stock or
long-term debt of the Company or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company, otherwise
than as set forth or contemplated in the Prospectus.
4
<PAGE>
(l) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement and
included in the Prospectus present fairly the financial condition and
results of operations of the Company purported to be shown thereby, at
the dates and for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved.
(m) Ernst & Young LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and
who have delivered the initial letter referred to in Section 9(g)
hereof, are independent public accountants as required by the
Securities Act and the Rules and Regulations.
(n) The Company does not own any real property. The Company
has good and marketable title to all personal property owned by it, in
each case free and clear of all liens, encumbrances and defects except
such as are described in the Prospectus or such as do not materially
affect the value of such property and do not materially interfere with
the use made and proposed to be made of such property by the Company;
and all real and personal property and buildings held under lease by
the Company are held by it under valid, subsisting and enforceable
leases, with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and
buildings by the Company.
(o) The Company carries, or is covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of its
business and the value of its respective properties and as is customary
for companies engaged in similar businesses in similar industries.
(p) The Company owns or possesses adequate rights to use all
material patents, patent applications, trademarks, service marks, trade
names, trademark registrations, service mark registrations, copyrights
and licenses necessary for the conduct of its business and has no
reason to believe that the conduct of its business will conflict with,
and has not received any notice of any claim of conflict with, any such
rights of others.
(q) There are no legal or governmental proceedings pending to
which the Company is a party or of which any property or assets of the
Company is the subject which, if determined adversely to the Company,
might have a Material Adverse Effect; and to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
5
<PAGE>
(r) There are no contracts or other documents which are
required to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or filed as
exhibits to the Registration Statement.
(s) No relationship, direct or indirect, exists between or
among the Company on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company on the other hand,
which is required to be described in the Prospectus which is not so
described.
(t) No labor disturbance by the employees of the Company
exists or, to the knowledge of the Company, is imminent which might be
expected to have a Material Adverse Effect.
(u) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Section 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each
"pension plan" for which the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such
qualification.
(v) The Company has filed all federal, state and local income
and franchise tax returns required to be filed through the date hereof
and has paid all taxes due thereon, and no tax deficiency has been
determined adversely to the Company which has had nor does the Company
have any knowledge of any tax deficiency which, if determined adversely
to the Company, might have a Material Adverse Effect.
(w) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, the Company has not (i) issued or granted
any securities other than securities issued pursuant to employee
benefit plans, qualified stock or equity plans or other employee
compensation plans, (ii) incurred any liability or obligation,
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direct or contingent, other than liabilities and obligations which
were incurred in the ordinary course of business, (iii) entered into
any transaction not in the ordinary course of business or (iv)
declared or paid any dividend on its capital stock.
(x) The Company (i) makes and keeps accurate books and records
and (ii) maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as
necessary to permit preparation of its financial statements and to
maintain accountability for its assets, (C) access to its assets is
permitted only in accordance with management's authorization and (D)
the reported accountability for its assets is compared with existing
assets at reasonable intervals.
(y) The Company (i) is not in violation of its certificate of
incorporation or by-laws, (ii) is not in default in any material
respect, and no event has occurred which, with notice or lapse of time
or both, would constitute such a default, in the due performance or
observance of any term, covenant or condition contained in any material
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which it is a party or by which it is bound or to
which any of its properties or assets is subject and (iii) is not in
violation in any material respect of any law, ordinance, governmental
rule, regulation or court decree to which it or its property or assets
may be subject or has failed to obtain any material license, permit,
certificate, franchise or other governmental authorization or permit
necessary to the ownership of its property or to the conduct of its
business.
(z) Neither the Company, nor any director, officer, agent,
employee or other person associated with or acting on behalf of the
Company, has used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expense relating to political
activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment.
(aa) The Company is not an "investment company" within the
meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
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2. Each Selling Stockholder severally represents, warrants
and agrees that:
(a) The Selling Stockholder has, and immediately prior to the
Delivery Date (as defined in Section 5 hereof) the Selling Stockholder
will have good and valid title to the shares of Stock to be sold by the
Selling Stockholder hereunder on such date, free and clear of all
liens, encumbrances, equities or claims; and upon delivery of such
shares and payment therefor pursuant hereto, good and valid title to
such shares, free and clear of all liens, encumbrances, equities or
claims, will pass to the several Underwriters.
(b) The Selling Stockholder has placed in custody under a
custody agreement and power of attorney (the "Custody Agreement and
Power of Attorney" and, together with all other similar agreements
executed by the other Selling Stockholders, the "Custody Agreements and
Powers of Attorney") with the Company, as custodian (the "Custodian"),
for delivery under this Agreement, certificates in negotiable form
(with signature guaranteed by a commercial bank or trust company having
an office or correspondent in the United States or a member firm of the
New York or American Stock Exchanges) representing the shares of Stock
to be sold by the Selling Stockholder hereunder, and the Selling
Stockholder has duly and irrevocably executed and delivered a power of
attorney appointing the Custodian and one or more other persons, as
attorneys-in-fact, with full power of substitution, and with full
authority (exercisable by any one or more of them) to execute and
deliver this Agreement and to take such other action as may be
necessary or desirable to carry out the provisions hereof on behalf of
the Selling Stockholder.
(c) The Selling Stockholder has full right, power and
authority to enter into this Agreement and the Custody Agreement and
Power of Attorney; the execution, delivery and performance of this
Agreement and the Custody Agreement and Power of Attorney by the
Selling Stockholder and the consummation by the Selling Stockholder of
the transactions contemplated hereby and thereby will not conflict with
or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any material indenture, mortgage,
deed of trust, loan agreement or other material agreement or instrument
to which the Selling Stockholder, if applicable, is a party or by which
the Selling Stockholder is bound or to which any of the property or
assets of the Selling Stockholder is subject, nor will such actions
result in any violation of the provisions of the charter or by-laws of
the Selling Stockholder or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over
the Selling Stockholder or the property or assets of the Selling
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<PAGE>
Stockholder; and, except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Exchange
Act and applicable state securities laws in connection with the
purchase and distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or registration with,
any such court or governmental agency or body is required for the
execution, delivery and performance of this Agreement or the Custody
Agreement and Power of Attorney by the Selling Stockholder and the
consummation by the Selling Stockholder of the transactions
contemplated hereby and thereby.
(d) To the knowledge of such Selling Stockholder, the
Registration Statement and the Prospectus and any further amendments or
supplements to the Registration Statement or the Prospectus will, when
they become effective or are filed with the Commission, as the case may
be, do not and will not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided that
no representation or warranty is made as to information contained in or
omitted from the Registration Statement or the Prospectus in reliance
upon and in conformity with written information furnished to the
Company through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein.
(e) The Selling Stockholder has no reason to believe that the
representations and warranties of the Company contained in Section 1
hereof are not materially true and correct, is familiar with the
Registration Statement and the Prospectus (as amended or supplemented)
and has no knowledge of any material fact, condition or information not
disclosed in the Registration Statement, as of the effective date, or
the Prospectus (or any amendment or supplement thereto), as of the
applicable filing date, which has adversely affected or may adversely
affect the business of the Company and is not prompted to sell shares
of Common Stock by any information concerning the Company which is not
set forth in the Registration Statement and the Prospectus.
(f) The Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the shares of the Stock.
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<PAGE>
3. Purchase of the Stock by the Underwriters. On the basis of
the representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell [ ] shares of the Firm
Stock and each Selling Stockholder hereby agrees to sell the number of shares of
the Firm Stock set opposite name of such Selling Stockholder in Schedule 2
hereto, severally and not jointly, to the several Underwriters and each of the
Underwriters, severally and not jointly, agrees to purchase the number of shares
of the Firm Stock set opposite that Underwriter's name in Schedule l hereto.
Each Underwriter shall be obligated to purchase from the Company, and from each
Selling Stockholder, that number of shares of the Firm Stock which represents
the same proportion of the number of shares of the Firm Stock to be sold by the
Company, and by each Selling Stockholder, as the number of shares of the Firm
Stock set forth opposite the name of such Underwriter in Schedule l represents
of the total number of shares of the Firm Stock to be purchased by all of the
Underwriters pursuant to this Agreement. The respective purchase obligations of
the Underwriters with respect to the Firm Stock shall be rounded among the
Underwriters to avoid fractional shares, as the Representatives may determine.
In addition, the Company and the Selling Stockholders grant to
the Underwriters an option to purchase up to [ ] shares of Option Stock. Such
option is granted solely for the purpose of covering overallotments in the sale
of Firm Stock and is exercisable as provided in Section 5 hereof. Shares of
Option Stock shall be purchased severally for the account of the Underwriters in
proportion to the number of shares of Firm Stock set opposite the name of such
Underwriters in Schedule l hereto. The respective purchase obligations of each
Underwriter with respect to the Option Stock shall be adjusted by the
Representatives so that no Underwriter shall be obligated to purchase Option
Stock other than in l00 share amounts. The price of both the Firm Stock and any
Option Stock shall be $_____ per share.
The Company and the Selling Stockholders shall not be
obligated to deliver any of the Stock to be delivered on the First Delivery Date
or the Second Delivery Date (as hereinafter defined), as the case may be, except
upon payment for all the Stock to be purchased on such Delivery Date as provided
herein.
4. Offering of Stock by the Underwriters. Upon authorization
by the Representatives of the release of the Firm Stock, the several
Underwriters propose to offer the Firm Stock for sale upon the terms and
conditions set forth in the Prospectus.
5. Delivery of and Payment for the Stock. Delivery of and
payment for the Firm Stock shall be made at the office of Chadbourne & Parke
LLP, 30 Rockefeller Plaza, New York, New York 10112, at 10:00 A.M., New York
City time, on the third full business day following the date of this Agreement
or at such other date or place as
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<PAGE>
shall be determined by agreement between the Representatives and the Company.
This date and time are sometimes referred to as the First Delivery Date. On the
First Delivery Date, the Company and the Selling Stockholders shall deliver or
cause to be delivered certificates representing the Firm Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company and the Selling Stockholders of the purchase price by
certified or official bank check or checks payable in immediately available
funds. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation of
each Underwriter hereunder. Upon delivery, the Firm Stock shall be registered in
such names and in such denominations as the Representatives shall request in
writing not less than two full business days prior to the First Delivery Date.
For the purpose of expediting the checking and packaging of the certificates for
the Firm Stock, the Company and the Selling Stockholders shall make the
certificates representing the Firm Stock available for inspection by the
Representatives in New York, New York, not later than 2:00 P.M., New York City
time, on the business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of
this Agreement, the option granted in Section 3 may be exercised, in whole or in
part, at any time and from time to time, upon written notice being given to the
Company by the Representatives. Such notice shall set forth the aggregate number
of shares of Option Stock as to which the option is being exercised, the names
in which the shares of Option Stock are to be registered, the denominations in
which the shares of Option Stock are to be issued and the date and time, as
determined by the Representatives, when the shares of Option Stock are to be
delivered; provided, however, that this date and time shall not be earlier than
the First Delivery Date nor earlier than the second business day after the date
on which the option shall have been exercised nor later than the fifth business
day after the date on which the option shall have been exercised. The date and
time the shares of Option Stock are delivered are sometimes referred to as the
"Second Delivery Date" and the First Delivery Date and the Second Delivery Date
are sometimes each referred to as a "Delivery Date."
Delivery of and payment for the Option Stock shall be made at
the place specified in the first sentence of the first paragraph of this Section
5 (or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on the
Second Delivery Date. On the Second Delivery Date, the Company shall deliver or
cause to be delivered the certificates representing the Option Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by certified or official bank
check or checks payable in immediately available funds. Time shall be of the
essence, and delivery at the time and place specified pursuant to this Agreement
is a further condition
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<PAGE>
of the obligation of each Underwriter hereunder. Upon delivery, the Option Stock
shall be registered in such names and in such denominations as the
Representatives shall request in the aforesaid written notice. For the purpose
of expediting the checking and packaging of the certificates for the Option
Stock, the Company shall make the certificates representing the Option Stock
available for inspection by the Representatives in New York, New York, not later
than 2:00 P.M., New York City time, on the business day prior to the Second
Delivery Date.
6. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than Commission's close of business
on the second business day following the execution and delivery of this
Agreement or, if applicable, such earlier time as may be required by
Rule 430A(a)(3) under the Securities Act; to make no further amendment
or any supplement to the Registration Statement or to the Prospectus
except as permitted herein; to advise the Representatives, promptly
after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed
and to furnish the Representatives with copies thereof; to advise the
Representatives, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing
or suspending the use of any Preliminary Prospectus or the Prospectus,
of the suspension of the qualification of the Stock for offering or
sale in any jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; and, in the event of the
issuance of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or the Prospectus or suspending any
such qualification, to use promptly its best efforts to obtain its
withdrawal;
(b) To furnish promptly to each of the Representatives and to
counsel for the Underwriters a signed copy of the Registration
Statement as originally filed with the Commission, and each amendment
thereto filed with the Commission, including all consents and exhibits
filed therewith;
(c) To deliver promptly to the Representatives such number of
the following documents as the Representatives shall reasonably
request: (i) conformed copies of the Registration Statement as
originally filed with the Commission and each amendment thereto and
(ii) each Preliminary Prospectus,
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<PAGE>
the Prospectus and any amended or supplemented Prospectus; and, if the
delivery of a prospectus is required at any time after the Effective
Time in connection with the offering or sale of the Stock or any other
securities relating thereto and if at such time any events shall have
occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made when such Prospectus is delivered, not misleading, or, if for
any other reason it shall be necessary to amend or supplement the
Prospectus in order to comply with the Securities Act, to notify the
Representatives and, upon their request, to file such document and to
prepare and furnish without charge to each Underwriter and to any
dealer in securities as many copies as the Representatives may from
time to time reasonably request of an amended or supplemented
Prospectus which will correct such statement or omission or effect such
compliance;
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the
Representatives, be required by the Securities Act or requested by the
Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to
furnish a copy thereof to the Representatives and counsel for the
Underwriters and obtain the consent of the Representatives to the
filing;
(f) As soon as practicable after the Effective Date (but in no
event later than 15 months after the Effective Date), to make generally
available to the Company's security holders and to deliver to the
Representatives an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a)
of the Securities Act and the Rules and Regulations (including, at the
option of the Company, Rule 158);
(g) For a period of five years following the Effective Date,
to furnish to the Representatives copies of all materials furnished by
the Company to its shareholders and all public reports and all reports
and financial statements furnished by the Company to the principal
national securities exchange upon which the Common Stock may be listed
pursuant to requirements of or agreements with such exchange or to the
Commission pursuant to the Exchange Act or any rule or regulation of
the Commission thereunder;
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<PAGE>
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for
offering and sale under the securities laws of such jurisdictions as
the Representatives may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the
distribution of the Stock;
(i) For a period of 180 days from the date of the Prospectus,
not to, directly or indirectly, offer for sale, sell or otherwise
dispose of (or enter into any transaction or device which is designed
to, or could be expected to, result in the disposition by any person at
any time in the future of) any shares of Common Stock (other than the
Stock and shares issued pursuant to employee benefit plans, qualified
stock option or equity plans or other employee compensation plans
existing on the date hereof or pursuant to currently outstanding
options, warrants or rights), or sell or grant options, rights or
warrants with respect to any shares of Common Stock (other than the
grant of options pursuant to option plans existing on the date hereof),
without the prior written consent of Lehman Brothers Inc. on behalf of
the Representatives except that the Company may issue up to 3,000,000
shares of Common Stock or other securities of the Company in exchange
for the equity or substantially all of the assets of a company or
business in connection with a merger or acquisition, provided that
prior to any such issuance the recipients of such shares of Common
Stock or other securities shall have agreed in writing to be bound by
this provision for the remainder of the 180-day period; and to cause
each officer and director of the Company to furnish to the
Representatives, prior to the First Delivery Date, a letter or letters,
in form and substance satisfactory to counsel for the Underwriters,
pursuant to which each such person shall agree not to, directly or
indirectly, offer for sale, sell or otherwise dispose of (or enter into
any transaction or device which is designed to, or could be expected
to, result in the disposition by any person at any time in the future
of) any shares of Common Stock for a period of 180 days from the date
of the Prospectus, without the prior written consent of Lehman Brothers
Inc.;
(j) Prior to the Effective Date, to apply for the inclusion of
the Stock for quotation on the Nasdaq National Market and to use its
best efforts to effect such quotation, subject only to official notice
of issuance, prior to the First Delivery Date;
(k) To apply the net proceeds from the sale of the Stock
being sold by the Company as set forth in the Prospectus; and
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<PAGE>
(l) To take such steps as shall be necessary to ensure that
the Company shall not become an "investment company" within the meaning
of such term under the Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder.
7. Further Agreements of the Selling Stockholders. Each
Selling Stockholder agrees:
(a) Without the prior written consent of Lehman Brothers Inc.
on behalf of the Representative, not to offer, sell or grant any option
for the sale or otherwise dispose of (or enter into any transaction
which is designed to, or could be expected to result in the disposition
by any person at any time in the future of) (i) any shares of Common
Stock or (ii) any securities convertible into or exercisable for shares
of Common Stock, owned by such Selling Stockholder or with respect to
which such Selling Stockholder has the power of disposition, whether
directly or indirectly (collectively the "Stock") for a period of 180
days subsequent to the date of the Prospectus.
(b) That the Stock to be sold by the Selling Stockholder
hereunder, which is represented by the certificates held in custody for
the Selling Stockholder, is subject to the interest of the Underwriters
and the other Selling Stockholders thereunder, that the arrangements
made by the Selling Stockholder for such custody are to that extent
irrevocable, and that the obligations of the Selling Stockholder
hereunder shall not be terminated by any act of the Selling
Stockholder, by operation of law, by the death or incapacity of any
individual Selling Stockholder or, in the case of a trust, by the death
or incapacity of any executor or trustee or the termination of such
trust, or the occurrence of any other event.
(c) To deliver to the Representatives prior to the First
Delivery Date a properly completed and executed United States Treasury
Department Form W-8 (if the Selling Stockholder is a non-United States
person) or Form W-9 (if the Selling Stockholder is a United States
person.)
8. Expenses. The Company agrees to pay (a) the costs incident
to the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation, printing
and filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement
15
<PAGE>
to the Prospectus, all as provided in this Agreement; (d) the costs of producing
and distributing this Agreement and any other related documents in connection
with the offering, purchase, sale and delivery of the stock; (e) the costs of
delivering and distributing the Custody Agreements and Powers of Attorney; (f)
the filing fees incident to securing any required review by the National
Association of Securities Dealers, Inc. of the terms of sale of the Stock; (g)
any applicable listing or other fees, including the fees for quotation of the
Common Stock on the Nasdaq National Market; (h) the fees and expenses of
qualifying the Stock under the securities laws of the several jurisdictions as
provided in Section 6(h) and of preparing, printing and distributing a Blue Sky
Memorandum (including related fees and expenses of counsel to the Underwriters);
and (i) all other costs and expenses incident to the performance of the
obligations of the Company and the Selling Stockholders under this Agreement;
provided that, except as provided in this Section 8 and in Section 13 the
Underwriters shall pay their own costs and expenses, including the costs and
expenses of their counsel, any transfer taxes on the Stock which they may sell
and the expenses of advertising any offering of the Stock made by the
Underwriters.
9. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
and the Selling Stockholders contained herein, to the performance by the Company
and the Selling Stockholders of their respective obligations hereunder, and to
each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(a); no stop order suspending
the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission; and any request of the
Commission for inclusion of additional information in the Registration
Statement or the Prospectus or otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the
Company on or prior to such Delivery Date that the Registration
Statement or the Prospectus or any amendment or supplement thereto
contains an untrue statement of a fact which, in the opinion of
Chadbourne & Parke LLP, counsel for the Underwriters, is material or
omits to state a fact which, in the opinion of such counsel, is
material and is required to be stated therein or is necessary to make
the statements therein not misleading.
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<PAGE>
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the Custody
Agreements and Powers of Attorney, the Stock, the Registration
Statement and the Prospectus, and all other legal matters relating to
this Agreement and the transactions contemplated hereby, shall be
reasonably satisfactory in all material respects to counsel for the
Underwriters, and the Company and the Selling Stockholders shall have
furnished to such counsel all documents and information that they may
reasonably request to enable them to pass upon such matters.
(d) Hale and Dorr shall have furnished to the Representatives
its written opinion, as counsel to the Company, addressed to the
Underwriters and dated such Delivery Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware, is duly qualified to do
business and is in good standing as a foreign corporation in
each jurisdiction listed on Schedule 3 attached hereto; and,
to the knowledge of such counsel, the Company has no
subsidiaries;
(ii) The Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued shares of
capital stock of the Company (including the shares of Stock
being delivered on such Delivery Date) have been duly and
validly authorized and issued, are fully paid and
non-assessable and conform to the description thereof
contained in the Prospectus;
(iii) There are no preemptive or other rights to
subscribe for or to purchase, nor any restriction upon the
voting or transfer of, any shares of the Stock pursuant to the
Company's certificate of incorporation or by-laws or, to such
counsel's knowledge, any agreement or other instrument to
which the Company is a party or by which it may be bound;
(iv) To such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company is a party or of
which any property or assets of the Company is the subject
which are reasonably likely to have a Material Adverse Effect;
and, to such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or
threatened by others;
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<PAGE>
(v) The Registration Statement was declared effective
under the Securities Act as of the date and time specified in
such opinion, the Prospectus was filed with the Commission
pursuant to the subparagraph of Rule 424(b) of the Rules and
Regulations specified in such opinion on the date specified
therein and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has
been issued and no proceeding for that purpose is pending or
threatened by the Commission;
(vi) The Registration Statement and the Prospectus and
any further amendments or supplements thereto made by the
Company prior to such Delivery Date (other than the financial
statements and schedules and other financial data contained
therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the
requirements of the Securities Act and the Rules and
Regulations;
(vii) The Company has registered the Common Stock with
the Commission pursuant to Section 12 of the Exchange Act, and
all documents filed with the Commission under the Exchange
Act, when they were filed, conformed in all respects to the
requirements of the Exchange Act and the Rules and Regulations
thereunder and did not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading.
(viii) To such counsel's knowledge, there are no
contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules
and Regulations which have not been described or filed as
exhibits to the Registration Statement or incorporated therein
by reference as permitted by the Rules and Regulations;
(ix) This Agreement has been duly authorized, executed
and delivered by the Company;
(x) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the
compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions
contemplated hereby will not conflict with or result in a
breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other
18
<PAGE>
agreement or instrument listed as an exhibit to the
Registration Statement, nor will such actions result in any
violation of the provisions of the certificate of
incorporation or by-laws of the Company or any statute or
any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction
over the Company or any of its properties or assets; and,
except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required by the
National Association of Securities Dealers, Inc. (the
"NASD") or under the Exchange Act and applicable state
securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or
registration with, any such court or governmental agency or
body is required for the execution, delivery and performance
of this Agreement, by the Company and the consummation of
the transactions contemplated hereby; and
(xi) Except as described in the Prospectus, to such
counsel's knowledge, there are no contracts or agreements
between the Company and any person granting such person the
right to require the Company to file a registration statement
under the Securities Act with respect to any securities of the
Company owned or to be owned by such person or the right
(other than rights which have been waived or satisfied) to
require the Company to include such securities in the
securities registered pursuant to the Registration Statement
or in any securities being registered pursuant to any other
registration statement filed by the Company under the
Securities Act.
In rendering such opinion, such counsel may state that its opinion is
limited to matters governed by the Federal laws of the United States of
America, the laws of the Commonwealth of Massachusetts and the General
Corporation Law Statute of the State of Delaware. Such counsel shall
also have furnished to the Representatives a written statement,
addressed to the Underwriters and dated such Delivery Date, in form and
substance satisfactory to the Representatives, to the effect that (x)
such counsel has acted as counsel to the Company in connection with the
preparation of the Registration Statement, and (y) based on the
procedures set forth therein, but without independent check or
verification, no facts have come to the attention of such counsel which
lead it to believe that the Registration Statement, as of the Effective
Date, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading. The foregoing
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statement may be qualified by a statement to the effect that such
counsel does not (i) assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus or (ii) express any view as to
the financial statements and schedules and other financial data
contained therein.
(e) Hale and Dorr shall have furnished to the Representatives
its written opinion, as special counsel to the Selling Stockholders,
addressed to the Underwriters and dated such Delivery Date, in form and
substance reasonably satisfactory to the Representatives, to the effect
that:
(i) Each Selling Stockholder has full right, power and
authority to enter into this Agreement and the Custody
Agreement and Power of Attorney; to such counsel's knowledge,
no consent, approval, authorization or order of any court or
governmental agency or body is required for the execution and
delivery and performance of this Agreement and the Custody
Agreement and Power of Attorney by each Selling Stockholder,
and consummation by the Selling Stockholders of the
transactions contemplated thereby, except such as have been
obtained or made and are in full force and effect and such as
may be required by the NASD or under the Exchange Act and
applicable state securities laws;
(ii) This Agreement has been duly authorized,
executed and delivered by or on behalf of each Selling
Stockholder;
(iii) A Custody Agreement and Power of Attorney have
been duly authorized, executed and delivered by each Selling
Stockholder and constitute valid and binding agreements of
each Selling Stockholder, enforceable in accordance with their
respective terms; and
(iv) Upon registration of the Stock to be sold by the
Selling Stockholders in the names of the Underwriters in the
stock records of the Company, and assuming the Underwriters
purchased such stock in good faith and without notice of any
adverse claim within the meaning of Section 8-102 of the
Uniform Commercial Code as in effect in the Commonwealth of
Massachusetts, the Underwriters acquired all rights of the
Selling Stockholders in such Stock free and clear of any
adverse claim, any lien in favor of the Company and any
restrictions on transfer imposed by the Company.
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In rendering such opinion, such counsel may (i) state that its opinion
is limited to matters governed by the Federal laws of the United States
of America and the Delaware General Corporate Law and (ii) in rendering
the opinion in Section 9(e)(iv) above, rely upon a certificate of each
Selling Stockholder in respect of matters of fact as to ownership of
and liens, encumbrances, equities or claims on the shares of Stock sold
by such Selling Stockholder, provided that such counsel shall furnish
copies thereof to the Representatives and state that it believes that
both the Underwriters and it are justified in relying upon such
certificate.
(f) The Representatives shall have received from Chadbourne &
Parke LLP, counsel for the Underwriters, such opinion or opinions,
dated such Delivery Date, with respect to the issuance and sale of the
Stock, the Registration Statement, the Prospectus and other related
matters as the Representatives may reasonably require, and the Company
shall have furnished to such counsel such documents as they reasonably
request for the purpose of enabling them to pass upon such matters.
(g) At the time of execution of this Agreement, the
Representatives shall have received from Ernst & Young LLP a letter, in
form and substance satisfactory to the Representatives, addressed to
the Underwriters and dated the date hereof (i) confirming that they are
independent public accountants within the meaning of the Securities Act
and are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date hereof (or, with respect to
matters involving changes or developments since the respective dates as
of which specified financial information is given in the Prospectus, as
of a date not more than five days prior to the date hereof), the
conclusions and findings of such firm with respect to the financial
information and other matters ordinarily covered by accountants'
"comfort letters" to underwriters in connection with registered public
offerings.
(h) With respect to the letter of Ernst & Young LLP referred
to in the preceding paragraph and delivered to the Representatives
concurrently with the execution of this Agreement (the "initial
letter"), the Company shall have furnished to the Representatives a
letter (the "bring-down letter") of such accountants, addressed to the
Underwriters and dated such Delivery Date (i) confirming that they are
independent public accountants within the meaning of the Securities Act
and are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date of the bring-down letter (or,
with respect to matters involving changes or developments since the
respective dates as of
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which specified financial information is given in the Prospectus, as of
a date not more than five days prior to the date of the bring-down
letter), the conclusions and findings of such firm with respect to the
financial information and other matters covered by the initial letter
and (iii) confirming in all material respects the conclusions and
findings set forth in the initial letter.
(i) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board,
its President or a Vice President and its chief financial officer
stating that:
(i) The representations, warranties and agreements of
the Company in Section 1 are true and correct as of such
Delivery Date; the Company has complied with all its
agreements contained herein; and the conditions set forth in
Sections 9(a) and 9(k) have been fulfilled; and
(ii) They have carefully examined the Registration
Statement and the Prospectus and, in their opinion (A) as of
the Effective Date, the Registration Statement and Prospectus
did not include any untrue statement of a material fact and
did not omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading, and (B) since the Effective Date no event has
occurred which should have been set forth in a supplement or
amendment to the Registration Statement or the Prospectus.
(j) Each Selling Stockholder (or the Custodian or one or more
attorneys-in-fact on behalf of the Selling Stockholders) shall have
furnished to the Representatives on the Delivery Date a certificate,
dated such Delivery Date, signed by, or on behalf of, the Selling
Stockholder (or the Custodian or one or more attorneys-in-fact) stating
that the representations, warranties and agreements of the Selling
Stockholder contained herein are true and correct as of such Delivery
Date and that the Selling Stockholder has complied with all agreements
contained herein to be performed by the Selling Stockholder at or prior
to such Delivery Date.
(k) (i) The Company shall not have sustained since the date of
the latest audited financial statements included in the Prospectus any
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus or (ii) since such
date there shall not have been any change in the capital stock or
long-term debt of the Company or any change, or any development
involving a
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prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of
the Company, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in clause
(i) or (ii), is, in the judgment of the Representatives, so material
and adverse as to make it impracticable or inadvisable to proceed with
the public offering or the delivery of the Stock being delivered on
such Delivery Date on the terms and in the manner contemplated in the
Prospectus.
(l) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission, by
such exchange or by any other regulatory body or governmental authority
having jurisdiction, (ii) a banking moratorium shall have been declared
by Federal or state authorities, (iii) the United States shall have
become engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a
declaration of a national emergency or war by the United States or (iv)
there shall have occurred such a material adverse change in general
economic, political or financial conditions (or the effect of
international conditions on the financial markets in the United States
shall be such) as to make it, in the judgment of a majority in interest
of the several Underwriters, impracticable or inadvisable to proceed
with the public offering or delivery of the Stock being delivered on
such Delivery Date on the terms and in the manner contemplated in the
Prospectus.
(m) The Nasdaq National Market shall have approved the Stock
for inclusion, subject only to official notice of issuance and evidence
of satisfactory distribution.
(n) You shall have been furnished such additional documents
and certificates as you or counsel for the Underwriters may reasonably
request related to this Agreement and the transactions contemplated
hereby.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
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10. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each
Underwriter, its officers and employees and each person, if any, who controls
any Underwriter within the meaning of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any action in respect
thereof (including, but not limited to, any loss, claim, damage, liability or
action relating to purchases and sales of Stock), to which that Underwriter,
officer, employee or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or supplement
thereto or (B) in any blue sky application or other document prepared or
executed by the Company (or based upon any written information furnished by the
Company) specifically for the purpose of qualifying any or all of the Stock
under the securities laws of any state or other jurisdiction (any such
application, document or information being hereinafter called a "Blue Sky
Application"), (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading or
(iii) any act or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Stock or the
offering contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based upon
matters covered by clause (i) or (ii) above (provided that the Company shall not
be liable under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct), and shall reimburse each Underwriter and each
such officer, employee or controlling person promptly upon demand for any legal
or other expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or in any such amendment or
supplement, or in any Blue Sky Application, in reliance upon and in conformity
with written information concerning such Underwriter furnished to the Company
through the Representatives by or on behalf of any Underwriter specifically for
inclusion therein. The foregoing indemnity agreement is in addition to
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any liability which the Company may otherwise have to any Underwriter or to any
officer, employee or controlling person of that Underwriter.
(b) The Selling Stockholders, severally in proportion to the
number of shares of Stock to be sold by each of them hereunder, shall indemnify
and hold harmless each Underwriter, its officers and employees, and each person,
if any, who controls any Underwriter within the meaning of the Securities Act,
from and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof (including, but not limited to, any loss, claim,
damage, liability or action relating to purchases and sales of Stock), to which
that Underwriter, officer, employee or controlling person may become subject,
under the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state in any
Preliminary Prospectus, Registration Statement or the Prospectus, or in any
amendment or supplement thereto, any material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
each Underwriter, its officers and employees and each such controlling person
for any legal or other expenses reasonably incurred by that Underwriter, its
officers and employees or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that the Selling
Stockholders shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of, or is based upon, any
untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the Prospectus
or in any such amendment or supplement in reliance upon and in conformity with
written information concerning such Underwriter furnished to the Company through
the Representatives by or on behalf of any Underwriter specifically for
inclusion therein. Notwithstanding the foregoing sentence, the aggregate
liability of any Selling Stockholder pursuant to the provisions of this
paragraph shall be limited to an amount equal to the aggregate purchase price,
less underwriting discounts and commissions, received by such Selling
Stockholder from the sale of such Selling Stockholder's Stock hereunder. The
foregoing indemnity agreement is in addition to any liability which the Selling
Stockholders may otherwise have to any Underwriter or any officer, employee or
controlling person of that Underwriter.
(c) Each Underwriter, severally and not jointly, shall
indemnify and hold harmless the Company, its officers and employees, each of its
directors (including any person who, with his or her consent, is named in the
Registration Statement as about to become a director of the Company), and each
person, if any, who controls the
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Company within the meaning of the Securities Act, from and against any loss,
claim, damage or liability, joint or several, or any action in respect thereof,
to which the Company or any such director, officer or controlling person may
become subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained (A) in
any Preliminary Prospectus, the Registration Statement or the Prospectus or in
any amendment or supplement thereto, or (B) in any Blue Sky Application or (ii)
the omission or alleged omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact required to be stated
therein or necessary to make the statements therein not misleading, but in each
case only to the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information concerning such Underwriter furnished to the Company through
the Representatives by or on behalf of that Underwriter specifically for
inclusion therein, and shall reimburse the Company and any such director,
officer or controlling person for any legal or other expenses reasonably
incurred by the Company or any such director, officer or controlling person in
connection with investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses are incurred. The
foregoing indemnity agreement is in addition to any liability which any
Underwriter may otherwise have to the Company or any such director, officer,
employee or controlling person.
(d) Promptly after receipt by an indemnified party under this
Section 10 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 10, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 10 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 10.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice from
the indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Representatives shall have
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the right to employ counsel to represent jointly the Representatives and those
other Underwriters and their respective officers, employees and controlling
persons who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the Underwriters against the Company or any
Selling Stockholder under this Section 10 if, in the reasonable judgment of the
Representatives, it is advisable for the Representatives and those Underwriters,
officers, employees and controlling persons to be jointly represented by
separate counsel because of actual differing interests among the parties, and in
that event the fees and expenses of such separate counsel shall be paid by the
Company or Selling Stockholders. No indemnifying party shall (i) without the
prior written consent of the indemnified parties (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless, such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the consent of
the indemnifying party or if there be a final judgment of the plaintiff in any
such action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(e) If the indemnification provided for in this Section 10
shall for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 10(a), 10(b) or 10(c) in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other from the offering of the Stock or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Stockholders on the one hand and the
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Underwriters on the other with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect thereof,
as well as any other relevant equitable considerations; provided that no Selling
Stockholder shall be required to contribute in excess of the amount of the
purchase price for the sale of Stock of such Selling Stockholder less
underwriting discounts and commissions. The relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other with respect to such offering shall be deemed to be in the same proportion
as the total net proceeds from the offering of the Stock purchased under this
Agreement (before deducting expenses) received by the Company and the Selling
Stockholders, on the one hand, and the total underwriting discounts and
commissions received by the Underwriters with respect to the shares of the Stock
purchased under this Agreement, on the other hand, bear to the total gross
proceeds from the offering of the shares of the Stock under this Agreement, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company, the Selling
Stockholders or the Underwriters, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 10(e) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section shall be deemed to include, for
purposes of this Section 10(e), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 10(e), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Stock underwritten by it and distributed
to the public was offered to the public exceeds the amount of any damages which
such Underwriter has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters' obligations
to contribute as provided in this Section 10(e) are several in proportion to
their respective underwriting obligations and not joint.
(f) The Underwriters severally confirm and the Company
acknowledges that the statements with respect to the public offering of the
Stock by the Underwriters set forth on the cover page of, the legend concerning
over-allotments on the inside front cover page of and the concession and
reallowance figures appearing under the caption "Underwriting" in, the
Prospectus are correct and constitute the only information concerning such
Underwriters furnished in writing to the Company by or on behalf of the
Underwriters specifically for inclusion in the Registration Statement and the
Prospectus.
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11. Defaulting Underwriters. If, on either Delivery Date, any
Underwriter defaults in the performance of its obligations under this Agreement,
the remaining non-defaulting Underwriters shall be obligated to purchase the
Stock which the defaulting Underwriter agreed but failed to purchase on such
Delivery Date in the respective proportions which the number of shares of the
Firm Stock set opposite the name of each remaining non-defaulting Underwriter in
Schedule 1 hereto bears to the total number of shares of the Firm Stock set
opposite the names of all the remaining nondefaulting Underwriters in Schedule 1
hereto; provided, however, that the remaining nondefaulting Underwriters shall
not be obligated to purchase any of the Stock on such Delivery Date if the total
number of shares of the Stock which the defaulting Underwriter or Underwriters
agreed but failed to purchase on such date exceeds 9.09% of the total number of
shares of the Stock to be purchased on such Delivery Date, and any remaining
non-defaulting Underwriter shall not be obligated to purchase more than 110% of
the number of shares of the Stock which it agreed to purchase on such Delivery
Date pursuant to the terms of Section 3. If the foregoing maximums are exceeded,
the remaining non-defaulting Underwriters, or those other underwriters
satisfactory to the Representatives who so agree, shall have the right, but
shall not be obligated, to purchase, in such proportion as may be agreed upon
among them, all the Stock to be purchased on such Delivery Date. If the
remaining Underwriters or other underwriters satisfactory to the Representatives
do not elect to purchase the shares which the defaulting Underwriter or
Underwriters agreed but failed to purchase on such Delivery Date, this Agreement
(or, with respect to the Second Delivery Date, the obligation of the
Underwriters to purchase, and of the Company to sell, the Option Stock) shall
terminate without liability on the part of any non-defaulting Underwriter or the
Company or the Selling Stockholders, except that the Company will continue to be
liable for the payment of expenses to the extent set forth in Sections 8 and 13.
As used in this Agreement, the term "Underwriter" includes, for all purposes of
this Agreement unless the context requires otherwise, any party not listed in
Schedule 1 hereto who, pursuant to this Section 11, purchases Firm Stock which a
defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting
Underwriter of any liability it may have to the Company and the Selling
Stockholders for damages caused by its default. If other underwriters are
obligated or agree to purchase the Stock of a defaulting or withdrawing
Underwriter, either the Representatives or the Company may postpone the Delivery
Date for up to seven full business days in order to effect any changes that in
the opinion of counsel for the Company or counsel for the Underwriters may be
necessary in the Registration Statement, the Prospectus or in any other document
or arrangement.
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12. Termination. The obligations of the Underwriters hereunder
may be terminated by the Representatives by notice given to and received by the
Company and the Selling Stockholders prior to delivery of and payment for the
Firm Stock if, prior to that time, any of the events described in Sections 9(k)
or 9(l), shall have occurred or if the Underwriters shall decline to purchase
the Stock for any reason permitted under this Agreement.
13. Reimbursement of Underwriters' Expenses. If (a) the
Company or any Selling Stockholder shall fail to tender the Stock for delivery
to the Underwriters by reason of any failure, refusal or inability on the part
of the Company or any Selling Stockholder(s) to perform any agreement on its
part to be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled by the Company or the Selling
Stockholder(s) is not fulfilled, the Company and the Selling Stockholder(s) will
reimburse the Underwriters for all reasonable out-of-pocket expenses (including
fees and disbursements of counsel) incurred by the Underwriters in connection
with this Agreement and the proposed purchase of the Stock, and upon demand the
Company and the Selling Stockholder(s) shall pay the full amount thereof to the
Representative(s). If this Agreement is terminated pursuant to Section 12 by
reason of the default of one or more Underwriters, neither the Company nor any
Selling Stockholder shall be obligated to reimburse any defaulting Underwriter
on account of those expenses.
14. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by
mail, telex or facsimile transmission to Lehman Brothers Inc., Three
World Financial Center, New York, New York 10285, Attention: Syndicate
Department (Fax: 212-526-6588), with a copy, in the case of any notice
pursuant to Section 11(d), to the Director of Litigation, Office of the
General Counsel, Lehman Brothers Inc., Three World Financial Center,
10th Floor, New York, NY 10285;
(b) if to the Company, shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Company set forth
in the Registration Statement, Attention: Charles L. Bakes (Fax:
203-321-1335) with a copy to Hale and Dorr, 60 State Street, Boston,
Massachusetts 02109, Attention: John A. Burgess, Esq.;
(c) if to any Selling Stockholders, shall be delivered or sent
by mail, telex or facsimile transmission to such Selling Stockholder at
the address set forth
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on Schedule 2 hereto with a copy to Hale and Dorr, 60 State Street,
Boston, Massachusetts 02109, Attention: John A. Burgess, Esq.;
provided, however, that any notice to an Underwriter pursuant to Section 10(d)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company and the
Selling Stockholders shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Underwriters by
Lehman Brothers Inc. on behalf of the Representatives and the Company and the
Underwriters shall be entitled to act and rely upon any request, consent, notice
or agreement given or made on behalf of the Selling Stockholders by the
Custodian.
15. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the Underwriters, the Company,
the Selling Stockholders and their respective personal representatives and
successors. This Agreement and the terms and provisions hereof are for the sole
benefit of only those persons, except that (A) the representations, warranties,
indemnities and agreements of the Company and the Selling Stockholders contained
in this Agreement shall also be deemed to be for the benefit of the person or
persons, if any, who control any Underwriter within the meaning of Section 15 of
the Securities Act and (B) the indemnity agreement of the Underwriters contained
in Section 10(c) of this Agreement shall be deemed to be for the benefit of
directors of the Company, officers of the Company who have signed the
Registration Statement and any person controlling the Company within the meaning
of Section 15 of the Securities Act. Nothing in this Agreement is intended or
shall be construed to give any person, other than the persons referred to in
this Section 15, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
16. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Selling Stockholders and the
Underwriters contained in this Agreement or made by or on behalf on them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Stock and shall remain in full force and effect, regardless of
any investigation made by or on behalf of any of them or any person controlling
any of them.
17. Definition of the Terms "Business Day" and "Subsidiary".
For purposes of this Agreement, (a) "business day" means any day on which the
New York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
31
<PAGE>
18. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF
LAWS PROVISIONS.
19. Counterparts. This Agreement may be executed in one or
more counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience
of reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
32
<PAGE>
If the foregoing correctly sets forth the agreement among the
Company, the Selling Stockholders and the Underwriters, please indicate your
acceptance in the space provided for that purpose below.
Very truly yours,
INTERNATIONAL TELECOMMUNICATION
DATA SYSTEMS, INC.
By:
------------------------------
Name:
Title:
The Selling Stockholders named in Schedule 2
to this Agreement
By:
--------------------------------
Attorney-in-Fact
Accepted:
LEHMAN BROTHERS INC.
ALEX. BROWN & SONS INCORPORATED
COWEN & COMPANY
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By:
--------------------------------
Authorized Representative
33
<PAGE>
SCHEDULE 1
Number of
Underwriters Firm Shares
------------ -----------
Lehman Brothers Inc................................................
Alex. Brown & Sons Incorporated....................................
Cowen & Company....................................................
TOTAL
<PAGE>
SCHEDULE 2
Number of
Selling Stockholders Firm Shares
- -------------------- -----------
Portia K. Bakes.............................................
Mark D. Spitzer.............................................
Sandra L. Bakes.............................................
Anne L. Wells...............................................
James V. O'Neill............................................
Connecticut Innovations, Inc. ..............................
TOTAL
<PAGE>
SCHEDULE 3
Connecticut
Texas
HALE AND DORR LLP
60 State Street
Boston, MA 02109
February 28, 1997
International Telecommunication Data Systems, Inc.
225 High Ridge Road
Stamford, CT 06905
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration Statement on
Form S-1 (the "Registration Statement"), filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended,
relating to the public offering of an aggregate of 2,100,000 shares of Common
Stock, $.01 par value per share (the "Shares"), of International
Telecommunication Data Systems, Inc., a Delaware corporation (the "Company").
The Shares are to be sold by the Company and the selling stockholders pursuant
to an underwriting agreement (the "Underwriting Agreement") among the Company
and Lehman Brothers Inc., Alex. Brown & Sons Incorporated and Cowen & Company,
as representatives of the several underwriters named in the Underwriting
Agreement (the "Underwriters").
We have examined signed copies of the Registration Statement and all exhibits
thereto, all as filed with the Commission. We have also examined and relied upon
the original or copies of minutes of meetings of the stockholders and Board of
Directors of the Company, stock record books of the Company, a copy of the
By-Laws of the Company, as amended, and a copy of the Certificate of
Incorporation of the Company, as amended.
Based upon the foregoing, we are of the opinion that the Shares have been duly
authorized for issuance and, after payment therefor and the issuance of the
certificates therefor by the Company in accordance with the terms of the
Underwriting Agreement, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name therein and in the related
Prospectus under the caption "Legal Matters."
<PAGE>
February 28, 1997
Page 2
It is understood that this opinion is to be used only in connection with the
offer and sale of the Shares while the Registration Statement is in effect.
Very truly yours,
/s/ HALE AND DORR LLP
HALE AND DORR LLP
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of the 5th day of September, 1996 between
Joseph Juliano, an individual residing at 261 Peck Ln., Orange, Connecticut
06477 (hereinafter referred to as "Employee") and International
Telecommunication Data Systems, Inc., a Delaware corporation , with offices at
969 High Ridge Road, Suite 205, Stamford, Connecticut 06905 (hereinafter
referred to as "Corporation").
WHEREAS, the Corporation desires to employ the Employee, and the Employee
desires to serve as an employee of Corporation on the terms and conditions
hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and promises of the
parties hereto, the Corporation and the Employee agree as follows:
1. Employment: The Corporation hereby agrees to employ the Employee as
Executive Vice President and the Employee hereby agrees to function as such
Executive Vice President for the Corporation on the terms and conditions
hereinafter stated, subject to the directives of the Chief Executive Officer and
Board of Directors of the Corporation (the "Board").
2. Term of Employment: The term of this Agreement shall begin on or before
November 1, 1996 and shall continue in full force and effect until October 31,
2000 unless sooner terminated as provided herein.
3. Compensation:
(a) During the term of this Agreement, for all services rendered by
Employee under this Agreement, the Corporation shall pay the Employee an annual
base salary of $175,000 per annum, payable in weekly or monthly installments as
determined by the Corporation. All compensation payable under this Agreement
shall be subject to applicable federal and state withholding tax requirements
and other deductions approved by Employee.
(b) In addition to the annual base salary described in Section 3(a) hereof,
, the Employee shall become eligible to participate in the ITDS Stock Incentive
Plan ("Plan"), a copy of which is attached hereto and made a part hereof as
Schedule "A", upon the commencement of Employee's employment with Corporation.
(c) In addition to the annual base salary described in Section 3(a) hereof,
and the Incentive Stock Plan described in Section 3(b) hereof, the Employee may
receive an annual year end cash performance bonus of up to 10% of annual base
salary, in the sole and absolute discretion of the Board of Directors of the
Corporation, which performance bonus, if any, will be pro rated for 1996.
<PAGE>
(d) In addition to the annual base salary described in Section 3(a) hereof,
the Incentive Stock Plan described in Section 3(b) hereof, and the cash
performance bonus described in Section 3(c) hereof, pursuant to the Plan, the
Employee shall be granted on the commencement of employment { 24,000 } shares of
Restriced Common Stock( "Restricted Stock"), which Restricted Stock shall vest
as follows: 25% on or after April 1, 1997, 50% on or after October 31, 1998, 75%
on or after October 31, 1999, and 100% on or after October 31, 2000, provided
however, that vesting will accelerate upon the sale of the Corporation. The
Restricted Stock grant shall be subject to the terms of a Restricted Stock
Agreement to be executed by the Employee and the Corporation.
(e) In addition to the foregoing, the Employee shall be entitled to
reimbursement of his legal fees related to this Agreement, not to exceed $3000.
4. Fringe Benefits:
(a) During the term hereof, subject to applicable waiting periods,
Corporation shall provide the Employee and his immediate family, at no cost to
Employee, with medical and hospitalization insurance coverage( and group dental,
if available) similar to that offered to other officers of the Corporation, in
addition to Employee's right to extend existing COBRA insurance coverage from
his previous employer through the termination of the same. The Corporation shall
pay Employees COBRA out of pocket costs.
(b) During the term hereof, Corporation shall provide the Employee, at no
cost to the Employee, subject to applicable waiting periods, with long term
disability insurance coverage no less favorable than that offered to other
officers of the Corporation. During the term hereof, Corporation shall provide
Employee, at no cost to Employee, with supplemental life insurance coverage on
Employee's life in the amount of $300,000. The proceeds of such life insurance
policies shall be payable to Employee's named beneficiary.
(c) Employee is authorized to incur on behalf of the Corporation only
reasonable expenses (including travel and entertainment) in connection with the
business of the Corporation. Any such expenses in excess of two thousand five
hundred dollars ($2500.00) per month, in the aggregate, must be approved in
advance by Corporation. Corporation shall reimburse Employee for all such
reasonable expenses incurred in connection with the business of Corporation upon
the presentation by Employee, from time to time, of an itemized account of such
expenditures, which account shall conform, in form and substance, to applicable
rules and regulations of the Internal Revenue Service.
5. Duties and Extent of Services: Upon the execution of this Agreement and
throughout its term, the duties of the Employee shall include, but are not
limited to the following:
(a) Provide managerial and executive support to the Corporation;
(b) Provide marketing and sales support for the products of the
Corporation;
<PAGE>
(c) Develop information to provide support for the development and
distribution of the products of the Corporation;
(d) Support and development of sales leads as directed by the Corporation;
(e) Such other duties and responsibilities as may be assigned by the Board
or the Chief Executive Officer, from time to time consistent with Employee's
status as Executive Vice President.
(f) Employee will work exclusively for the Corporation during the term of
this Agreement. Employee shall exert his best efforts and shall devote no less
than the greater of: (i) forty (40) hours per week, or (ii) the amount of time
necessary for Employee to perform his duties with regard to the business and
affairs of the Corporation in accordance with this Agreement. During the term of
this Agreement Employee shall not, directly or indirectly, alone or as a member
of the partnership, or as an officer, director, shareholder, owner, agent or
employee of any other corporation, be engaged in or concerned with any other
compensable duties or pursuits whatsoever requiring his personal services
without the prior written consent of the Corporation, which consent may be
withheld for any reason or for no reason. Notwithstanding the foregoing, the
provisions of this Section 5 (f) shall not preclude the Employee from providing
tax return and other accounting services for clients for whom he has provided
such services during the prior 12 months, provided the Employee's provision of
such accounting services does not adversely effect the performance of his duties
hereunder in the sole opinion of the Corporation.
6. Vacation: During each year of the term of this Agreement, the Employee
shall be entitled to four (4) weeks vacation, the time of which shall be
determined after consultation with the Chief Executive Officer of the
Corporation. For purposes of this Section 6, Employee shall be entitled to carry
forward any unused vacation time from one period to another.
7. Termination: The Employee's employment hereunder shall terminate on the
date set forth in Section 2 hereof, or sooner upon the occurrence of any of the
following events:
(a) The Employee's death.
(b) The termination of the Employee's employment hereunder by Corporation,
at its option, to be exercised by written notice from Corporation to the
Employee, upon the Employee's incapacity or inability to perform his services as
contemplated herein for a period of at least one hundred twenty (120)
consecutive days or an aggregate of one hundred sixty (160) consecutive or
non-consecutive days during any twelve (12) month period during the term hereof
due to the fact that his physical or mental health shall have become impaired so
as to make it impossible or impractical for him to perform the duties and
responsibilities contemplated for him hereunder.
(c) The termination for "cause" of the Employee's employment hereunder by
Corporation, at its option, to be exercised by written notice from Corporation
to the Employee. The term "cause", as used herein, shall mean: (i) the
Employee's willful misconduct or gross
<PAGE>
negligence in the performance of his duties on behalf of the Corporation, or the
Employee's dishonesty in the performance of his duties on behalf of the
Corporation, (ii) the neglect, failure or refusal of the Employee to
satisfactorily carry out any reasonable request of the Chief Executive Officer
or Board for the provision of services hereunder, after notice of such neglect,
failure or refusal has been given to Employee and Employee has failed to cure
such neglect, failure or refusal within 15 days of notice (iii) the material
breach of any provision of this Agreement by the Employee, after notice of such
breach has been given to Employee and Employee has failed to cure such breach
within 15 days of notice or (iv) the Employee's plea of guilty or nolo
contendere to, or conviction of any crime involving moral turpitude, common law
fraud, dishonesty, theft, or unethical conduct. For purposes of (ii) and (iii)
above, the Employee shall not be afforded an opportunity to cure in the event
that the Employee has already been afforded an opportunity to cure on two
previous occasions during the employment term and the termination for cause
shall be effective notwithstanding the lack of an opportunity to cure.
(d) The Cessation of the Corporation's Business: In the event of any such
termination, Corporation shall pay to Employee such portion of his annual base
salary payable to Employee to the date such termination becomes effective, and
thereafter Employee shall have no claim for any further compensation hereunder;
provided however, that in the event of Employee's death, his death shall be
deemed to have occurred on the last day of the month in which he dies.
8. Restrictions On Employee: During the period commencing on the date
hereof and ending two (2) years after the termination of the Employee's
employment by Corporation for any reason, the Employee shall not directly or
indirectly induce or attempt to induce any of the employees of Corporation to
leave the employ of Corporation.
9. Covenant Not To Compete: (a) During the period commencing on the date
hereof, and ending one (1) year after the termination of the Employee's
employment for any reason, the Employee shall not, except as a passive investor
in publicly held companies, directly or indirectly engage in, associate with, or
own or control any interest in, or act as principal, director, officer, agent,
or employee of, or consultant to: (i) Cincinnati Bell Information Systems,
Systematics, Saville Systems, Cable Services Group, Computer Sciences
Corporation, Electronic Data Systems, Alltel, or their successors or assigns, or
(ii) any person, firm or corporation, located in the eastern third of the United
States, whose activity is (i) a venture or business, substantially similar to
that of Corporation and/or (ii) which is in competition with the Corporation.
Notwithstanding anything to the contrary contained herein, to the extent
Corporation (i) makes an absolute assignment of the bulk of its assets for the
benefit of creditors, (ii) consents to the appointment of a bankruptcy trustee,
(iii) institutes bankruptcy proceedings or (iv) experiences a cessation, the
provisions of this Section 9 shall lapse.
(b) In the event the Employee's employment is terminated by the Corporation
pursuant to the provisions of Sections 7(c)(ii) or 7(c)(iii) hereof, the
Corporation shall pay the Employee, for a period of one (1) year after
termination, in monthly installments, a total amount equal to 50% of his base
salary, provided the Employee fully complies with the provisions of Sections 8,9
and 10 hereof. The Employee shall not be entitled to post termination payments
of any kind or nature with respect to his obligations pursuant to this Ageement,
except as expressly provided in this Section 9(b).
<PAGE>
10. Proprietary Information:
(a) For purposes of this Agreement, "proprietary information" shall mean
any information relating to the business of Corporation or any entity in which
Corporation has an ownership interest that has not previously been publicly
released by duly authorized representatives of Corporation and shall include
(but shall not be limited to) information encompassed in all proposals,
marketing and sales plans, financial information, costs, pricing information,
computer programs, customer information, customer lists, and all methods,
concepts or ideas in or reasonably related to the business of Corporation or any
entity in which Corporation has an interest. The Employee agrees to regard and
preserve as confidential all proprietary information, whether he has such
information in his memory or in writing or other physical form. The Employee
will not, without written authority from Corporation to do so, directly or
indirectly, use for his benefit or purposes, nor disclose to others, either
during the term of his employment hereunder or thereafter, except as required by
the conditions of his employment hereunder, any proprietary information. The
Employee agrees not to remove from the premises of Corporation or any subsidiary
or affiliate of Corporation, except as an employee of Corporation in pursuit of
the business of Corporation or any of its subsidiaries, affiliates or any entity
in which Corporation has an ownership interest, or except as specifically
permitted in writing by Corporation, any document or object containing or
reflecting any proprietary information. The Employee recognizes that all such
documents and objects, whether developed by him or by someone else during the
term of his employment with Corporation, are the exclusive property of
Corporation.
(b) All proprietary information and all of the Employee's interest in trade
secrets, trademarks, computer programs, customer information, customer lists,
employee lists, products, procedure, copyrights and developments hereafter to
the end of the period of employment hereunder developed by Employee as a result
of, or in connection with, his employment hereunder, shall belong to
Corporation; and without further compensation, but at Corporation's expense,
forthwith upon request of Corporation, Employee shall execute any and all such
assignments and other documents and take any and all such other action as
Corporation may reasonably request in order to vest in Corporation all
Employee's right, title and interest in and all of the aforesaid items, free and
clear of liens, charges and encumbrances.
(c) The Employee expressly agrees that the covenants set forth in Sections
8, 9, and 10 of this Agreement are being given to Corporation in connection with
the employment of the Employee by Corporation and that such covenants are
intended to protect Corporation against the competition by the Employee, within
the terms stated, to the fullest extent deemed reasonable and permitted in law
and equity. In the event that the foregoing limitations upon the conduct of the
Employee are beyond those permitted by law, such limitations, both as to time
and geographical area, shall be, and be deemed to be, reduced in scope and
effect to the maximum extent permitted by law.
<PAGE>
11. Injunctive Relief: The Employee acknowledges that the injury to
Corporation resulting from any violation by him of any of the covenants
contained in this Agreement will be of such a character that it cannot be
adequately compensated by money damages, and, accordingly, Corporation may, in
addition to pursuing its other remedies, obtain an injunction from any court
having jurisdiction of the matter restraining any such violation; and no bond or
other security shall be required in connection with such injunction.
12. Representation of Employee: The Employee represents and warrants that
neither the execution and delivery of this Agreement nor the performance of his
duties hereunder violates the provisions of any other agreement to which he is a
party or by which he is bound.
13. Parties; Non-Assignability: As used herein, the term "Corporation"
shall mean and include Corporation and any subsidiary or affiliate thereof and
any successor thereto unless the context indicates otherwise. This Agreement and
all rights hereunder are personal to the Employee and shall not be assignable by
him and any purported assignment shall be null and void and shall not be binding
on Corporation.
14. Entire Agreement: This Agreement contains the entire agreement between
the parties hereto with respect to the transactions contemplated herein and
supersedes all previous representations, negotiations, commitments, and writing
with respect thereto.
15. Amendment or Alteration: No amendment or alteration of the terms of
this Agreement shall be valid unless made in writing and signed by all of the
parties hereto.
16. Choice of Law: This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut, except a provision of that
law which would refer resolution of any issue to another jurisdiction. The forum
for resolution of any dispute shall be the State of Connecticut.
17. Arbitration: Any controversy, claim, or breach arising out of or
relating to this Agreement or the breach thereof may, in the sole discretion of
either party, be settled by arbitration in Stamford, Connecticut in accordance
with the rules of the American Arbitration Association and the judgment upon the
award rendered shall be entered by consent in any court having jurisdiction
thereof.
18. Waiver of Breach: The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by any of the parties hereto.
19. Binding Effect: The terms of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective personal
representatives, heirs, administrators, successors, and permitted assigns
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
CORPORATION:
INTERNATIONAL TELECOMMUNICATION
DATA SYSTEMS, INC.
By /s/ Charles L. Bakes
-------------------------------
Charles L. Bakes, President
EMPLOYEE:
By /s/ Joseph Juliano
-------------------------------
Joseph Juliano
EXHIBIT 21
Name of Subsidiary Jurisdiction of Incorporation
------------------------------ ------------------------------------
MDS, Inc. Delaware
ITDS Holding Company LLC Delaware
ITDS LTDA Brazil
Exhibit 23.2
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
February 11, 1997, in the Registration Statement (Form S-1) and related
Prospectus of International Telecommunication Data Systems, Inc. dated
February 28, 1997.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Stamford, Connecticut
February 27, 1997
