<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
Or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------ -------------
COMMISSION FILE NUMBER 0-21519
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1295986
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
225 High Ridge Road, Stamford, CT 06905
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 329-3300
---------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at May 3, 1999
----- --------------------------
<S> <C>
Common Stock, $.01 par value 17,346,107
</TABLE>
<PAGE>
International Telecommunication Data Systems, Inc.
and Subsidiaries
Form 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets--March 31, 1999 and December 31, 1998................1
Consolidated statements of operations--three months ended
March 31, 1999 and 1998........................................................3
Consolidated statements of cash flows--three months ended
March 31, 1999 and 1998........................................................4
Notes to consolidated financial statements.......................................5
Item 2. Management's Discussion and Analysis of Financial Condition,
Results of Operations, and Certain Factors That May Affect Future Results...........8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.........................................................13
Item 6. Exhibits and Reports on Form 8-K..........................................13
Signatures................................................................14
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
International Telecommunication Data Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
MARCH 31, December 31,
1999 1998
---------- ------------
(UNAUDITED) (SEE NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33,716 $ 40,735
Accounts receivable, net of allowances for doubtful accounts of
$3,314 and $2,362, respectively 39,549 34,713
Prepaid expenses, and other current assets 2,638 1,843
Deferred income taxes 1,232 840
-------- --------
Total current assets 77,135 78,131
Property and equipment
Computers, including leased property under capital leases of $1,150 in 1999
and 1998 10,117 9,506
Furniture and fixtures 2,048 2,005
Equipment, including leased property under capital leases of $54 in 1999 and 1998 619 706
Leasehold improvements 970 970
-------- --------
13,754 13,187
Less: accumulated depreciation and amortization 6,279 5,450
-------- --------
7,475 7,737
Other assets:
Goodwill - net of accumulated amortization of $3,893 and $861, respectively 47,374 42,249
Product development costs-at cost, net of accumulated amortization of $7,177
and $5,810 respectively 23,125 22,511
Deferred income taxes 3,575 4,138
Other 2,348 390
-------- --------
76,422 69,288
-------- --------
Total assets $161,032 $155,156
-------- --------
-------- --------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
Page 1
<PAGE>
International Telecommunication Data Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
MARCH 31, December 31,
1999 1998
----------- ------------
(UNAUDITED) (SEE NOTE)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,396 $ 10,921
Accrued expenses and income taxes payable 4,190 2,919
Accrued compensation 1,697 3,026
Customer advances and deferred revenue 4,625 3,862
Current maturities of capital lease obligations 46 74
Other 563 504
--------- ---------
Total current liabilities 22,517 21,306
Capital lease obligations 21 25
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value; 40,000,000 shares authorized, 17,341,894 and
17,313,231 shares issued and outstanding at March 31, 1999 and December 31,
1998, respectively 173 173
Additional paid-in capital 142,103 141,662
Retained deficit (3,378) (7,952)
Unearned compensation (46) (58)
Accumulated other comprehensive income (358) --
--------- ---------
Total stockholders' equity 138,494 133,825
--------- ---------
Total liabilities and stockholders' equity $ 161,032 $ 155,156
--------- ---------
--------- ---------
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
Page 2
<PAGE>
International Telecommunication Data Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
--------------------
<S> <C> <C>
Revenue $ 33,401 $ 26,006
Costs and expenses:
Operating expenses 12,593 10,261
General, administrative and selling expenses 5,883 5,025
Depreciation and amortization 3,112 2,647
Systems development and programming costs 5,118 3,471
Personnel and indirect acquisition costs -- 4,186
In-process research and development -- 20,800
--------------------
26,706 46,390
--------------------
Operating income (loss) 6,695 (20,384)
Foreign currency loss (296) --
Other income 451 225
Interest expense (43) (1,505)
--------------------
Income (loss) before income tax expense (benefit) 6,807 (21,664)
Income tax expense (benefit) 2,591 (8,159)
--------------------
Net income (loss) $ 4,216 $(13,505)
--------------------
--------------------
Income (loss) per common share- basic:
Net income (loss) $ 0.24 $ (1.01)
--------------------
--------------------
Shares used in computing basic income (loss) per common share 17,331 13,406
--------------------
--------------------
Income (loss) per common share- diluted:
Net income (loss) $ 0.24 $ (1.01)
--------------------
--------------------
Shares used in computing diluted income (loss) per common share 17,693 13,406
--------------------
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
Page 3
<PAGE>
International Telecommunication Data Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
--------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 4,216 $(13,505)
Adjustments to reconcile net income (loss) before extraordinary loss
to net cash provided by operating activities:
Write off of in-process research and development -- 20,800
Depreciation and amortization 3,112 2,704
Deferred income taxes 172 (7,426)
Amortization of unearned compensation 12 116
Change in operating assets and liabilities:
Accounts receivable (4,836) (14,030)
Prepaid expenses (796) (72)
Accounts payable, accrued expenses and accrued compensation 474 3,192
Customer & employee advances 763 (651)
Other assets and liabilities, net 3 6
--------------------
Net cash provided (used) by operating activities 3,120 (8,866)
INVESTING ACTIVITIES
Capital expenditures (2,568) (1,531)
Purchase of Intelicom (6,000) (77,275)
Product development costs (1,982) (2,426)
--------------------
Net cash used for investing activities (10,550) (81,232)
FINANCING ACTIVITIES
Principal payment on long-term debt and capital leases (30) (92)
Proceeds from sale of common stock 441 313
Financing fees paid -- (1,370)
Proceeds from long term debt -- 70,000
--------------------
Net cash provided by financing activities 411 68,851
--------------------
Net decrease in cash and cash equivalents (7,019) (21,247)
Cash and cash equivalents at beginning of period 40,735 28,967
--------------------
--------------------
Cash and cash equivalents at end of period $ 33,716 $ 7,720
--------------------
--------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 43 $ 1,291
Cash paid during the period for taxes 55 465
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCIAL ACTIVITIES:
In 1998, the Company issued 606,673 shares of its common stock, valued at $10
million, to CSC as partial financing of the acquisition of ITDS Intelicom
Services, Inc.
SEE NOTES TO FINANCIAL STATEMENTS.
Page 4
<PAGE>
International Telecommunication Data Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For further information, refer to the financial
statements and footnotes thereto included in the International Telecommunication
Data Systems, Inc. (the "Company" or "ITDS") Annual Report on Form 10K for the
year ended December 31, 1998.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
On January 2, 1998, the Company acquired a subsidiary of Computer Sciences
Corporation ("CSC"), a provider of billing and customer care software, by
acquiring all of the outstanding Capital Stock of CSC Intelicom Inc. (now known
as ITDS Intelicom Services, Inc.) ("Intelicom"). This acquisition was accounted
for using the purchase method of accounting. The purchase price, after working
capital adjustments of approximately $14.2 million, aggregated $83.7 million,
before direct costs of approximately $1.2 million and consisted of 606,673
shares of Common Stock of the Company valued at $10 million (before registration
costs of $100,000) and $73.8 million in cash. In addition, the Company made a $6
million payment in January 1999, which was contingent upon certain performance
factors. The assets acquired and liabilities assumed were recorded at their
estimated fair value on the date of acquisition and the purchase price in excess
of the fair market value of the assets acquired of approximately $45.3 million
is being amortized over 15 years. The additional $6 million payment is being
amortized over the remaining life of the original goodwill, 14 years. In
connection with the acquisition the Company received current assets of $5.9
million, product development costs of $16.6 million, and other non-current
assets of $3 million and assumed accrued liabilities of $7.9 million. In
addition, purchased research and development costs of $20.8 million, and
personnel and indirect acquisition costs of $4.2 million, (principally hiring
and temporary staff of $1.3 million, special bonuses paid to company's employees
and management of $2.3 million and systems and other costs of $600,000)
associated with the Intelicom acquisition have been expensed in 1998. The
operations of Intelicom are included with the Company's financial statements
since the date of acquisition.
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 reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. STRATEGIC BUSINESS ALLIANCE
On February 9, 1999, the Company announced it has formed a strategic business
alliance with Novazen, Inc. to include Novazen's Internet - based billing and
customer care software in ITDS' proprietary suite of products and services. In
addition to other distribution rights, the alliance gives ITDS the exclusive
Page 5
<PAGE>
2. STRATEGIC BUSINESS ALLIANCE (CONTINUED)
right to provide its clients with Novazen's advanced Internet - based billing
and customer communication software. This software will function with all of
ITDS' proprietary service bureau products and services, which already offer
wireless service providers with customer acquisition, billing, customer care and
process control.
As part of the transaction, a $2 million payment for certain software rights,
including all enhancement and modification to the software is being amortized
over a five year period.
3. INCOME TAX
Income tax provisions for interim periods, other than unusual items, are based
on estimated effective annual income tax rates. The Company recognizes deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between the tax bases, projected state tax rates and financial
reporting bases of assets and liabilities.
The differences between the effective tax rate and the federal statutory rate is
primarily a result of state income taxes and the tax benefit anticipated in
connection with the nonrecurring costs associated with the Intelicom
acquisition.
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, EARNINGS PER SHARE
"SFAS 128", which revises the methodology of calculating earnings per share. The
Company adopted SFAS 128 in the fourth quarter of 1997. In accordance with SFAS
128, all common stock equivalents that have a dilutive effect on earnings per
share are included in the calculation for dilutive income per share.
The following table sets forth the computation of basic and diluted earnings per
share for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------------
1999 1998
-------- ---------
In thousands, except per
share data
<S> <C> <C>
Basic:
Net income (loss) $ 4,216 $(13,505)
------- ---------
Average shares outstanding 17,331 13,406
------- ---------
Basic EPS $ .24 $ (1.01)
------- ---------
Diluted:
Net income (loss) $ 4,216 $(13,505)
------- ---------
------- ---------
Average shares outstanding 17,331 13,406
Net effect of dilutive stock options-based
on the treasury stock method 362 --
------- ---------
Totals 17,693 13,406
------- ---------
Dilutive EPS $ .24 $ (1.01)
------- ---------
------- ---------
</TABLE>
Page 6
<PAGE>
International Telecommunication Data Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
5. COMPREHENSIVE INCOME
Other comprehensive income (loss) for the three months ended March 31, 1999 and
1998 is comprised of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
------------------
<S> <C> <C>
Net income (loss) as reported $4,216 $(13,505)
Foreign currency loss (net of tax) 183 --
------------------
Other comprehensive income (loss) $4,399 $(13,505)
------------------
------------------
</TABLE>
6. OFFICER, DIRECTOR AND EMPLOYEE LOANS
As of March 31, 1999, prepaid expenses and other current assets and other
long-term assets include approximately $400,000 of loans and advances to certain
officers, directors and employees of the Company.
7. LEGAL PROCEEDINGS
On April 2, 1998, the Company was served with a complaint in Connecticut
Superior Court alleging that the Company had breached the terms of its
employment contract with Alan K. Greene, the Company's former Chief Financial
Officer, and breached other obligations to Mr. Greene. The Company intends to
vigorously defend itself in the action and has filed a response to the claim
and asserted a counterclaim against Mr. Greene. The parties are currently in
the discovery phase of the litigation. In addition, on September 11, 1998,
Mr. Greene filed an age discrimination suit against the Company in the
Connecticut Commission on Human Rights and Opportunities ("CCHRO") and in the
Equal Employment Opportunities Commission. The Company filed its Answer and
Position Statement, disclaiming any liability relating to age discrimination,
on November 5, 1998. Mr. Greene has stated his intention to withdraw his
claim before the CCHRO and to add it to his state court action.
In addition, Intelicom, a wholly-owned subsidiary of the Company acquired in
January 1998 from Computer Sciences Corporation ("CSC") is party to litigation
and has been threatened with litigation in connection with the operation of its
business prior to its acquisition by the Company. Pursuant to the terms of the
acquisition, CSC and certain of its affiliates are obligated to defend and
indemnify the Company against obligations arising out of such litigation or
threatened litigation.
The Company does not believe that any liabilities relating to any of the legal
proceedings to which it is a party are likely to be, individually or in the
aggregate, material to its consolidated financial position or results of
operations.
Page 7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition, Results of
Operations, and Certain Factors that May Affect Future Results
OVERVIEW
The Company is a leading provider of comprehensive transactional billing and
management information solutions to providers of wireless and satellite
telecommunications services. The Company uses its proprietary software
technology to develop billing and customer care solutions, which address
customer requirements as they evolve, regardless of the market segment,
geographic area or mix of network features and billing options. Typically, the
Company provides its services under contracts with terms ranging from two to
five years, and bills customers monthly, on a per-subscriber or fixed fee basis.
As a result, a substantial portion of the Company's revenue is recurring in
nature, and increases as a provider's subscriber base grows. The remaining
revenues are largely comprised of the development of new software, the
enhancement of existing installed systems and the provision of related customer
maintenance and training which is largely billed on time and material basis.
Operating expenses are comprised primarily of the salaries and benefits of
technical service representatives, operations personnel, quality assurance
representatives and consultants as well as 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 in addition to general
office administration expenses (rent and occupancy, telephone and other office
supply costs) of the Company.
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 capitalizing such costs 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.
Amortization is computed by using the greater of the amount that results from
applying the ratio of current revenue for the product over total revenue for the
product or the straight-line method over the remaining useful life of the
product. Generally, such deferred costs are amortized over five years.
On January 2, 1998, the Company acquired a subsidiary of Computer Sciences
Corporation ("CSC"), a provider of billing and customer care software, by
acquiring all of the outstanding Capital Stock of CSC Intelicom Inc. (now known
as ITDS Intelicom Services, Inc.) ("Intelicom"). This acquisition was accounted
for using the purchase method of accounting. The purchase price, after working
capital adjustments of approximately $14.2 million, aggregated $83.7 million,
before direct costs of approximately $1.2 million and consisted of 606,673
shares of Common Stock of the Company valued at $10 million (before registration
costs of $100,000) and $73.8 million in cash. In addition, the Company made a $6
million payment in January 1999, which was contingent upon certain performance
factors. The assets acquired and liabilities assumed were recorded at their
estimated fair value on the date of acquisition and the purchase price in excess
of the fair market value of the assets acquired of approximately $45.3 million
is being amortized over 15 years. The additional $6 million payment is being
amortized over the remaining life of the original goodwill, 14 years. In
connection with the acquisition the Company received current assets of $5.9
million, product development costs of $16.6 million, and other non-current
assets of $3 million and assumed accrued liabilities of $7.9 million. In
addition, purchased research and development costs of $20.8 million, and
personnel and indirect acquisition costs of $4.2 million, (principally hiring
and temporary staff of $1.3 million, special bonuses paid to company's employees
and management of $2.3 million and systems and other costs of $600,000)
associated with the Intelicom acquisition have been expensed in 1998. The
operations of Intelicom are included with the Company's financial statements
since the date of acquisition.
On February 9, 1999 the Company announced that it has formed a strategic
business alliance with Novazen, Inc. to include Novazen's Internet-based billing
and customer care software in ITDS' proprietary suite of products and services.
In addition to other distribution rights, the alliance gives ITDS the exclusive
right to provide its clients with Novazen's advanced Internet-based billing and
Page 8
<PAGE>
customer communication software. This software will function with all of ITDS'
proprietary service bureau products and services, which already offer wireless
service providers with customer acquisition, billing, customer care and process
control. As part of the transaction, a $2 million payment for certain software
rights, including all enhancement and modification to the software is being
amortized over a five year period.
RESULTS OF OPERATIONS
REVENUE
The Company reported that revenue for the quarter ended March 31, 1999
increased 28.4% from $26.0 million in 1998 to a record $33.4 million in 1999.
This increase is due primarily to the growth of recurring revenue from existing
customers. The subscriber base of our customers grew by approximately 2.9
million subscribers from 5.2 million in the first quarter 1998 to 8.1 million at
March 31, 1999.
OPERATING EXPENSES
Operating expenses increased 22.7% from $10.3 million in 1998 to $12.6
million in 1999. This is primarily due to an increase in the fixed cost
structure relating to additional mainframe capacity.
GENERAL, ADMINISTRATIVE AND SELLING EXPENSES
General, administrative and selling expenses increased 17.1% from $5.0
million in 1998 to $5.9 million in 1999 primarily due to increases in salaries
and employee related expenses resulting from staff increases. As a percentage of
revenue, general, administrative and selling expenses decreased from 19.3% for
the quarter ended 1998 to 17.6% for the comparable period in 1999. While
revenues increased approximately $7.4 million during the first quarter of 1999
compared to the three months ended March 31, 1998, general, administrative and
selling expense increased at a lower percentage.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased 17.6% from $2.6 million
in 1998 to $3.1 million in 1999 primarily because of the additional cash payment
of $6 million in connection with the acquisition of Intelicom and the purchase
of Novazen software for $2 million.
SYSTEMS DEVELOPMENT AND PROGRAMMING COSTS
Systems development and programming costs increased 47.5% from $3.5
million in 1998 to $5.1 million. As a percentage of revenue, system development
and programming costs increased from 13.3% for the period ended 1998 to 15.3%
for the comparable period in 1999. This increase was due to headcount increases
in both employees and consultants because of increased programming support
required for the increase in our customers' growth and additional expenses
incurred as a result of further development of new products.
OTHER INCOME
Other income increased 100.4% from $225,000 in 1998 to $451,000 in
1999, mainly due to an increase in investment income caused by a higher level of
cash and cash equivalents in 1999 as compared to 1998.
INTEREST EXPENSE
Interest expense decreased 97.1% from $1.5 million in 1998 to $43,000
in 1999 primarily as a result of the $70 million term loan obtained in
connection with the acquisition of Intelicom, which was retired on June 8, 1998.
INCOME TAX EXPENSE
Income tax increased from a tax benefit of $8.2 million in 1998 to a
tax expense of $2.6 million in 1999. For the three months ended March 31, 1999,
the Company's effective tax rate was 38.1% as compared to 37.7% in the first
quarter of 1998. The increase in rate was primarily due to nonrecurring costs
associated with the acquisition of Intelicom in the first quarter of 1998.
Page 9
<PAGE>
EARNINGS PER SHARE
Net earnings for the first quarter of 1999 were $4.2 million, or $.24
per diluted share, compared to a net loss of $13.5 million, or $1.01 per diluted
share, in the first quarter of 1998. The diluted weighted average number of
common shares outstanding for the first quarters of 1999 and 1998 were 17.7
million and 13.4 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through placements of debt and
equity securities, cash generated from operations and equipment financing
leases.
As of March 31, 1999, the Company had $33.7 million in cash and cash
equivalents, $39.5 million in net trade accounts receivable and $54.6 million in
working capital.
For the three months ended March 31, 1999, cash and cash equivalents decreased
by $7.0 million. This decrease is primarily a result of the purchase of rights
to Novazen software for $2 million, the cash payment of $6 million in connection
with the acquisition of Intelicom as a result of certain performance criteria
being met and additional product development costs of $2 million, offset
partially by the $3.1 million generated from operations.
The Company has a $30 million unused line of credit available to fund future
operations. The credit agreement provides for a $30 million line of credit which
contains normal covenants including meeting certain financial ratios. This
agreement requires the Company to pay interest at LIBOR plus up to two and one
quarter percent and expires on December 31, 2002.
For the three months ended March 31, 1999, the Company generated $3.1 million in
cash from operating activities and $.4 million from financing activities,
including the sale of common stock through the exercise of stock options and the
issuance of stock through the employee stock purchase plan. Investing activities
used approximately $10.6 in funds by spending $2 million for the Novazen
software license, $600,000 for capital expenditures, $6 million in connection
with the Intelicom purchase and applying $2 million to product development
costs.
For the period ended March 31, 1998, the Company used cash of $8.9 million from
operating activities principally due to the increase of accounts receivable. The
increase in accounts receivable includes the build up of Intelicom receivables
($14 million) which were retained by CSC at the time of the acquisition. Had the
receivables been included in the acquired assets, cash provided by operations
would have been $5.1 million and cash used for investing activities would have
been $95.2 million for the period ended March 31, 1998.
On March 24, 1999, the Board of Directors approved a stock buy-back program of
up to $10 million. The purchased shares will be used for the Company's stock
incentive plans, employee stock purchase plan and other corporate purposes. No
shares were repurchased as of March 31, 1999.
The Company believes that its existing capital resources are adequate to meet
its cash requirements for the foreseeable future. There can be no assurance,
however, that changes in the Company's plans or other events affecting the
Company's operations will not result in accelerated or unexpected expenditures.
The Company may seek additional funding through public or private financing.
There can be no assurance, however, that additional financing will be available
from any of these sources or will be available on terms acceptable to the
Company.
To date, inflation has not had a significant impact on the Company's operations.
Page 10
<PAGE>
YEAR 2000 DISCLOSURE
The Company has established a Year 2000 task Force (the "Task Force) which
includes employees with various functional and divisional responsibilities,
material third parties and outside consultants. The task Force has identified
five phases in becoming Year 2000 ready:
(I) awareness-locating, listing and prioritizing specific technology that
is potentially subject to Year 2000 related challenges;
(II) assessment-determining the level of risk that exists through inquiry,
research and testing;
(III) renovation-updating code to resolve Year 2000 related issues that were
identified in previous phases by repair in a testing environment.
(IV) validation-testing, monitoring, obtaining certification and verifying
the correct manipulation of dates and date related data, including
systems of material third parties; and
(V) implementation-installation, integration and application of Year 2000
ready resolutions by replacement, upgrade, or repair of Information
Technology systems, including those of material third parties
The Company is performing its Year 2000 analysis on both the front-end of its
systems, which are located at its customers' sites, and the back-end of its
systems, which are located at the Company. As of May 1, 1999, the awareness,
assessment and renovation phases of all of the Company's systems were completed
in their entirety. With respect to the front-end portion of the systems, the
Year 2000 Task Force is currently in the validation and implementation phases.
The Company expects to be completed with all five of its phases of the front-end
of the systems by mid 1999. At that point, upgrades and replacements will have
been ready provided to the Company's customers. However, there can be no
assurance that customers will accept and install the upgrades and replacements
in a timely manner. With respect to the back-end portion of the Company's
systems, the Year 2000 Task Force is currently in the validation phase. The
Company expects to be completed with the validation and implementation of the
back-end systems by mid 1999. If validation and implementation of the Company's
critical systems fail to meet the Company's expectations, or identify a risk of
non-compliance with a particular functionality, the Company will perform the
renovation phase to identify alternative solutions. As of May 1, 1999,
approximately 90% of all validation activities and 65% of all implementation
activities were complete.
The contingency plan is scheduled to be completed during the third quarter of
1999. The Company will perform testing on all subsequent upgrades of software
upgrades of software deemed Year 2000 compliant to ensure continued readiness.
In addition to internally generated systems, the Company relies on third parties
for its infrastructure, operating systems, human resources, financial, and
supporting billing and customer care software, some of which are not yet Year
2000 ready. The Company is in the process of obtaining assurances from third
parties that their systems are or will by Year 2000 ready in a timely manner.
While the Company does not anticipate delays or postponements in implementing
Year 2000 resolutions by the previous stated time frame, there can be no
certainty that implementation of solutions will be made in a timely manner until
the validation phase has been completed. The inability to address all issues in
a timely and successful manner, could have a material adverse effect on the
Company's business and results of operations. The failure of third parties to
provide Year 2000 compliant software products could have a material adverse
effect on the Company's financial condition and results of operations. Such
risks include, but are not limited to, failure to accurately report and bill
existing subscribers for phone usage, accept new orders, activate new
subscribers, and the ability to perform other customer care tasks.
Based on information developed to date as a result of the Task Force assessment
efforts, management believes that the costs of becoming Year 2000 ready will be
approximately $4.0 million. Through March 31, 1999, the Company has incurred
$3.2 million toward this development effort. Although the Company does not
expect the cost to have a material adverse effect on its business or results of
Page 11
<PAGE>
operations, there can be no assurance that the Company will not be required to
incur significant unanticipated costs in relation to its readiness obligations.
The Company has not deferred any specific projects, goals or objectives relating
to its domestic and international operations as a result of implementing the
Company's Year 2000 compliance efforts.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This quarterly report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. A number of uncertainties
exist that could affect the Company's future operating results, including,
without limitation, changes in the telecommunications market, the Company's
ability to successfully complete its Year 2000 efforts, the Company's ability to
retain existing customers and attract new customers, the Company's continuing
ability to develop products that are responsive to the evolving needs of its
customers, increased competition, changes in operating expenses, changes in
government regulation of the Company's clients and general economic factors.
The Company's quarterly operating results may fluctuate from quarter to quarter
depending on various factors, including the impact of significant start-up costs
associated with initiating the delivery of contracted services to new clients,
the hiring of additional staff, new product development and other expenses,
introduction of new products by competitors, pricing pressures, the evolving and
unpredictable nature of the markets in which the Company's products and services
are sold and general economic conditions.
The market for the Company's products and services is highly competitive, and
competition is increasing as additional market opportunities arise.
Reference is made to the more detailed discussion of the risks associated with
the Company's business contained under the heading "Certain Factors That May
Affect Future Results" in the Company's Form 10-K for the period ended December
31, 1998 filed with the Securities and Exchange Commission on March 31, 1999.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At March 31, 1999, the Company does not have any derivatives, debt or hedges
outstanding. In addition, because the Company's foreign operations are minimal,
the risk of foreign currency fluctuation is not material to the Company's
financial position or results of operations. The Company's available line of
credit requires interest on outstanding borrowings at various rates. Therefore,
the Company is not subject to interest rate risk, but could be subject to
fluctuating cash flows on outstanding borrowings.
Page 12
<PAGE>
PART II: OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
On April 2, 1998, the Company was served with a complaint in Connecticut
Superior Court alleging that the Company had breached the terms of its
employment contract with Alan K. Greene, the Company's former Chief Financial
Officer, and breached other obligations to Mr. Greene. The Company intends to
vigorously defend itself in the action and has filed a response to the claim
and asserted a counterclaim against Mr. Greene. The parties are currently in
the discovery phase of the litigation. In addition, on September 11, 1998,
Mr. Greene filed an age discrimination suit against the Company in the
Connecticut Commission on Human Rights and Opportunities ("CCHRO") and in the
Equal Employment Opportunities Commission. The Company filed its Answer and
Position Statement, disclaiming any liability relating to age discrimination,
on November 5, 1998. Mr. Greene has stated his intention to withdraw his
claim before the CCHRO and to add it to his state court action.
In addition, Intelicom, a wholly-owned subsidiary of the Company acquired in
January 1998 from Computer Sciences Corporation ("CSC") is party to litigation
and has been threatened with litigation in connection with the operation of its
business prior to its acquisition by the Company. Pursuant to the terms of the
acquisition, CSC and certain of its affiliates are obligated to defend and
indemnify the Company against obligations arising out of such litigation or
threatened litigation.
The Company does not believe that any liabilities relating to any of the legal
proceedings to which it is a party are likely to be, individually or in the
aggregate, material to its consolidated financial position or results of
operations.
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits are listed in the accompanying index to exhibits
immediately following the signature page.
(b) Reports on Form 8-K
None
Page 13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
International Telecommunication
Data Systems, Inc.
------------------------------------------
(Registrant)
By Mr. Peter L. Masanotti
------------------------------------------
(Acting Chief Financial Officer and Duly
Authorized Officer)
Date May 14, 1999
----------------------------------------
Page 14
<PAGE>
EXHIBITS
The exhibits filed as part of this report on Form 10-Q are as follows:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------------------------------------------------------------------------
<S> <C>
*2 Stock Purchase Agreement, dated as of December 29, 1997 by and
among the Registrant, CSC Intelicom, Inc. and CSC Domestic
Enterprises, Inc.
**3.1 Certificate of Incorporation of the Registrant, as amended.
**3.2 By-Laws of the Registrant.
**+10.1 Form of 1996 Equity Incentive Plan.
**+10.2 1996 Employee Stock Purchase Plan.
***+10.3 1997 Stock Incentive Plan, as amended.
+10.5 1999 Stock Incentive Plan.
***+10.6 Employment Agreement between the Registrant and Peter P. Bassermann,
dated as of September 3, 1997, and amendment thereto, dated as of
January 1, 1998.
***+10.7 Employment Agreement between the Registrant and Lewis D. Bakes,
dated as of January 1, 1998.
***+10.8 Employment Agreement between the Registrant and Peter L. Masanotti,
dated as of January 1, 1998.
***+10.9 Employment Agreement between the Registrant and Paul K. Kothari,
dated as of December 29, 1997.
+10.10 Employment Agreement between the Registrant and Susan Yezzi, dated
as of December 23, 1997, and amendment thereto effective May 1,
1998.
+10.11 Employment Agreement between the Registrant and Kevin M. Piltz,
dated as of July 20, 1998.
**10.12 Stock Purchase Agreement dated December 11, 1995, as amended,
between the Registrant and Connecticut Innovations, Incorporated
relating to Class C Convertible Preferred Stock.
**10.13 Form of Lease between the Registrant and 969 Associates, dated
December 1990.
**10.14 Sublease dated June 11, 1996 between the Registrant and Learning
International, relating to 225 High Ridge Road, Stamford,
Connecticut.
***10.15 Lease dated January 1996 between Par 3 Development, L.L.C. and CSC
Intelicom, Inc. (now known as ITDS Intelicom Services, Inc.).
***10.16 Lease dated September 19, 1996 between Par 3 Development, L.L.C.
and CSC Intelicom, Inc. (now known as ITDS Intelicom Services, Inc.)
****10.17 Sublease dated November 15, 1998 between the Registrant and the
University of Connecticut relating to 2777 Summer Street, Stamford,
Connecticut.
****10.18 Lease dated February 25, 1999 between the Registrant and Par 3
Development, L.L.C. relating to 2215 Fox Drive, Champaign,
Illinois.
***10.19 Credit Agreement dated as of January 2, 1998 among the
Registrant, the Subsidiary Guarantors Party thereto and Lehman
Commercial Paper Inc.
***10.20 Security Agreement, dated as of January 2, 1998 among the
Registrant, each of the subsidiaries of the Registrant, and
Lehman Commercial Paper Inc.
***10.21 Guarantee Assumption Agreement, dated as of January 2, 1998 by ITDS
Intelicom Services, Inc. in favor of Lehman Commercial Paper Inc.
10.22 Software License Agreement dated February 9, 1999 between the
Registrant and Novazen, Inc.
27 Financial Data Schedule.
</TABLE>
- ------------------
+ Management contract or compensatory plan.
* Incorporated by reference to the Registrant's Report on Form 8-K
originally filed with the Securities and Exchange Commission on
January 13, 1998.
** 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.
*** Incorporated by reference to the Registrant's Report on Form 10-K for
the year ended December 31, 1997, as filed with the Securities and
Exchange Commission on March 10, 1998.
**** Incorporated by reference to the Registrant's Report on Form 10-K for
the year ended December 31, 1998, as filed with the Securities and
Exchange Commission on March 31, 1999.
Page 15
<PAGE>
EXHIBIT 10.22
SOFTWARE LICENSE AGREEMENT
This Software License Agreement (the "Agreement") is dated as of the
latest date following the signatures hereto (the "Agreement Date"), and is by
and between Novazen, Inc., a Delaware corporation ("Novazen") and International
Telecommunication Data Systems, Inc., a Delaware corporation, with its principal
offices at 225 High Ridge Road, Stamford, Connecticut 06905 ("ITDS").
WHEREAS, Novazen has developed and/or otherwise possesses rights to
certain computer software which is described in SCHEDULE A, and
WHEREAS, ITDS desires to license the source code for such software for
use in the operation of its business and for distribution to its existing and
potential clients and customers, and Novazen is willing to grant to ITDS a
license for such purposes on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of these premises and the mutual
covenants herein contained, the parties hereby agree as follows:
1. DEFINITIONS.
1.1 "LICENSED SOFTWARE" means the software described in SCHEDULE A
attached hereto in Source Code form and in Object Code form.
1.2 "OBJECT CODE" means a form of software code resulting from the
translation or processing of a computer program in Source Code form by a
computer into machine language or intermediate code, which thus is in a form
that would not be convenient to human understanding of the program logic, but
which is appropriate for execution or interpretation by a computer.
1.3 "SOURCE CODE" means a form in which a computer program's logic is
easily deduced by a human being with skill in the art, such as a printed listing
of the program or a form from which a printed listing can be easily generated.
2. LICENSES.
2.1 LICENSE GRANT. Subject to the terms and conditions contained
herein, Novazen grants ITDS, and ITDS accepts, a perpetual, royalty-free, fully
paid-up right and license to use, copy, modify, enhance, prepare derivative
works of and distribute (in accordance with Section 2.2 below) the Licensed
Software in Source Code form and Object Code form. Novazen also grants ITDS, and
ITDS accepts, a perpetual, royalty-free, fully paid-up right and license to use,
copy, modify, enhance, prepare derivative works of and distribute (in accordance
with Section 2.2 below) the user
<PAGE>
manuals and other documentation associated with the Licensed Software (the
"Documentation").
2.2 SUBLICENSE RIGHTS. ITDS shall have the right to sublicense all
such rights to any provider of wireless telecommunications services.
2.3 EXCLUSIVITY. Subject to the following sentence, the rights granted
in this Section 2 to ITDS shall be exclusive with respect to any customers and
clients of ITDS. During the term of this Agreement, Novazen shall not, nor
permit or cause any other person to, grant a license to the Licensed Software
(or any portion or derivative work thereof) to any person or entity once such
person or entity is known by Novazen, or identified by ITDS, as a customer or
client of ITDS (other than MCI Worldcom for non-wireless applications).
Moreover, Novazen agrees that the rights of ITDS to use the Licensed Software
shall be exclusive with respect to the provision of billing and customer care
services to providers of wireless telecommunications services, and, therefore,
without the express prior written approval of ITDS, Novazen shall not, nor
permit or cause any other person to, grant a license to the Licensed Software
(or any portion or derivative work thereof) to any person or entity that
provides billing and customer care services (whether through a sale or license
of a solution or through the provision of services via a service bureau) to
providers of telecommunications services for wireless applications, e.g. LHS,
Convergys, Saville Systems, Amdocs, HO Software and similar companies. Subject
to the first two sentences of this Section 2.3, Novazen shall have the right to
license end user providers of wireless telecommunication services the right to
use the Licensed Software for such end users' own billing and customer care
applications, e.g. Vanguard Cellular, Air Touch and similar companies.
2.4 MAINTENANCE AND UPDATE. Novazen and ITDS have entered into a
Maintenance and Update Agreement of even date herewith pursuant to which Novazen
shall provide to ITDS (at no additional cost to ITDS) all enhancements, updates
and improvements to the Licensed Software for the two year period beginning as
of the date hereof.
2.5 INSTALLATION. Promptly after the date hereof, Novazen shall assist
ITDS in the installation of the Licensed Software on ITDS' hardware.
2.6 VERIFICATION. As reasonably requested in writing by Novazen from
time to time, ITDS shall furnish Novazen with information and other
documentation reasonably calculated to verify that the use of the Licensed
Software by ITDS complies with the terms and conditions set forth herein.
3. PAYMENT OF LICENSE FEE; DELIVERY OF LICENSED SOFTWARE.
-2-
<PAGE>
3.1 PAYMENT. Promptly after the execution hereof and simultaneously
with the delivery by Novazen of the Licensed Software in Source Code Form to
ITDS, ITDS shall pay to Novazen a license fee of $2,000,000 (the "License Fee")
in consideration of the rights granted to ITDS herein and in the Maintenance and
Update Agreement.
3.2 DELIVERY. Simultaneously with the payment by ITDS of the License
Fee, Novazen shall provide ITDS with one (1) complete copy of the Licensed
Software in Source Code Form and Documentation in electronic format reasonably
acceptable to ITDS.
4. OWNERSHIP OF SOFTWARE.
4.1 LICENSED SOFTWARE. Novazen shall retain all its rights, title and
interest in the Licensed Software and Novazen shall retain all rights, title and
interest in all modifications, enhancements and other derivative works thereof
made by Novazen during the term of this Agreement. ITDS shall retain all rights,
title and interest in all modifications, enhancements and other derivative works
thereof made by ITDS during the term of this Agreement.
4.2 COPYRIGHT NOTICES. ITDS shall not alter or remove any printed or
on-screen copyright notices contained on or in copies of Licensed Software.
4.3 NECESSARY RIGHTS. Novazen hereby represents and warrants to ITDS
that it has all necessary rights, power and authority to grant the rights and
licenses granted herein.
5. TERM AND TERMINATION.
5.1 TERM. This Agreement shall commence on the Agreement Date and shall
continue until terminated pursuant to Section 5.2.
5.2 GROUNDS FOR TERMINATION. This Agreement may be terminated:
(a) By ITDS upon notice to Novazen;
(b) By either party in the event the other party materially
breaches a provision of this Agreement and the breaching party fails to cure
such breach within thirty (30) days of the receipt of notice of such breach from
the non-breaching party.
5.3 EFFECTS OF TERMINATION.
(a) Upon termination of this Agreement, all rights,
obligations and licenses of the parties hereunder shall cease.
-3-
<PAGE>
(b) Immediately after the termination on the grounds of a
material breach by ITDS, ITDS shall have no further right to use, copy, modify,
enhance, create Derivative Works of, or distribute the Licensed Software,
provided, however, that ITDS shall continue to have the right to use the
Licensed Software for the sole purpose of maintaining and supporting the
Licensed Software for its licensees;
(c) The provisions of Sections 6 (Confidentiality), 7
(Warranty and Disclaimer of Warranty), 8 (Infringement Indemnification), 9
(Limitations on Liability), 10 (Compliance with Laws), 11 (Notices), 13 (General
Provisions) and this Section 5 shall survive any termination or expiration of
this Agreement according to their terms.
6. CONFIDENTIALITY.
6.1 CONFIDENTIAL INFORMATION. ITDS agrees and acknowledges that in
order to facilitate the use of the Licensed Software, Novazen may disclose to
ITDS certain confidential information which will be identified as such in
writing ("Confidential Information"). The Licensed Software in Source Code Form
shall be regarded as Confidential Information of Novazen whether or not it is
identified in writing as "Confidential". Novazen agrees to protect the
confidentiality of ITDS' list of customers and clients with at least the same
degree of care that it utilizes with respect to its own similar proprietary
information.
6.2 PROTECTION OF PROPRIETARY INFORMATION. ITDS agrees to protect the
confidentiality of the Confidential Information with at least the same degree of
care that it utilizes with respect to its own similar proprietary information,
including without limitation agreeing:
(a) Not to disclose or otherwise permit any other person or
entity access to, in any manner, the Confidential Information, or any part
thereof in any form whatsoever, except that such disclosure or access shall be
permitted to (i) licensees of ITDS who have agreed to maintain the
confidentiality of the Confidential Information and (ii) to an employee of ITDS
requiring access to the Confidential Information in the course of his or her
employment in connection with this Agreement and who has signed an agreement
obligating the employee to maintain the confidentiality of the confidential
information of third parties in ITDS's possession; and
(b) To notify Novazen promptly and in writing of the
circumstances surrounding any suspected possession, use or knowledge of the
Confidential Information or any part thereof at any location or by any person or
entity other than those authorized by this Agreement.
-4-
<PAGE>
6.3 EXCEPTIONS. Nothing in this Section 6 shall restrict ITDS with
respect to information or data, whether or not identical or similar to that
contained in the Confidential Information, if such information or data: (a) was
rightfully possessed by ITDS before it was received from Novazen; (b) is
independently developed by ITDS without reference to Novazen's information or
data; (c) is subsequently furnished to ITDS by a third party not under any
obligation of confidentiality with respect to such information or data, and
without restrictions on use or disclosure; or (d) is or becomes public or
available to the general public otherwise than through any act or default of
ITDS.
6.4 SALES LEADS AND CONTACTS. Novazen acknowledges and agrees that all
new sales leads and contacts obtained by either ITDS or Novazen, or their
representatives, at the CTIA Trade Show to be held in February 1999 in New
Orleans, Louisiana, or at functions or events related thereto, shall be the
proprietary information of ITDS and Novazen shall provide all such leads and
contacts that it obtains to ITDS and shall not pursue any such leads or contacts
without the prior written consent of ITDS; provided, however, that beginning 18
months after the termination of such CTIA Trade Show, Novazen shall be permitted
to pursue any such leads or contacts obtained by Novazen for the sale of
solutions or services for other than wireless applications.
7. WARRANTY AND DISCLAIMER OF WARRANTY .
Novazen hereby represents and warrants that (i) the Licensed Software
will operate in substantial conformance with its specifications and accompanying
documentation for a period of six (6) months after delivery thereof to ITDS and
completion of installation and (ii) the Licensed Software will recognize and
process all date fields, and perform all date-dependent calculations and
operations (including sorting, comparing and reporting) correctly, and will not
experience software ending and/or invalid and/or incorrect results as a result
of the change of century or the occurrence of any particular date (all without
human intervention, other than original data entry of valid dates). EXCEPT AS
PROVIDED IN THE PREVIOUS SENTENCE, THE LICENSED SOFTWARE IS BEING PROVIDED "AS
IS" WITHOUT WARRANTY OF ANY KIND AND NOVAZEN HEREBY DISCLAIMS ALL WARRANTIES,
WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THE LICENSED
SOFTWARE INCLUDING, WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
-5-
<PAGE>
8. INFRINGEMENT INDEMNIFICATION.
8.1 Except as provided below, Novazen shall defend and indemnify ITDS
from and against any damages, liabilities, costs and expenses (including
reasonable attorneys' fees) arising out of any claim that the Licensed Software
infringes a valid patent, copyright or other intellectual property right or
misappropriates a trade secret of a third party, PROVIDED THAT ITDS shall have
promptly provided Novazen written notice thereof and reasonable cooperation,
information, and assistance in connection therewith. Should any Licensed
Software become the subject of an injunction preventing its use as contemplated
herein, Novazen shall, at its option, (1) procure for ITDS the right to continue
using such Licensed Software, (2) replace or modify such Licensed Software so
that it becomes non-infringing, or if (1) and (2) are not reasonably available
to Novazen, then (3) terminate ITDS' license to the infringing Licensed Software
and refund all amounts paid hereunder by ITDS.
8.2 Novazen shall have no liability or obligation to ITDS hereunder
with respect to any patent, copyright, trade secret or other intellectual
property infringement, misappropriation or claim thereof based upon
modifications, alterations or enhancements of the Licensed Software not created
by or for Novazen.
9. LIMITATIONS ON LIABILITY.
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY LOSS OF DATA, PROFITS
OR USE OF THE PRODUCTS, OR FOR ANY SPECIAL, INCIDENTAL, INDIRECT OR
CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE USE OR
PERFORMANCE OF THE LICENSED SOFTWARE.
10. COMPLIANCE WITH EXPORT LAWS.
ITDS shall not export, directly or indirectly, the Licensed Software,
or other information or materials provided by Novazen hereunder, to any country
for which the United States or any other relevant jurisdiction requires any
export license or other governmental approval at the time of export without
first obtaining such license or approval.
11. NOTICES.
Any notice or communication from one party to the other shall be in
writing and either personally delivered or sent via facsimile or certified mail,
postage prepaid and return receipt requested addressed, to such other party at
the address specified below or such other address as either party may from time
to time designate in writing to the other party.
-6-
<PAGE>
If to Novazen: Novazen, Inc.
6328 Monarch Park Place
Longmont, CO 80503
Attn.: President
with a copy to: Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166-0193
Attn.: Conor D. Reilly, Esq.
If to ITDS: International Telecommunication Data
Systems, Inc.
225 High Ridge Road
Stamford, CT 06905
Attn: Peter L. Masanotti, Esq.
with a copy to: Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attn: John H. Chory, Esq.
No change of address shall be binding upon the other party hereto until written
notice thereof is received by such party at the address show herein. All notices
shall be in English and shall be effective upon receipt.
12. AMENDMENT OF LOI.
Each of Novazen and ITDS agree that, in connection with and in
consideration of the execution of this Agreement, clause (a) of Paragraph 5 of
that certain Letter of Intent for the acquisition of Novazen, Inc., dated as of
January 21, 1999, by and between Novazen and ITDS be amended to change February
28, 1999 to March 15, 1999.
13. GENERAL PROVISIONS.
13.1 FORCE MAJEURE. In the event that either party is prevented from
performing, or is unable to perform, any of its obligations under this Agreement
due to any cause beyond the reasonable control of the party invoking this
provision, the affected party's performance shall be excused and the time for
performance shall be extended for the period of delay or inability to perform
due to such occurrence.
13.2 WAIVER. The waiver by either party of a breach or a default of any
provision of this Agreement by the other party shall not be construed as a
waiver of any succeeding breach of the same or any other provision, nor shall
any delay or
-7-
<PAGE>
omission on the part of either party to exercise or avail itself of any right,
power or privilege that it has, or may have hereunder, operate as a waiver of
any right, power or privilege by such party.
13.3 NO AGENCY; INDEPENDENT CONTRACTORS. Nothing contained in this
Agreement shall be deemed to imply or constitute either party as the agent or
representative of the other party, or both parties as joint venturers or
partners for any purpose.
13.4 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without regard to its
choice of law provisions.
13.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Exhibits
attached hereto constitute the entire agreement between the parties with regard
to the subject matter hereof. No waiver, consent, modification or change of
terms of this Agreement shall bind either party unless in writing signed by both
parties, and then such waiver, consent, modification or change shall be
effective only in the specific instance and for the specific purpose given.
13.6 HEADINGS. Captions and headings contained in this Agreement have
been included for ease of reference and convenience and shall not be considered
in interpreting or construing this Agreement.
13.7 COSTS, EXPENSES AND ATTORNEYS' FEES. If either party commences any
action or proceeding against the other party to enforce or interpret this
Agreement, the prevailing party in such action or proceeding shall be entitled
to recover from the other party the actual costs, expenses and reasonable
attorneys' fees (including all related costs and expenses), incurred by such
prevailing party in connection with such action or proceeding and in connection
with obtaining and enforcing any judgment or order thereby obtained.
13.8 ARBITRATION. Any and all claims or disputes arising out of or in
connection with this Agreement shall be decided by arbitration under the rules
of the American Arbitration Association before one arbitrator in Stamford,
Connecticut. The arbitrator may award the prevailing party attorneys fees and
costs but may not award punitive damages to either party.
13.9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall
-8-
<PAGE>
IN WITNESS WHEREOF, the parties, have caused this Agreement to be
executed by their duly authorized representatives.
NOVAZEN, INC. INTERNATIONAL TELECOMMUNICATION
DATA SYSTEMS, INC.
By: /s/ Vincent T. Jordan By: /s/ Peter L. Masanotti
------------------------------------ --------------------------------
Name: Vincent T. Jordan Name: Peter L. Masanotti
---------------------------------- ------------------------------
Title: President/CEO Title: EVP
---------------------------------- -----------------------------
Date: 2/2/1999 Date: 2/9/99
---------------------------------- ------------------------------
-9-
<PAGE>
SCHEDULE A
LICENSED SOFTWARE
This Schedule A is incorporated in its entirety as part of this
Software License Agreement between Novazen and ITDS.
LICENSED SOFTWARE:
Novazen's customer care, bill presentment and bill payment software
solution, including the products known as "Novazen Consolidated Billing",
"Novazen Electronic Bill Presentment & Payment" and "Novazen Interactive
Customer Care", together with all updates and improvements thereto as of the
date hereof, that is capable of performing without limitation the program
functionality identified in Attachment A-1 hereto.
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 33,716
<SECURITIES> 0
<RECEIVABLES> 39,549
<ALLOWANCES> 3,314
<INVENTORY> 0
<CURRENT-ASSETS> 77,135
<PP&E> 13,754
<DEPRECIATION> 6,279
<TOTAL-ASSETS> 161,032
<CURRENT-LIABILITIES> 22,517
<BONDS> 0
0
0
<COMMON> 173
<OTHER-SE> 138,321
<TOTAL-LIABILITY-AND-EQUITY> 161,032
<SALES> 0
<TOTAL-REVENUES> 33,401
<CGS> 0
<TOTAL-COSTS> 12,593
<OTHER-EXPENSES> 14,113
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43
<INCOME-PRETAX> 6,807
<INCOME-TAX> 2,591
<INCOME-CONTINUING> 4,216
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,216
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
