-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NNqxuTxI1kRYg3ZdntWiYIdvskhUS6PWfqSum2eJCLNs5+nIe3JXnjkpXRQOGCGX 1x4L9T8r1TqnCR2UcDL6fQ== 0000927016-96-000434.txt : 19960624 0000927016-96-000434.hdr.sgml : 19960624 ACCESSION NUMBER: 0000927016-96-000434 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19960621 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIGHTBRIDGE INC CENTRAL INDEX KEY: 0001017172 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043065140 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-06589 FILM NUMBER: 96584150 BUSINESS ADDRESS: STREET 1: 281 WINTER ST CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 6178321134 MAIL ADDRESS: STREET 1: 281 WINTER ST CITY: WALTHAM STATE: MA ZIP: 02154 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1996 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- LIGHTBRIDGE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 4812 04-3065140 (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER JURISDICTION OF INDUSTRIAL IDENTIFICATION INCORPORATION OR CLASSIFICATION NUMBER) ORGANIZATION) CODE NUMBER) --------------- 281 WINTER STREET WALTHAM, MASSACHUSETTS 02154 (617) 890-2000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) --------------- PAMELA D.A. REEVE LIGHTBRIDGE, INC. 281 WINTER STREET WALTHAM, MASSACHUSETTS 02154 (617) 890-2000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- COPIES TO: JOHN D. PATTERSON, JR., ESQ. MARK H. BURNETT, ESQ. MARK L. JOHNSON, ESQ. TESTA, HURWITZ & THIBEAULT LLP FOLEY, HOAG & ELIOT LLP HIGH STREET TOWER ONE POST OFFICE SQUARE 125 HIGH STREET BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02110 (617) 832-1000 (617) 248-7000 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. 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 of 1933, check the following box and list the Securities Act registration statement number of the 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 of 1933, check the following box and list the Securities Act registration statement 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, check the following box. [X] --------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE - ----------------------------------------------------------------------------------------------- Common Stock, $.01 par value................. 3,680,000 shares $10.00 $36,800,000 $12,690
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1)Includes 480,000 shares of Common Stock subject to the Underwriters' over- allotment option. (2)Estimated solely for the purpose of determining the registration fee pursuant to Rule 457(a) under the Securities Act of 1933. --------------- 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 SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- LIGHTBRIDGE, INC. CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-1
ITEM NO. CAPTION LOCATION IN PROSPECTUS ---- ------- ---------------------- 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus..... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus.... Inside Front and Outside Back Cover Pages 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges............. Prospectus Summary; Risk Factors 4. Use of Proceeds............... Outside Front Cover Page; Prospectus Summary; Use of Proceeds 5. Determination of Offering Price........................ Outside Front Cover Page; Underwriting 6. Dilution...................... Dilution 7. Selling Security Holders...... Principal and Selling Stockholders 8. Plan of Distribution.......... Outside Front Cover Page; Underwriting 9. Description of Securities to be Registered................ Description of Capital Stock 10. Interests of Named Experts and Counsel...................... [Not Applicable] 11. Information with Respect to the Registrant............... Outside Front Cover Page; Prospectus Summary; Risk Factors; Dividend Policy; Capitalization; Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Transactions; Principal and Selling Stockholders; Description of Capital Stock; Shares Eligible for Future Sale; Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.................. [Not Applicable]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS (Subject to Completion) Dated June 21, 1996 3,200,000 Shares [LIGHTBRIDGE LOGO APPEARS HERE] Common Stock ------------- Of the 3,200,000 shares of Common Stock offered hereby, 3,025,000 shares are being sold by Lightbridge, Inc. ("Lightbridge" or the "Company") and 175,000 shares are being sold by certain selling stockholders (the "Selling Stockholders"). The Company will not receive any of the proceeds from the sale of shares by the Selling Stockholders. See "Principal and Selling Stockholders." Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $8.00 and $10.00 per share. See "Underwriting" for information relating to the factors to be considered in determining the initial public offering price. Application has been made to have the Common Stock approved for quotation on the Nasdaq National Market under the symbol "LTBG." ------------- THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS," BEGINNING ON PAGE 6 OF THIS PROSPECTUS. ------------- 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 expenses payable by the Company estimated to be $850,000. (3) Certain of the Selling Stockholders have granted the Underwriters an option, exercisable within 30 days of the date hereof, to purchase an aggregate of up to 480,000 additional shares of Common Stock at the Price to Public less Underwriting Discounts and Commissions to cover over- allotments, if any. If all such shares are purchased, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Selling Stockholders will be $ , $ and $ , respectively. See "Underwriting" and "Principal and Selling Stockholders." ------------- The Common Stock is offered by the several Underwriters named herein when, as and if received and accepted by them, and subject to their right to reject orders in whole or in part and subject to certain other conditions. It is expected that delivery of certificates for such shares will be made at the offices of Cowen & Company, New York, New York, on or about , 1996. ------------- COWEN & COMPANY MONTGOMERY SECURITIES PRUDENTIAL SECURITIES INCORPORATED , 1996 [IMAGE OF LIGHTBRIDGE LOGO SUPERIMPOSED ON IMAGES OF WIRELESS TELECOMMUNICATIONS EQUIPMENT AND NOMENCLATURE, FOLLOWED BY CAPTION "LIGHTBRIDGE'S OBJECTIVE IS TO BE THE LEADING PROVIDER OF INNOVATIVE, SOFTWARE-BASED SOLUTIONS FOR COST-EFFECTIVE CUSTOMER ACQUISITION AND RETENTION FOR THE WIRELESS TELECOMMUNICATIONS INDUSTRY."] ---------------- The Company intends to furnish its stockholders with annual reports containing financial statements audited by its independent accountants and quarterly reports containing unaudited financial information for the first three quarters of each fiscal year. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. LIGHTBRIDGE SOLUTIONS FOR CUSTOMER ACQUISITION AND RETENTION LIGHTBRIDGE REMOTE ACCESS
SAMS(TM) IRIS(TM) POPS(TM) TELESERVICES -------- -------- -------- ------------ The "virtual office" Self-service Windows-based qualifi- Call center for a va- for multimedia education, cation and activation riety of qualifica- the mobile wireless sales, activation and processing at the re- tion, activation and sales professional. vending system for the tail point-of-sale for subscriber care serv- wireless industry. the wireless industry. ices. [image of laptop com- [image of vending ki- [image of retail [image of call center] puter] osk] transaction]
LIGHTBRIDGE'S SERVICES LIGHTBRIDGE'S CAS INTERFACES TO: APPLICANT SCREENING .Validation Credit Bureaus .InSight .Security Credit Card Network .Postalpro .Queuing Third Party Systems .Fraud Detect .Notification .Billing Systems .ProFile .Routing .Fulfillment .Store & Forward Processes .Exception Handling .Telemarketing (CDS) CREDIT DECISION .Data Management Systems SYSTEM .Negative File Check .Customizable .Client Systems .Multiple Policies .Billing Systems THIRD PARTY .Carrier Credit & Point Of Sale Activations Dept. .Additional Client DECISION NOTIFICATION Systems .Screen .Faxes .Pager .Printer (WIN) WIRELESS INTELLIGENCE .Churn Prophet .Channel Wizard PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and Financial Statements and Notes thereto appearing elsewhere in this Prospectus. Unless otherwise indicated, all information in this Prospectus (i) gives effect to a 2-for-1 stock split to be effected on July 15, 1996, (ii) except in the Financial Statements and Notes thereto, reflects the conversion of all outstanding shares of the Company's Redeemable Convertible Preferred Stock (collectively, the "Convertible Preferred Stock") into 5,247,324 shares of Common Stock and the issuance of 407,565 shares of Common Stock upon exercise of certain warrants, all upon the closing of this offering, (iii) gives effect to the filing of an Amended and Restated Certificate of Incorporation immediately after the closing of this offering to, among other things, create a new class of undesignated preferred stock and (iv) assumes no exercise of the Underwriters' over-allotment option. See "Description of Capital Stock" and "Underwriting." THE COMPANY Lightbridge, Inc. ("Lightbridge" or the "Company") develops, markets and supports a suite of integrated products and services that enable wireless telecommunications carriers to improve their customer acquisition and retention processes. The Company's software-based services are delivered primarily on an outsourcing and service bureau basis, which allows wireless carriers to focus internal resources on their core business activities. The Company offers on- line, real-time transaction processing and call center support solutions to aid carriers in qualifying and activating applicants for wireless service, as well as software-based sales support services for traditional distribution channels, such as dealers, agents and direct mobile sales forces, and emerging distribution channels, such as mass market retail stores, home shopping and stand-alone kiosks. The Company develops and implements interfaces that fully integrate its acquisition system with carrier and third-party systems, such as those for billing, point-of-sale, activation and order fulfillment. The Company recently introduced software-based decision support tools and services that enable carriers to reduce subscriber churn and to make more informed business decisions about their customers, markets and distribution channels. Over the past 10 years, the number of U.S. cellular subscribers has increased 58% on a compounded annual basis, as the market for cellular phones has evolved from serving early adopters to serving mass market consumers. While cellular service historically has represented the largest sector of the U.S. wireless telecommunications industry, other wireless services, such as personal communication services ("PCS") and enhanced specialized mobile radio ("ESMR"), are emerging as competitive alternatives to cellular services. In the midst of strong subscriber growth and increasing competition, wireless carriers are encountering high costs of acquisition, declining revenues per subscriber, escalating losses from subscription fraud and lost revenues from churn in subscriber bases. Lightbridge's objective is to be the leading provider of innovative, software-based solutions for cost-effective customer acquisition and retention for the wireless telecommunications industry. By focusing on the wireless telecommunications industry, the Company has developed significant expertise and experience that it intends to employ to address the changing needs of wireless carriers in both existing and emerging markets. The Company's strategy is to provide a suite of complementary software-based products and services that permit a wireless carrier to select applications and functions to create an integrated, customized solution addressing its particular needs. The open architecture underlying the Company's software applications supports the development of flexible, integrated solutions, regardless of the type of wireless service provided by a client and independent of the client's computing environment. The Company develops long-term consultative relationships with leading wireless carriers that assist it in identifying evolving industry needs and marketing additional products and services to its existing client base. Lightbridge also establishes relationships with strategic partners in order to increase the functionality of its products, reduce the time to market for its new products and services, and access its partners' marketing and 3 development resources. The Company intends to leverage these consultative and partnering relationships to expand the Company's presence in the United States, including in the emerging PCS market, and to facilitate and expedite the Company's entry into the rapidly expanding international wireless market. The Company sells its products and services through a direct sales force. The Company's current client base consists of 34 wireless telecommunication clients, including 9 of the 12 largest domestic cellular carriers (based on total population coverage) and the only 2 domestic carriers currently delivering PCS service. In the year ended September 30, 1995, approximately 97% of the Company's revenues was attributable to carriers that were also clients in the preceding fiscal year. Lightbridge was incorporated in Delaware in June 1989 under the name Credit Technologies, Inc. and changed its name to Lightbridge, Inc. in November 1994. The Company's principal executive offices are located at 281 Winter Street, Waltham, Massachusetts 02154, and its telephone number is (617) 890-2000. THE OFFERING Common Stock offered: By the Company................. 3,025,000 shares By the Selling Stockholders.... 175,000 shares Common Stock to be outstanding after the offering.............. 14,873,509 shares(1) Use of Proceeds.................. For repayment of indebtedness, for payment of the exercise price of repurchase options to acquire 400,000 shares of Common Stock, and for working capital and other general corporate purposes, including potential acquisitions Proposed Nasdaq National Market symbol.......................... LTBG
- -------- (1) Excludes, as of June 20, 1996, (i) 1,615,800 shares of Common Stock issuable upon the exercise of outstanding options at a weighted average exercise price of $1.80 per share, (ii) 1,000,000 shares of Common Stock reserved for future option grants under the Company's 1996 Incentive and Nonqualified Stock Option Plan, (iii) 100,000 shares of Common Stock reserved for issuance under the Company's 1996 Employee Stock Purchase Plan and (iv) 810,250 shares of Common Stock issuable upon the exercise of warrants at an exercise price of $2.00 per share. See "Management--Benefit Plans" and Notes 7 and 12 to Notes to Financial Statements. Assumes the surrender of 52,223 shares of Common Stock in payment of the exercise price of certain warrants that will expire upon the closing of the offering, based on an assumed initial public offering price of $9.00 per share. To the extent the initial public offering price differs, the number of shares will vary. See "Description of Capital Stock--Warrants." 4 SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
TWELVE THREE MONTHS THREE MONTHS MONTHS ENDED ENDED YEARS ENDED SEPTEMBER 30, ENDED DECEMBER 31, MARCH 31, ---------------------------------------- DEC. 31, ------------- -------------- 1991 1992 1993 1994 1995 1995(1) 1994 1995 1995 1996 ------- ------ ------ ------- ------- -------- ------ ------ ------ ------ STATEMENT OF OPERATIONS DATA: Revenues............... $ 1,174 $2,988 $6,986 $13,398 $19,350 $20,347 $5,515 $6,512 $4,452 $6,314 Income (loss) from operations............ (1,125) (623) 130 1,207 (1,607) (1,806) 586 387 (645) 282 Net income (loss)...... (1,202) (753) (125) 950 (2,433) (2,773) 412 72 (847) 23 Pro forma net income (loss) per common share(2).............. $ (0.19) $ 0.01 $ 0.00 Pro forma weighted average number of common and common equivalent shares outstanding(2)........ 12,770 13,271 13,334
MARCH 31, 1996 ------------------------------------------ PRO FORMA ACTUAL PRO FORMA(3) AS ADJUSTED(2)(3)(4) ------- ------------ -------------------- BALANCE SHEET DATA: Cash and cash equivalents.......... $ 600 $ 4,694 $26,603 Working capital (deficiency)....... (1,944) 1,923 25,559 Total assets....................... 10,611 14,705 36,614 Long-term obligations, less current portion........................... 4,151 3,000 3,000 Redeemable preferred stock......... 3,222 9,180 -- Stockholders' equity (deficiency).. (3,696) (4,636) 28,181
- -------- (1) The Company changed its fiscal year from September 30 to December 31, effective with the fiscal year ending December 31, 1996. All references to fiscal years are to years ended September 30. (2) Adjusted to give effect to the conversion of all outstanding shares of Convertible Preferred Stock into 5,247,324 shares of Common Stock. (3) The pro forma financial information gives effect as of March 31, 1996 to (i) the issuance of 1,000,000 shares of Series D Redeemable Convertible Preferred Stock, which occurred in April 1996, and the application of the net proceeds thereof and (ii) the repurchase by the Company of 400,000 shares of Common Stock, which occurred in April and May 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources," "Certain Transactions," "Description of Capital Stock" and Note 6 of Notes to Financial Statements. (4) Adjusted to reflect the sale of 3,025,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $9.00 per share, after deducting estimated underwriting discounts and commissions and offering expenses, and the application of the net proceeds thereof. See "Use of Proceeds" and "Capitalization." ---------------- This Prospectus contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors." PROFILE is a registered trademark of the Company, and ALLEGRO, CAS_COMM, CHANNEL WIZARD, CHURN PROPHET, CREDIT DECISION SYSTEM, CUSTOMER ACQUISITION SYSTEM, 800-FOR-CREDIT, FRAUD SENTINEL, INSIGHT, Iris, LIGHTBRIDGE, POPS, POSTALPRO, SAMS and WIRELESS INTELLIGENCE are trademarks of the Company. All other trademarks or trade names referred to in this Prospectus are the property of their respective owners. 5 RISK FACTORS An investment in the shares of Common Stock offered hereby involves a high degree of risk. This Prospectus contains certain forward-looking statements. Actual results could differ materially from those projected in the forward- looking statements as a result of certain of the risk factors set forth below and elsewhere in this Prospectus. In addition to the other information in this Prospectus, prospective investors should carefully consider the following risk factors in evaluating an investment in the Company and its business before purchasing any shares of Common Stock offered hereby. Dependence on Certain Clients. A limited number of clients historically have accounted for a substantial portion of the Company's revenues in each fiscal year. Revenues attributable to the Company's 10 largest clients accounted for approximately 85%, 90% and 90% of the Company's total revenues in the years ended September 30, 1993, 1994 and 1995, respectively. Four clients each accounted for greater than 10% of the Company's total revenues in the years ended September 30, 1994 and 1995. This concentration can cause the Company's revenues and earnings to fluctuate significantly from quarter to quarter, based on the volume of qualification and activation transactions generated through these clients. Moreover, recent consolidation among established participants in the wireless telecommunications industry may result in further concentration of the Company's revenues from a limited number of clients. The Company expects that revenues attributable to a relatively small number of clients will continue to represent a significant percentage of its total revenues for the foreseeable future. The Company's contracts with its clients generally extend for terms of one or more years and do not typically require the clients to purchase any particular type or quantity of the Company's products or services or to pay any minimum amount for products or services. Therefore, there can be no assurance that any of the Company's clients, including its significant clients, will continue to utilize the Company's services at levels similar to previous years or at all. The loss of, or a significant curtailment of purchases by, one or more of the Company's significant clients, including a loss or curtailment due to factors outside of the Company's control, would have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. In addition, delays in collection or uncollectability of accounts receivable from any of the Company's significant clients could have a material adverse effect on the Company's liquidity and working capital position. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Clients." Potential Fluctuations in Quarterly Performance. The Company has experienced fluctuations in its quarterly operating results and anticipates that such fluctuations will continue and could intensify. The Company's quarterly operating results may vary significantly depending on a number of factors, including the timing of the introduction or acceptance of new products and services offered by the Company or its competitors, changes in the mix of products and services provided by the Company, the nature and timing of changes in the Company's clients or their use of the Company's products and services, consolidation among participants and other changes in the wireless telecommunications industry, changes in the client markets served by the Company, changes in regulations affecting the wireless industry, changes in the Company's operating expenses, changes in personnel and changes in general economic conditions. Historically, the Company's quarterly revenues have been highest in the fourth quarter of each calendar year and have been particularly concentrated in the holiday shopping season between Thanksgiving and Christmas. The Company's transaction revenues, which historically have represented substantially all of the Company's total revenues, are affected by the volume of use of the Company's services, which is influenced by seasonal and retail trends, the success of the carriers utilizing the Company's services in attracting subscribers and the markets served by the Company for its clients. Software and other revenues, which include software license revenues and related consulting revenues, have recently represented an increasing proportion of the Company's total revenues. Software license revenues are principally recognized at the time of delivery of the licensed products and therefore may result in further fluctuations in the Company's quarterly operating results. Consulting revenues may be influenced by the requirements of one or more of the Company's significant clients, including engagement of the Company for implementing or assisting in implementing special projects of limited duration. There can be no assurance that the Company will be able to achieve or maintain profitability in the future or that its levels of profitability will not vary significantly among 6 quarterly periods. Fluctuations in operating results may result in volatility in the price of the Company's Common Stock. Although the Company's existing clients typically provide forecasts of future activity levels, these forecasts have not always proved accurate. In addition, the sales cycles for the Company's services are typically lengthy and subject to a number of significant risks over which the Company has little or no control, including clients' budget constraints and internal authorization reviews. As a result, the Company may not be able to make accurate estimates of future sales levels. A significant portion of the Company's expenses are fixed and difficult to reduce in the event revenues do not meet the Company's expectations, thus magnifying the adverse effect of any revenue shortfall. Furthermore, announcements by the Company or its competitors of new products, services or technologies could cause clients to defer or cancel purchases of the Company's products and services; any such deferral or cancellation could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. Accordingly, revenue shortfalls can cause significant variations in operating results from quarter to quarter and could have a material adverse effect on the Company's results of operations. If demand for the Company's services significantly exceeds the Company's estimates at a time when its systems are used at or near capacity, however, the Company may be unable to meet contractually required service levels. The Company's failure to meet such service levels could permit clients to terminate their agreements with the Company or give rise to liability for damages or penalties, either of which could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. In addition, the Company has hired a significant number of employees since January 1995 and expects to continue hiring additional sales, customer service, management, software development and technical support employees during the remainder of 1996 as it continues to develop and expand its operations. This significant increase in its workforce may negatively impact the Company's operating margins in the future, particularly if the Company's commercial introduction of new products and services is not as successful as planned. Due to all of the foregoing factors, it is possible that in some future quarter the Company's results of operations will be below prior results or the expectations of market analysts and investors. In such an event, the price of the Company's Common Stock would likely be materially adversely affected. History of Losses; Capital Requirements. The Company was founded in 1989 and has incurred net losses in each of its fiscal years other than the year ended September 30, 1994. As of March 31, 1996, the Company had an accumulated deficit of approximately $4.0 million. No assurance can be given that the Company will be profitable on either a quarterly or annual basis in the future or that the Company will not need to raise additional funds through public or private financings. Expansion of the Company's business, including the acquisition of additional computer and network equipment and the expansion of its teleservices call center capacity, will require the Company to make significant capital expenditures. The Company believes that its net proceeds of this offering, together with existing cash balances and funds available under existing lines of credit, will be sufficient to finance the Company's operations and capital expenditures for at least the next twelve months. In the event that the Company's plans change or if the proceeds of this offering or available cash resources otherwise prove to be insufficient (due to unanticipated expenses or otherwise), the Company may be required to seek additional financing or curtail its expansion activities. The Company may determine, depending upon the opportunities available to it, to seek additional debt or equity financing to fund the cost of continuing expansion. To the extent that the Company obtains equity financing or finances an acquisition with equity securities, any such issuance of equity securities could result in dilution to the interests of the Company's stockholders. There can be no assurance that additional financing will be available to the Company on acceptable terms, or at all. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Rapid Industry Change. The wireless telecommunications industry has been changing rapidly as a result of increasing competition, technological advances and evolving industry practices and standards, and the Company expects these changes to continue. Carriers in the wireless market have also been changing quickly, as the result of consolidation among established carriers and the rapid entrance of new carriers into the market. The Company's future success will depend on the continued use of its existing products and services, market acceptance of its new products and services and the Company's ability to develop and market new offerings or 7 adapt existing offerings to keep pace with changes in the wireless telecommunications industry. A rapid shift away from the use of cellular in favor of other telecommunications services, such as PCS, could affect demand for the Company's product and service offerings, since different business practices might evolve with respect to the offering and sale of new telecommunications services and could require the Company to develop modified or alternate offerings addressing the particular needs of providers of the new telecommunications services. In addition, as the cost of wireless communication services declines and the number of subscribers increases, carriers may elect to forego credit verification of new customers, and it is unclear what means of customer screening, if any, carriers will employ if they do not use credit verification. Due to rapid changes in the wireless telecommunications industry, the Company intends to continue to devote substantial financial, managerial and personnel resources to product development efforts for the foreseeable future. The development of the Company's product and service offerings is based on a complex process requiring high levels of innovation and the accurate anticipation of technological and market trends. There can be no assurance that the Company will be successful in developing or marketing its existing or future product and service offerings in a timely manner, or at all. If the Company is unable, due to resource, technical or other constraints to anticipate or respond adequately to changing market, client or technological requirements, the Company's business, financial condition, results of operations and cash flow will be materially adversely affected. There can be no assurance that products or services developed by others will not render the Company's products or services non-competitive or obsolete. See "Business-- Industry Overview" and "--Competition." Ability to Manage Change. The Company has expanded its operations rapidly, and this expansion has created significant demands on the Company's executive, operational, development and financial personnel and other resources. Additional expansion by the Company, including geographic expansion, 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 the Company's 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 continue to improve its operational and financial control and reporting systems. If the Company's management is unable to manage growth effectively, its business, financial condition, results of operations and cash flow could be materially and adversely affected. See "Business--Employees" and "Management." The success of the Company's business depends in part upon the Company's ability to attract, train and retain a sufficient number of qualified personnel to meet its needs. The Company's teleservices call center is labor intensive; consequently, an increase in the turnover rate among the Company's teleservices employees would increase the Company's recruiting and training costs, and if the Company were unable to recruit and retain a sufficient number of these employees, it could be forced to limit its growth or possibly curtail its operations. There can be no assurance that the Company will be successful in attracting, training and retaining the required number of employees to support the Company's business in the future. See "Business-- Products and Services." Dependence on Key Personnel. The Company's success to date has depended to a significant extent on Pamela D.A. Reeve, its President and Chief Executive Officer, and a number of other key personnel. Neither Ms. Reeve nor any of the Company's other personnel is a party to an employment agreement with the Company. The loss of the services of Ms. Reeve or any of the Company's other key personnel could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. The Company believes that its future success will depend in large part on its ability to attract and retain highly qualified management, engineering, research and development, sales and operational personnel. In particular, the Company will need to hire additional software developers in order to support and increase its software licensing activities. Competition for all of these personnel is intense and there can be no assurance that the Company will be successful in attracting and retaining key personnel. The failure of the Company to hire and retain qualified personnel could have a material adverse effect upon the Company's business, financial condition, results of operations and cash flow. After the closing of this offering, the Company will not maintain key person life insurance policies on any of its employees other than Ms. Reeve. See "Business--Employees" and "Management." 8 Dependence on Cellular Market and Emerging Wireless Markets. The Company historically has provided its products and services predominantly to cellular carriers. Although the cellular market has experienced significant growth in recent years, there can be no assurance that such growth will continue at similar rates, or at all, or that cellular carriers will continue to use the Company's products and services. Further growth in the Company's revenues from use of the Company's Customer Acquisition System by cellular carriers is more likely to result from expansion into additional geographic markets for its existing clients and from general growth of the cellular market, if any, than from the addition of new cellular carrier clients. Declines in demand for the Company's products and services, whether as a result of competition, technological change, industry change, general economic conditions or other factors, could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. The Company's future operating results will depend in part on the emergence of the PCS market and other wireless telecommunications markets and the use of the Company's products and services by PCS and other wireless carriers. The PCS market is in its initial stages of development. If the growth of the PCS market or other new wireless markets does not meet expectations or is significantly delayed for any reason, or if carriers in these markets do not use the Company's products and services, the Company's business, financial condition, results of operations and cash flow could be materially and adversely affected. See "Business--Industry Overview" and "--Products and Services." Competition. The market for products and services provided to wireless carriers is highly competitive and subject to rapid change. The market is fragmented, and a number of companies currently offer one or more products or services competitive with those offered by the Company. In addition, many wireless carriers are providing or can provide, internally, products and services competitive with those the Company offers. Trends in the wireless telecommunications industry, including greater consolidation and technological or other developments that make it simpler or more cost-effective for wireless carriers to provide certain services themselves, could affect demand for the Company's services and could make it more difficult for the Company to offer a cost-effective alternative to a wireless carrier's own capabilities. In addition, the Company anticipates continued growth in the wireless carrier services industry and, consequently, the entrance of new competitors in the future. The Company believes that the principal competitive factors in the wireless carrier services industry include the ability to identify and respond to subscriber needs, quality and breadth of service offerings, price and technical expertise. The Company believes that its ability to compete also depends in part on a number of competitive factors outside its control, including the ability to hire and retain employees, the development by others of products and services that are competitive with the Company's products and services, the price at which others offer comparable products and services and the extent of its competitors' responsiveness to customer needs. Many of the Company's current and potential competitors have significantly greater financial, marketing, technical and other competitive resources than the Company. 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 may be able to devote greater resources to the promotion and sale of their products and services. There can be no assurance that the Company will be able to compete successfully with its existing competitors or with new competitors. In addition, competition could increase if new companies enter the market or if existing competitors expand their service offerings. An increase in competition could result in price reductions or the loss of market share by the Company and could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. To remain competitive in the wireless carrier services industry, the Company will need to continue to invest in engineering, research and development and sales and marketing. There can be no assurance that the Company will have sufficient resources to make such investments or that the Company will be able to make the technological advances necessary to remain competitive. In addition, current and potential competitors have established or may in the future establish collaborative relationships among themselves or with third parties, 9 including third parties with whom the Company has a relationship, to increase the visibility and utility of their products and services. Accordingly, it is possible that new competitors or alliances may emerge and rapidly acquire a significant market share. If this were to occur, the Company's business, financial condition, results of operations and cash flow could be materially and adversely affected. See "Business--Competition." Risk of System Failure. The Company's operations are dependent upon its ability to maintain its computer and telecommunications equipment and systems in effective working order and to protect its systems against damage from fire, natural disaster, power loss, telecommunications failure or similar events. All of the Company's computer and telecommunications equipment is located at its two sites in Waltham, Massachusetts, and, as a result, may be vulnerable to a natural disaster. The Company has taken precautions to protect itself and its clients from events that could interrupt delivery of the Company's services. These precautions include physical security systems, back- up and off site data storage, back-up telephone lines, service arrangements with multiple long-distance telephone carriers and an on-site power generator. Notwithstanding such precautions, there can be no assurance that a fire, natural disaster, power loss, telecommunications failure or similar event would not result in an interruption of the Company's services. From time to time, the Company has experienced delays in the delivery of services to some clients as a result of failures of certain of the Company's systems. In addition, the growth of the Company's client base, a significant increase in transaction volume or an expansion of the Company's facilities may strain the capacity of its computers and telecommunications systems and lead to degradations in performance or system failure. Many of the Company's agreements with carriers contain level of service commitments which the Company might be unable to fulfill in the event of a natural disaster or major system failure. Any damage, failure or delay that causes interruptions in the Company's operations could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. Further, any future addition or expansion of the Company's facilities to increase capacity could increase the Company's exposure to damage from fire, natural disaster, power loss, telecommunications failure or similar events. There can be no assurance that the Company's property and business interruption insurance will be adequate to compensate the Company for any losses that may occur in the event of a system failure or that such insurance will continue to be available to the Company at all or, if available, that it will be available on commercially reasonable terms. See "Business--Products and Services." In addition to its own systems, the Company relies on certain equipment, systems and services from third parties that are also subject to risks, including risks of system failure or inadequacy. For example, in providing its credit verification service, the Company is dependent on access to various credit information data bases. Similarly, delivery of the Company's activation services is often dependent on the availability and performance of third-party billing systems. If, for any reason, the Company were unable to access any such data bases or third-party billing systems, the Company's ability to process credit verification transactions could be impaired. In addition, the Company's business is materially dependent on service provided by various local and long distance telephone companies. A significant increase in the cost of telephone services that is not recoverable through an increase in the price of the Company's services, or any significant interruption in telephone services, could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. Risk of Software Defects; Dependence on Third-Party Software. The software developed and utilized by the Company in providing its products and services may contain errors. Although the Company engages in extensive testing of its software before it is used to provide services to clients, there can be no assurance that errors will not be found in software after commencement of the use of such software. Any such error may result in the Company's partial or total inability to provide services to its clients, additional and unexpected expenses to fund further product development or to add programming personnel to complete a development project, or loss of revenue because of the inability of clients to use the Company's products or services or the termination by clients of their arrangements with the Company. Any of these results could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. Certain software used in the Company's software products and to support the Company's qualification and activation services is licensed by the Company from third parties. The Company licenses software from Pilot 10 Software, Inc. under a beta license agreement that will expire in July 1996 and licenses software from Trans Union Corporation and Strategic Mapping, Inc. under one-year renewable agreements. There can be no assurance that these suppliers will continue to license this software to the Company or, if any supplier terminates its agreement with the Company, that the Company will be able to develop or otherwise procure software from another supplier on a timely basis or on commercially reasonable terms. Even if the Company succeeds in developing or procuring such software in such circumstances, there can be no assurance that the Company will be able to do so in a timely fashion. See "Business--Proprietary Rights." Potential Acquisitions. The Company may in the future pursue acquisitions of companies, technologies or assets that complement the Company's business. Future acquisitions may result in the potentially dilutive issuance of equity securities, the incurrence of additional debt, the write-off of in-process research and development or software acquisition and development costs and the amortization of expenses related to goodwill and other intangible assets, any of which could have a material adverse effect on the Company's business, operating results, financial condition, results of operations, and cash flow. Future acquisitions would involve numerous additional risks, including difficulties in the assimilation of the operations, services, products and personnel of the acquired company, the diversion of management's attention from other business concerns, entering markets in which the Company has little or no direct prior experience and the potential loss of key employees of the acquired company. The Company currently has no agreements or understandings with regard to any acquisition. Government Regulation and Legal Uncertainties. The wireless carriers that constitute the Company's clients are regulated at both the federal and state levels. Federal and state regulation may decrease the growth of the wireless telecommunications industry, affect the development of the PCS or other wireless markets, limit the number of potential clients for the Company's services, impede the Company's ability to offer competitive services to the wireless telecommunications market, or otherwise have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. The Telecommunications Act of 1996, which in large measure deregulated the telecommunications industry, has caused, and is likely to continue to cause, significant changes in the industry, including the entrance of new competitors, consolidation of industry participants and the introduction of bundled wireless and wireline services. Those changes could in turn subject the Company to increased pricing pressures, decrease the demand for the Company's products and services, increase the Company's cost of doing business or otherwise have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. As the result of offering its ProFile product, the Company is subject to the requirements of the Fair Credit Reporting Act and certain state laws. Although the Company's business activities are not otherwise within the scope of federal or state regulations applicable to credit bureaus and financial institutions, the Company must take into account such regulations in order to provide products and services that help its clients comply with such regulations. The Company monitors regulatory changes and implements changes to its products and services as appropriate. Although the Company attempts to protect itself by written agreements with its clients, failure to reflect the provisions of such regulations in a timely or accurate manner could possibly subject the Company to liabilities that could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. See "Business--Government Regulation." Intellectual Property Rights. The Company's success is dependent upon proprietary technology. The Company currently has no patents and protects its property rights in its technology primarily through copyrights, the law of trademarks, trade secrets and employee and third-party non-disclosure agreements. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of its technology or independent development by others of similar technology. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. There can be no assurance that these protections will be adequate. Although the Company believes that its products and technology do not infringe on any existing proprietary rights of others, there can be no assurance that third parties will not assert such claims against the Company in 11 the future or that such future claims will not be successful. The Company could incur substantial costs and diversion of management resources with respect to the defense of any claims relating to proprietary rights, which could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. Furthermore, parties making such claims could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief, which could effectively block the Company's ability to make, use, sell, distribute or market its products and services in the United States or abroad. Such a judgment could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. In the event a claim relating to proprietary technology or information is asserted against the Company, the Company may seek licenses to such intellectual property. There can be no assurance, however, that such a license could be obtained on commercially reasonable terms, if at all, or that the terms of any offered licenses will be acceptable to the Company. The failure to obtain the necessary licenses or other rights could preclude the sale, manufacture or distribution of the Company's products and, therefore, could have a material adverse effect on the Company's business, financial condition, results of operations or cash flow. The cost of responding to any such claim may be material, whether or not the assertion of such claim is valid. See "Business--Proprietary Rights." Risks Associated with International Expansion. As part of its business strategy, the Company may seek opportunities to expand its offerings into international markets. The Company does not currently derive any revenues from international markets. The Company believes that such expansion is important to the Company's ability to continue to grow and to market its products and services. In particular, some domestic wireless carriers expanding into international markets may seek single, global solutions from the Company and its competitors, and as a result, the inability of the Company to offer its products and services internationally may have an adverse effect on the Company's ability to market its products and services to those carriers for use in the United States. In marketing its products and services internationally, however, the Company will face new competitors, some of whom may have established strong relationships with carriers. There can be no assurance that the Company will be successful in marketing or distributing its services abroad or that, if the Company is successful, its international revenues will be adequate to offset the expense of establishing and maintaining international operations. To date, the Company has no experience in marketing and distributing its services internationally. In addition to the uncertainty as to the Company's ability to establish an international presence, there are certain difficulties and risks inherent in doing business on an international level, such as compliance with regulatory requirements and changes in these requirements, export restrictions, export controls relating to technology, tariffs and other trade barriers, difficulties in staffing and managing international operations, longer payment cycles, problems in collecting accounts receivable, political instability, fluctuations in currency exchange rates, seasonal reductions in business activity during the summer months in Europe and certain other parts of the world and potentially adverse tax consequences. There can be no assurance that one or more of such factors will not have a material adverse effect on any international operations established by the Company and, consequently, on the Company's business, results of operations, financial condition and cash flow. See "Business--Strategy." Absence of Public Market; Possible Volatility of Stock Price. Prior to this offering, there has been no public market for the Common Stock, and there can be no assurance that an active trading market will develop or be sustained after the offering. The initial public offering price of the Common Stock will be determined through negotiations between the Company and the Representatives of the Underwriters and may not be indicative of the market price for the Common Stock after the offering. For a description of the factors to be considered in determining the public offering price, see "Underwriting." Factors such as announcements of technological innovations or new products by the Company, its competitors and other third parties, as well as quarterly variations in the Company's results of operations and market conditions in the industry, may cause the market price of the Common Stock to fluctuate significantly. In addition, the stock market in general has experienced substantial price and volume fluctuations, which have particularly affected the market prices of many technology companies and which have often been unrelated to the operating performance of such companies. These broad market fluctuations may adversely affect the market price of the Common Stock. Influence of Existing Stockholders. After the sale of the shares of Common Stock offered hereby, the Company's executive officers, directors and 5% stockholders will own beneficially an aggregate of 8,282,665 approximately 54% of the outstanding shares of Common Stock. As a result, these stockholders, if 12 acting together, would be able to control matters requiring the approval of stockholders of the Company, including the election of directors. This concentration of ownership by existing stockholders may also have the effect of delaying or preventing a change in control of the Company. See "Principal and Selling Stockholders." Shares Eligible for Future Sale; Possible Adverse Effect on Market Price. Sales of a substantial number of shares of Common Stock in the public market following the offering could adversely affect the market price for the Common Stock and the Company's ability to raise capital in the future. Immediately following consummation of the offering, there will be 14,873,509 shares of Common Stock outstanding, of which 3,200,000 shares of Common Stock sold in the offering (3,680,000 shares if the Underwriters' over-allotment option is exercised in full) will be freely transferable and tradeable in the United States (except by affiliates of the Company) without restrictions or further registration under the Securities Act of 1933, as amended (the "Securities Act"). A total of 9,335,158 of the remaining 11,673,509 shares outstanding are subject to lock-up agreements expiring 180 days following the date of this Prospectus. Such agreements provide that Cowen & Company may, in its sole discretion and at any time without notice, release all or a portion of the shares subject to these lock-up agreements. Upon the expiration of these lock-up agreements, 5,293,027 of such shares may be sold under Rule 144 promulgated under the Securities Act ("Rule 144"), subject to the volume limitations and other conditions imposed by Rule 144, and 1,933,643 of these shares will be transferable without restriction under Rule 144. The remaining 2,086,490 of the 9,335,158 shares subject to lock-up agreements will become eligible for sale subject to the restrictions of Rule 144 at later dates. Certain existing stockholders have rights to include shares of Common Stock owned by them in future registrations by the Company for the sale of Common Stock or to request that the Company register their shares under the Securities Act. See "Shares Eligible for Future Sale--Registration Rights." Following the date of this Prospectus, the Company intends to register on one or more registration statements on Form S-8 approximately 2,615,800 shares of Common Stock issuable or issued under its stock option plans and 100,000 shares of Common Stock issuable under its employee stock purchase plan. Of the shares issuable under its option plans, 1,615,800 shares were subject to outstanding options as of June 20, 1996, of which 561,180 options were exercisable on that date, and options to purchase an additional 766,120 shares will become exercisable within 180 days following the date of this Prospectus. Shares covered by such registration statements will be eligible for sale in the public market after the effective date of such registration subject to the lock-up agreements described above, if applicable. See "Management--Benefit Plans" and "Shares Eligible for Future Sale." Management's Discretion as to Use of Unallocated Net Proceeds. The principal purposes of this offering are to increase the Company's equity capital, to create a public market for the Common Stock, to facilitate future access by the Company to public equity markets and to provide liquidity for the Company's existing stockholders. As of the date of this Prospectus, the Company has no specific plans for the use of a substantial portion of the net proceeds of this offering. The Company expects to use such unallocated proceeds for working capital and other general corporate purposes, including potential acquisitions. Consequently, the Board of Directors and management of the Company will have significant flexibility in applying the net proceeds of this offering. See "Use of Proceeds." Anti-Takeover Effect of Charter Provisions, By-Laws and Delaware Law. The Company's Amended and Restated Certificate of Incorporation (the "Restated Charter") and Amended and Restated By-Laws (the "Restated By-Laws") will contain provisions that could discourage a proxy contest or make more difficult the acquisition of a substantial block of the Company's Common Stock. The Restated By-Laws require 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 specified 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 President or Secretary. The Restated 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 issued and outstanding and entitled to vote. 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 is required to amend or repeal these provisions. In addition, the Board of Directors is authorized to issue 13 shares of Common Stock and Preferred Stock which, if issued, could dilute and adversely affect various rights of the holders of Common Stock and, in addition, could be used to discourage an unsolicited attempt to acquire control of the Company. Following this offering, the Company will become subject to the anti- takeover provisions of Section 203 of the Delaware General Corporation Law, which will 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 the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The application of Section 203 may limit the ability of stockholders to approve a transaction that they deem to be in their best interests. The foregoing and other provisions of the Restated Charter and the Restated By-Laws and the application of Section 203 of the Delaware General Corporation Law could have the effect of deterring certain takeovers or delaying or preventing certain 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. See "Description of Capital Stock--Preferred Stock" and "--Anti-Takeover Effects of Provisions of the Restated Charter and By-Laws and of Delaware Law." Dilution. Purchasers in the offering will experience immediate and substantial dilution in the net tangible book value per share of the Common Stock from the initial public offering price. Additional dilution will occur upon the exercise of outstanding stock options and warrants. See "Dilution" and "Management--Benefit Plans." 14 USE OF PROCEEDS The net proceeds to the Company of the sale of the 3,025,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $9.00 per share are estimated to be $24,469,250, after deducting the estimated underwriting discounts and commissions and offering expenses payable by the Company. The Company estimates that it will receive approximately $5,000 in additional funds from the exercise of certain warrants by one of the Selling Stockholders to acquire certain of the shares of Common Stock being offered by such Selling Stockholder hereby. The principal purposes of this offering are to increase the Company's equity capital, to create a public market for the Common Stock, to facilitate future access by the Company to public equity markets and to provide liquidity for the Company's existing stockholders. The Company intends to use a portion of the net proceeds of this offering to repay all of the indebtedness outstanding under its working capital bank line of credit at the time this offering is completed (approximately $1,500,000 was outstanding at June 20, 1996). The Company's working capital line of credit, which provides for borrowings up to $4,000,000, bears interest at the lending bank's prime rate plus .25% (8.5% at June 20, 1996). The working capital line of credit is secured by a pledge of the accounts receivable, equipment and intangible assets of the Company and terminates in June 1997. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." The Company also intends to use $830,000 of the net proceeds of this offering to repurchase an aggregate of 400,000 shares of Common Stock pursuant to options granted to the Company in connection with the settlement of certain litigation. In addition, the Company intends to use approximately $235,000 of the net proceeds of this offering to repay indebtedness, including accrued interest, outstanding under an 8% promissory note, which was issued in April 1996 in partial payment of the exercise price of an option to acquire 200,000 shares of Common Stock. The promissory note matures in two equal installments in April 1997 and 1998. See "Certain Transactions." The Company intends to use the remainder of the net proceeds of this offering for working capital and other general corporate purposes. In addition, the Company may use a portion of the net proceeds of this offering to acquire or invest in companies, technologies or assets that complement the Company's business. While from time to time the Company may evaluate potential acquisitions or investments, the Company is not currently involved in negotiations with respect to, and has no agreement or understanding regarding, any such acquisition or investment. Pending such uses, the Company intends to invest the net proceeds in short-term, investment-grade, interest-bearing securities. The Company will not receive any proceeds from the sale of shares of Common Stock offered by the Selling Stockholders hereby. See "Principal and Selling Stockholders." DIVIDEND POLICY The Company has never declared or paid any cash dividends on its capital stock. The Company currently anticipates that it will retain future earnings, if any, to fund the development and growth of its business and therefore does not expect to pay any cash dividends in the foreseeable future. The terms of the Company's existing borrowing arrangements and bank lines of credit prohibit the Company from declaring or paying cash dividends on the Common Stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operation--Liquidity and Capital Resources." 15 CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1996 (i) on an actual basis, (ii) on a pro forma basis after giving effect to the issuance of Series D Redeemable Convertible Preferred Stock (the "Series D Preferred Stock") on April 3, 1996, the application of the net proceeds thereof and the purchase by the Company in April and May 1996 of 400,000 shares of Common Stock (see "Certain Transactions") and (iii) as adjusted to reflect the issuance and sale by the Company of 3,025,000 shares of Common Stock offered hereby (at an assumed initial offering price of $9.00 per share, after deducting the estimated underwriting discounts and commissions and expenses payable by the Company), the application of the estimated net proceeds thereof, the conversion of all outstanding shares of Convertible Preferred Stock into Common Stock and the filing of the Restated Charter. The following table should be read in conjunction with the Financial Statements and Notes thereto included elsewhere in this Prospectus.
MARCH 31, 1996 -------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ---------- --------- ----------- (IN THOUSANDS) Total long-term obligations, less current portion...................................... $ 4,151 $ 3,000 $ 3,000 ------- ------- ------- Redeemable convertible preferred stock and stockholders' equity: Redeemable convertible preferred stock, $.01 par value; 2,475,516 shares authorized, 1,451,305 and 2,451,305 shares issued and outstanding, actual and pro forma, respectively; no shares authorized, issued and outstanding, as adjusted................ 3,222 9,180 -- Preferred stock, $.01 par value; no shares authorized, issued or outstanding, actual and pro forma; 5,000,000 shares authorized, no shares issued and outstanding, as adjusted.................................... -- -- -- Common stock, $.01 par value; 20,000,000 shares authorized and 6,581,500, actual; 20,000,000 shares authorized and 6,181,500 shares issued and outstanding, pro forma; 60,000,000 shares authorized and 14,861,389 shares issued and outstanding, as adjusted(1)................................. 66 66 149 Additional paid-in capital.................... -- -- 33,572 Warrants...................................... 406 406 406 Notes receivable, stockholders................ (13) (13) (13) Accumulated deficit........................... (4,016) (4,016) (4,024) Less treasury stock, at cost; 1,148 shares, actual; 401,148 shares, pro forma; 801,148 shares, as adjusted.......................... (139) (1,079) (1,909) ------- ------- ------- Total redeemable convertible preferred stock and stockholders' equity.................... (474) 4,544 28,181 ------- ------- ------- Total capitalization....................... $ 3,677 $ 7,544 $31,181 ======= ======= =======
- -------- (1) Excludes (i) 1,022,700 shares of Common Stock issuable upon exercise of stock options outstanding as of March 31, 1996, (ii) 1,000,000 shares of Common Stock reserved for future option grants under the Company's 1996 Incentive and Nonqualified Stock Option Plan, (iii) 100,000 shares of Common Stock for issuance under the Company's 1996 Employee Stock Purchase Plan and (iv) 810,250 shares of Common Stock issuable upon exercise of warrants outstanding as of March 31, 1996. See "Management--Benefit Plans" and Notes 7 and 12 to Notes to Financial Statements. 16 DILUTION The pro forma net tangible book value of the Company as of March 31, 1996 was $3,717,000, or $0.33 per share of Common Stock. Pro forma net tangible book value per share represents the amount of the Company's tangible assets less total liabilities, divided by the number of shares of Common Stock outstanding after giving effect to the issuance of Series D Preferred Stock (which occurred on April 3, 1996), the conversion of all outstanding shares of Convertible Preferred Stock into Common Stock (which will occur upon the closing of this offering) and the purchase by the Company in April and May 1996 of 400,000 shares of Common Stock (see "Certain Transactions"). After giving effect to the sale of 3,025,000 shares of Common Stock offered hereby by the Company at an assumed initial public offering price of $10.00 per share (which represents the highest price in the range of initial public offering prices set forth on the front cover of this Prospectus), after deducting the estimated underwriting discounts and commissions and offering expenses payable by the Company, the Company's pro forma as adjusted net tangible book value at March 31, 1996 would have been $30,162,000, or $2.09 per share. This represents an immediate increase in pro forma net tangible book value of $1.76 per share to existing stockholders and an immediate dilution of $7.91 per share to investors purchasing shares of Common Stock in this offering. The following table illustrates this per share dilution: Assumed initial public offering price per share................ $10.00 Pro forma net tangible book value per share at March 31, 1996.. $0.33 Increase per share attributable to new investors............... 1.76 ----- Pro forma as adjusted net tangible book value per share after offering...................................................... 2.09 ------ Dilution per share to new investors............................ $ 7.91 ======
The following table summarizes, on a pro forma as adjusted basis as of March 31, 1996, the number of shares of Common Stock purchased from the Company (after giving effect to the issuance of Series D Preferred Stock and the conversion of all outstanding shares of Convertible Preferred Stock into Common Stock), the total consideration paid, and the average price per share paid by existing stockholders and to be paid by the new investors, at an assumed initial public offering price of $10.00 per share (which represents the highest price in the range of initial public offering prices set forth on the front cover of this Prospectus), before deducting the estimated underwriting discounts and commissions and offering expenses payable by the Company:
SHARES PURCHASED TOTAL CONSIDERATION ------------------ ------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ------- ------------- Existing stockholders(1)... 11,824,750 79.6% $ 9,225,000 23.4% $ 0.78 New investors(1)........... 3,025,000 20.4 30,250,000 76.6 10.00 ---------- ----- ----------- ----- Total.................... 14,849,750 100.0% $39,475,000 100.0% ========== ===== =========== =====
- -------- (1) Sales by the Selling Stockholders in this offering will reduce the number of shares held by existing stockholders to 11,649,750 or approximately 78.5% (11,169,750 shares or approximately 75.2% if the Underwriters' over- allotment option is exercised in full) and will increase the number of shares held by new investors to 3,200,000 or approximately 21.5% (3,680,000 shares or approximately 24.8% if the Underwriters' over- allotment option is exercised in full) of the total number of shares of Common Stock outstanding after this offering. See "Principal and Selling Stockholders." The foregoing table does not reflect exercises of options since March 31, 1996 and assumes no exercise of any currently outstanding options or warrants. As of June 20, 1996, there were outstanding options to purchase 1,615,800 shares of Common Stock at a weighted average exercise price of $1.80 per share and outstanding warrants to purchase 810,250 shares of Common Stock at an exercise price of $2.00 (excluding certain warrants to be exercised as of the closing of this offering). To the extent that such options and warrants are exercised in the future, there will be further dilution to new investors. See "Management--Benefit Plans," "Description of Capital Stock" and Notes 7 and 12 to Notes to Financial Statements. 17 SELECTED FINANCIAL DATA The following selected financial data for the five years ended September 30, 1995 and the three months ended December 31, 1995 have been derived from the Company's audited historical financial statements, certain of which are included in this Prospectus. Selected financial data for the twelve months ended December 31, 1995 are unaudited. Selected financial data for the three months ended December 31, 1994, March 31, 1995 and March 31, 1996 have been derived from the unaudited financial statements of the Company. In the opinion of management, the unaudited financial information presented reflects all adjustments, consisting only of normal, recurring adjustments, necessary for a fair presentation of the financial information for each such period. Operating results for the three months ended March 31, 1996 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 1996. This data should be read in conjunction with the Financial Statements and Notes thereto and the other financial information included elsewhere in this Prospectus. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
TWELVE THREE MONTHS THREE MONTHS MONTHS ENDED ENDED YEARS ENDED SEPTEMBER 30, ENDED DEC. 31, MARCH 31, ----------------------------------------- DEC. 31, -------------- -------------- 1991 1992 1993 1994 1995 1995(1) 1994 1995 1995 1996 ------- ------ ------ ------- ------- -------- ------ ------ ------ ------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Revenues................ $ 1,174 $2,988 $6,986 $13,398 $19,350 $20,347 $5,515 $6,512 $4,452 $6,314 Cost of revenues........ 824 1,703 3,554 7,415 12,607 13,075 3,016 3,484 3,125 3,634 ------- ------ ------ ------- ------- ------- ------ ------ ------ ------ Gross profit............ 350 1,285 3,432 5,983 6,743 7,272 2,499 3,028 1,327 2,680 ------- ------ ------ ------- ------- ------- ------ ------ ------ ------ Operating expenses: Development............ 614 790 1,164 2,317 3,864 4,159 850 1,145 929 953 Sales and marketing.... 214 241 829 815 1,902 2,264 433 795 477 896 General and administra- tive.................. 647 877 1,309 1,644 2,584 2,655 630 701 566 549 ------- ------ ------ ------- ------- ------- ------ ------ ------ ------ Total operating ex- penses................. 1,475 1,908 3,302 4,776 8,350 9,078 1,913 2,641 1,972 2,398 ------- ------ ------ ------- ------- ------- ------ ------ ------ ------ Income (loss) from oper- ations................. (1,125) (623) 130 1,207 (1,607) (1,806) 586 387 (645) 282 Other income (ex- pense)(2).............. (77) (130) (255) (234) (826) (965) (174) (313) (202) (250) ------- ------ ------ ------- ------- ------- ------ ------ ------ ------ Income (loss) before in- come taxes............. (1,202) (753) (125) 973 (2,433) (2,771) 412 74 (847) 32 Provision for income taxes.................. -- -- -- (23) -- (2) -- (2) -- (9) ------- ------ ------ ------- ------- ------- ------ ------ ------ ------ Net income (loss)....... $(1,202) $ (753) $ (125) $ 950 $(2,433) $(2,773) $ 412 $ 72 $ (847) $ 23 ======= ====== ====== ======= ======= ======= ====== ====== ====== ====== Pro forma net income (loss) per common share(3)............... $ (0.19) $ 0.01 $ 0.00 Pro forma weighted aver- age number of common and common equivalent shares outstanding(3).. 12,770 13,271 13,334
SEPTEMBER 30, ------------------------------------------- DEC. 31, MARCH 31, 1991 1992 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- -------- --------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equiva- lents.................. $ 44 $ 182 $ 192 $ 1,832 $ 539 $ 58 $ 600 Working capital defi- ciency................. (818) (1,030) (292) 1,715 (3,280) (1,967) (1,944) Total assets............ 1,095 2,390 3,396 9,181 10,214 11,041 10,611 Long-term obligations, less current portion... 172 624 554 4,197 3,796 4,515 4,151 Redeemable convertible preferred stock........ 1,009 2,198 2,933 2,948 3,131 3,177 3,222 Stockholders' deficien- cy..................... (1,420) (2,292) (2,132) (1,093) (3,564) (3,535) (3,696)
- -------- (1) The Company changed its fiscal year end from September 30 to December 31, effective with the fiscal year ending December 31, 1996. (2) Consists principally of interest expense. (3) Gives effect to the issuance of the Series D Preferred Stock and the conversion of all outstanding shares of Convertible Preferred Stock into 5,247,324 shares of Common Stock upon the closing of this offering. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with "Selected Financial Data" and the Company's Financial Statements and Notes thereto included elsewhere in this Prospectus. The discussion in this Prospectus contains forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. 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. This Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include those discussed in "Risk Factors" as well as those discussed elsewhere herein. OVERVIEW Lightbridge develops, markets and supports a suite of integrated products and services that enable wireless telecommunications carriers to improve their customer acquisition and retention processes. The Company changed its fiscal year end from September 30 to December 31, effective with the fiscal year ending December 31, 1996. The financial statements for the period ended December 31, 1995 reflect the Company's results of operations for the three months then ended. References to fiscal years are to years ended September 30. Lightbridge's total revenues increased from $7.0 million in fiscal 1993 to $19.4 million in fiscal 1995. This revenue increase has been driven primarily by increases in volume of wireless customer qualification and activation transactions processed for wireless carrier clients and in the utilization of the Company's products and services by carriers. The Company's revenues consist of transaction revenues and software and other revenues. Historically, transaction revenues have accounted for substantially all of the Company's revenues, although software and other revenues have increased during recent periods primarily as a result of the initial licensing of certain software products. Software and other revenues, which represented no more than 6.0% of total revenues in each of fiscal 1993, 1994 and 1995, increased to 7.0% and 16.3% of total revenues in the three months ended December 31, 1995 and March 31, 1996, respectively. There can be no assurance that the Company's software products will achieve market acceptance or that the mix of the Company's revenues will remain constant. Lightbridge's transaction revenues are derived primarily from the processing of applications of subscribers for wireless telecommunications services and the activation of service for those subscribers. Over time the Company has expanded its offerings from credit evaluation services to include screening for subscriber fraud, evaluating carriers' existing accounts, interfacing with carrier and third-party systems, and providing teleservices call center services. These services are provided pursuant to contracts with carriers which specify the services to be utilized and the markets to be served. Generally, the Company's clients are charged on a per transaction or, to a lesser extent, on a per minute basis. Pricing varies depending primarily on the volume of transactions, the type and number of other products and services selected for integration with the services, and the term of the contract under which services are provided. The volume of processed transactions varies depending on seasonal and retail trends, the success of the carriers utilizing the Company's services in attracting subscribers and the markets served by the Company for its clients. Revenues are recognized in the period when the services are performed. The Company's software and other revenues have been derived primarily from developing customized software and providing Business Integration consulting services. The Company also began licensing its Channel Solutions software with the introduction of its POPS and Iris products in fiscal 1995 and its SAMS software in 1996. Lightbridge's Channel Solutions products and services are designed to assist clients in interfacing with the Company's systems and are being marketed primarily to wireless telecommunications carriers that utilize the Company's transaction processing services. The Company's Wireless Intelligence products are being designed to help carriers analyze their marketplace to improve their business operations. While its Channel Solutions products are, and its Wireless Intelligence products are currently expected to be, licensed as packaged software 19 products, each of these products requires customization and integration with other products and systems to varying degrees. Revenues derived from consulting and other projects are recognized throughout the performance period of the contracts. Revenues from licensing software are recognized at the later of delivery of the licensed product or satisfaction of acceptance criteria. Lightbridge's software and other revenues depend primarily on the continuing need for integration of diverse systems and acceptance of the Company's software products by the Company's existing and new clients. During fiscal 1994 and 1995 and the three months ended December 31, 1995 and March 31, 1996, each of the Company's four largest clients accounted for more than 10% of the Company's total revenues, representing an aggregate of 64%, 63%, 61% and 53% of total revenues in those periods, respectively. During fiscal 1993, the Company's two largest clients each accounted for more than 10% of the Company's total revenues, representing an aggregate of 34% of total revenues. The Company's revenues have been derived exclusively from sales of products and services in the United States. Beginning in fiscal 1995, Lightbridge has increased its sales and marketing efforts to renew contracts with existing cellular carrier clients and to add new wireless telecommunications carrier clients, including PCS service providers. In addition, beginning in fiscal 1995, the Company has increased its development efforts to continue to enhance its existing software and to develop and acquire new software products and services, including its Channel Solutions and Wireless Intelligence software products and services. The Company currently intends to continue to increase its development, sales and marketing efforts in pursuit of these goals. Prior to fiscal 1995, the Company's development activities were focused on creating software for its outsourcing and service bureau operations. All development costs related to these activities were expensed when incurred. In fiscal 1995, Lightbridge began developing certain software products to be licensed as separate products. In connection with these development efforts, the Company acquired rights to certain pen-based technology for $400,000, which has been incorporated in the Company's SAMS product, and certain multimedia software technology, which has been incorporated in the Company's Iris product. The multimedia technology was purchased for $45,000 in cash plus an obligation to pay certain royalties. No such royalties had accrued through March 31, 1996. In fiscal 1995, the Company capitalized approximately $980,000 of software development costs for internally developed products and for the purchase of such technology. Commencing with the availability of the SAMS and Iris products for general release in fiscal 1995, capitalized software development costs are being amortized using the straight-line method over a two-year period. 20 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain financial data as a percentage of total revenues:
THREE MONTHS ENDED ----------------------------- YEAR ENDED SEPTEMBER 30, DECEMBER 31, MARCH 31, ----------------------------- -------------- ------------- 1993 1994 1995 1994 1995 1995 1996 -------- -------- -------- ------ ------ ----- ----- Revenues: Transaction........... 94.0% 96.3% 95.1% 96.6% 93.0% 94.7% 83.7% Software and other.... 6.0 3.7 4.9 3.4 7.0 5.3 16.3 -------- -------- -------- ------ ------ ----- ----- 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Cost of revenues........ 50.9 55.3 65.2 54.7 53.5 70.2 57.6 -------- -------- -------- ------ ------ ----- ----- Gross profit............ 49.1 44.7 34.8 45.3 46.5 29.8 42.5 -------- -------- -------- ------ ------ ----- ----- Operating expenses: Development........... 16.7 17.3 20.0 15.4 17.6 20.9 15.1 Sales and marketing... 11.9 6.1 9.8 7.9 12.2 10.7 14.2 General and adminis- trative.............. 18.7 12.3 13.3 11.4 10.8 12.7 8.7 -------- -------- -------- ------ ------ ----- ----- Total operating ex- penses............. 47.3 35.7 43.1 34.7 40.6 44.3 38.0 -------- -------- -------- ------ ------ ----- ----- Income (loss) from oper- ations................. 1.8 9.0 (8.3) 10.6 5.9 (14.5) 4.5 Other income (expense), net.................... (3.6) (1.7) (4.3) (3.1) (4.8) (4.5) (4.0) -------- -------- -------- ------ ------ ----- ----- Income (loss) before in- come taxes............. (1.8) 7.3 (12.6) 7.5 1.1 (19.0) 0.5 Provision for income taxes.................. -- 0.2 -- -- -- -- 0.1 -------- -------- -------- ------ ------ ----- ----- Net income (loss)....... (1.8)% 7.1% (12.6)% 7.5% 1.1% (19.0)% 0.4% ======== ======== ======== ====== ====== ===== =====
Three Months Ended March 31, 1996 Compared with Three Months Ended March 31, 1995 Revenues. Total revenues increased by 42% to $6.3 million in the three months ended March 31, 1996 from $4.5 million in the three months ended March 31, 1995. Transaction revenues increased by 25% to $5.3 million in the three months ended March 31, 1996 from $4.2 million in the three months ended March 31, 1995, primarily due to increased volume of wireless customer qualification and activation transactions processed for existing carrier clients and, to a lesser extent, new carrier clients. Software and other revenues increased by 335% to $1.0 million in the three months ended March 31, 1996 from $0.2 million in the three months ended March 31, 1995, principally as a result of the inclusion in the three months ended March 31, 1996 of revenues attributable to the Company's Channel Solutions products and services and increased revenues attributable to customized software integration services provided to both existing and new clients. Cost of Revenues. Cost of revenues consists primarily of personnel costs, costs of maintaining systems and networks used in processing subscriber qualification and activation transactions (including depreciation and amortization of those systems and networks) and amortization of capitalized software. Cost of revenues may vary as a percentage of total revenues in the future as a result of a number of factors, including changes in the mix of transaction revenues between revenues from on-line transaction processing and revenues from processing transactions through the Company's TeleServices Group and changes in the mix of total revenues between transaction revenues and software and other revenues. Cost of revenues increased by 16% to $3.6 million in the three months ended March 31, 1996 from $3.1 million in the three months ended March 31, 1995, while decreasing as a percentage of total revenues to 58% from 70%. The dollar increase in costs resulted principally from increases in transaction volume, costs attributable to expansion of the Company's staff and systems capacity and amortization of capitalized software. The decrease in cost of revenues as a percentage of total revenues primarily reflected a higher percentage of transaction revenues from on-line processing than teleservices operations, a higher percentage of software license revenues and increased utilization of the Company's operating and networking systems. 21 Development. Development expenses consist primarily of personnel and outside technical services costs related to developing new products and services, enhancing existing products and services, and implementing and maintaining new and existing products and services. Development expenses also include software development costs incurred prior to the establishment of technological feasibility. Development expenses increased by 3% to $1.0 million in the three months ended March 31, 1996 from $0.9 million in the three months ended March 31, 1995, while decreasing as a percentage of total revenues to 15% from 21%. The increase in costs resulted principally from the hiring of additional personnel to support the continued enhancement of products and services and the development of new products and services, including the initial two modules in the Wireless Intelligence suite. The decrease in development expenses as a percentage of total revenues reflected the significant growth in the Company's total revenues. The Company did not capitalize any software development costs during the three months ended March 31, 1996 and capitalized $188,000 of internally developed software development costs during the three months ended March 31, 1995. The Company expects to increase its engineering and development efforts in order to continue enhancing its existing products and services, including its CAS, Wireless Intelligence and Channel Solutions products, as well as to develop new products and services. Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions and travel expenses of direct sales and marketing personnel, as well as costs associated with advertising, trade shows and conferences. Sales and marketing expenses increased by 88% to $0.9 million in the three months ended March 31, 1996 from $0.5 million in the three months ended March 31, 1995, and increased as a percentage of total revenues to 14% from 11%. The increase in costs was due to the addition of direct sales personnel, increased commissions resulting from the higher level of revenues and increased use of marketing programs, including trade shows. The Company continues to invest in sales and marketing efforts in order to increase its penetration of existing accounts and to add new clients and markets. General and Administrative. General and administrative expenses consist principally of salaries of administrative, executive, finance and human resources personnel, as well as outside professional fees. General and administrative expenses decreased by 3% to $549,000 in the three months ended March 31, 1996 from $566,000 in the three months ended March 31, 1995, and decreased as a percentage of total revenues to 9% from 13%. Other Income (Expense), Net. Other income (expense) historically has consisted predominantly of interest expense. Interest expense consists of interest, commitment fees and other similar fees payable with respect to the Company's bank lines of credit, subordinated notes and capital leases. Interest expense increased by 23% to $256,000 in the three months ended March 31, 1996 from $208,000 in the three months ended March 31, 1995. This increase principally reflected a higher level of borrowings for working capital purposes under the bank working capital line of credit, as well as the inclusion of interest attributable to the issuance of subordinated notes in August 1995. Provision for Income Taxes. Due to the application of net operating loss carryforwards from previous years, no significant provision for or benefit from income taxes was recorded in the three months ended March 31, 1996. The Company incurred a net loss for the three months ended March 31, 1995 and did not record a benefit for income tax for the period. Three Months Ended December 31, 1995 Compared with Three Months Ended December 31, 1994 Revenues. Total revenues increased by 18% to $6.5 million in the three months ended December 31, 1995 from $5.5 million in the three months ended December 31, 1994. Transaction revenues increased by 14% to $6.1 million in the three months ended December 31, 1995 from $5.3 million in the three months ended December 31, 1994, principally from increased volume of wireless customer qualification and activation transactions processed for existing carrier clients and, to a lesser extent, new carrier clients. Software and other revenues increased by 142% to $458,000 in the three months ended December 31, 1995 from $189,000 in the three months 22 ended December 31, 1994, primarily as a result of the inclusion in the three months ended December 31, 1995 of revenues attributable to the Company's Channel Solutions products and services. Cost of Revenues. Cost of revenues increased by 16% to $3.5 million in the three months ended December 31, 1995 from $3.0 million in the three months ended December 31, 1994, while decreasing as a percentage of total revenues to 54% from 55%. The dollar increase in costs resulted primarily from increases in transaction volume, increases in personnel costs attributable to the Company's TeleServices Group and the inclusion of amortization of capitalized software. The decrease in cost of revenues as a percentage of total revenues was primarily the result of a higher percentage of software license revenues, offset in part by increased costs associated with the Company's infrastructure investments. Development. Development expenses increased by 35% to $1.1 million in the three months ended December 31, 1995 from $0.9 million in the three months ended December 31, 1994, while increasing as a percentage of total revenues to 18% from 15%. The increase in costs resulted primarily from the hiring of additional personnel to support the continued enhancement of the Company's existing products and services and the development of new products and services, including Channel Solutions, Wireless Intelligence and Business Integration products and services. The Company did not capitalize any software development costs during the three months ended December 31, 1995 and capitalized $62,000 of internally developed software development costs during the three months ended December 31, 1994. Sales and Marketing. Sales and marketing expenses increased by 84% to $795,000 in the three months ended December 31, 1995 from $433,000 in the three months ended December 31, 1994, and increased as a percentage of total revenues to 12% from 8%. The increase in costs was due primarily to the addition of direct sales personnel and increased commissions resulting from the higher level of revenues. General and Administrative. General and administrative expenses increased by 11% to $701,000 in the three months ended December 31, 1995 from $630,000 in the three months ended December 31, 1994. The increase in costs reflects increases in administrative and finance personnel and, to a lesser extent, legal costs associated with litigation against a former officer of the Company. Other Income (Expense), Net. Interest expense increased by 66% to $307,000 in the three months ended December 31, 1995 from $185,000 in the three months ended December 31, 1994. This increase principally reflected a higher level of borrowings for working capital purposes under the Company's bank line of credit, as well as the inclusion of interest attributable to the issuance of subordinated notes in August 1995. In addition, interest on capital leases increased as the result of significant investments in the Company's infrastructure, which were financed primarily through the leasing of equipment accounted for as capital leases. Provision for Income Taxes. Due to the application of net operating loss carryforwards from previous years, no significant provision for or benefit from income taxes was recorded in the three months ended December 31, 1995 and 1994. At December 31, 1995, the Company had net operating loss carryforwards for federal income tax purposes of $2.1 million, expiring at various dates through 2010. Fiscal Year Ended September 30, 1995 Compared with Fiscal Year Ended September 30, 1994 Revenues. Total revenues increased by 44% to $19.4 million in fiscal 1995 from $13.4 million in fiscal 1994. Transaction revenues increased by 43% to $18.4 million in fiscal 1995 from $12.9 million in fiscal 1994, principally from increased volume of wireless customer qualification and activation transactions processed for existing carrier clients. Software and other revenues increased by 92% to $948,000 in fiscal 1995 from $495,000 in fiscal 1994, primarily due to an increase in customized software development for existing clients. Cost of Revenues. Cost of revenues increased by 70% to $12.6 million in fiscal 1995 from $7.4 million in fiscal 1994, and increased as a percentage of total revenues to 65% from 55%. The increase in costs resulted primarily from increases in transaction volume and increases in personnel costs attributable to the Company's TeleServices Group and other business operations. In fiscal 1995, the Company relocated its TeleServices Group to a larger facility, resulting in increased facilities costs. The Company made significant investments in fiscal 23 1995 in its computing platform, as well as in increased networking and systems capacity. The decrease in cost of revenues as a percentage of total revenues reflected increased utilization of resources. Development. Development expenses increased by 67% to $3.9 million in fiscal 1995 from $2.3 million in fiscal 1994, and increased as a percentage of total revenues to 20% from 17%. The increase in costs was principally attributable to the hiring of additional personnel to support the continued enhancement of the Company's existing products and services and the development of new products and services, including Channel Solutions and Wireless Intelligence products and services. This increase was offset in part by the capitalization of $980,000 of software development costs for internally developed products and for certain purchased technology. The Company did not capitalize any software development costs in fiscal 1994. Sales and Marketing. Sales and marketing expenses increased by 133% to $1.9 million in fiscal 1995 from $0.8 million in fiscal 1994, and increased as a percentage of total revenues to 10% from 6%. The increase in costs was due principally to increased commissions resulting from the higher level of transaction revenues, an increase in sales and marketing personnel and an increase in recruiting, training and other expenses related to the expansion of the Company's sales and marketing organization. The increase was also attributable to the Company's increased participation in trade shows and conferences and additional advertising in trade publications. General and Administrative. General and administrative expenses increased by 57% to $2.6 million in fiscal 1995 from $1.6 million in fiscal 1994, and increased as a percentage of total revenues to 13% from 12%. The increase in costs was principally due to hiring of additional personnel to support the Company's growth and, to a lesser extent, legal costs associated with litigation against a former officer of the Company. Other Income (Expense), Net. Interest expense increased by 252% to $864,000 in fiscal 1995 from $246,000 in fiscal 1994. This increase principally consisted of interest attributable to the issuance of subordinated notes in August 1995, as well as a higher level of borrowings for working capital purposes under the Company's bank line of credit. In addition, interest on capital leases increased as the result of significant investments in the Company's infrastructure, which were financed primarily through the leasing of equipment accounted for as capital leases. Provision for Income Taxes. The Company recorded a net loss in fiscal 1995 and did not record a provision for or benefit from income taxes. As a result of the Company's net operating loss carryforwards from previous years, the provision for income taxes in fiscal 1994 consisted of alternative minimum taxes. Fiscal Year Ended September 30, 1994 Compared with Fiscal Year Ended September 30, 1993 Revenues. Total revenues increased by 92% to $13.4 million in fiscal 1994 from $7.0 million in fiscal 1993. Transaction revenues increased by 97% to $12.9 million in fiscal 1994 from $6.6 million in fiscal 1993, principally from increased volume of wireless customer qualification and activation transactions processed for existing carrier clients (including expansion into new geographic markets) and new carrier clients. Software and other revenues increased by 18% to $495,000 in fiscal 1994 from $420,000 in fiscal 1993, due principally to a change in the Company's pricing practices for custom development services. Cost of Revenues. Cost of revenues increased by 109% to $7.4 million in fiscal 1994 from $3.6 million in fiscal 1993, and increased as a percentage of total revenues to 55% from 51%. The increase in costs resulted from the Company's increased transaction volume and continued investments in its service delivery infrastructure. Development. Development expenses increased by 99% to $2.3 million in fiscal 1994 from $1.2 million in fiscal 1993, while remaining relatively unchanged as a percentage of total revenues at approximately 17%. The increase in costs resulted from an increase in the number of engineering personnel in order to expand the 24 modules offered as a part of CAS and to further the development of ProFile and system interfaces. The Company did not capitalize any software development costs during fiscal 1994 or 1993. Sales and Marketing. Sales and marketing expenses decreased by 2% to $815,000 in fiscal 1994 from $829,000 in fiscal 1993, and decreased as a percentage of total revenues to 6% from 12%. The lower level of sales and marketing expenses as a percentage of revenues in fiscal 1994 reflected the significant revenue increase in fiscal 1994, as the Company benefited from the addition of sales and marketing personnel during fiscal 1993. General and Administrative. General and administrative expenses increased by 26% to $1.6 million in fiscal 1994 from $1.3 million in fiscal 1993, while decreasing as a percentage of total revenues to 12% from 19%. The increase in costs was principally due to hiring of additional personnel to support the Company's growth. Other Income (Expense), Net. Interest expense decreased by 2% to $246,000 in fiscal 1994 from $250,000 in fiscal 1993. This decrease principally reflected lower interest rates in fiscal 1994. Provision for Income Taxes. As a result of the Company's net operating loss carryforwards from previous years, the provision for income taxes in fiscal 1994 consisted of alternative minimum taxes. No provision for or benefit from income taxes was recorded in fiscal 1993. QUARTERLY RESULTS OF OPERATIONS The following tables set forth certain quarterly financial data for the six quarters ended March 31, 1996. The quarterly information is unaudited but has been prepared on the same basis as the audited financial statements included elsewhere in this Prospectus. In the opinion of management, all necessary adjustments (consisting only of normal recurring adjustments) have been included to present fairly the unaudited quarterly results when read in conjunction with the Financial Statements and Notes thereto included elsewhere in this Prospectus. The results of operations for any quarter are not necessarily indicative of the results of any future period.
THREE MONTHS ENDED -------------------------------------------------------- DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, 1994 1995 1995 1995 1995 1996 -------- --------- -------- --------- -------- --------- (IN THOUSANDS) RESULTS OF OPERATIONS Revenues: Transaction........... $5,326 $4,215 $4,426 $ 4,435 $6,054 $5,284 Software and other.... 189 237 125 397 458 1,030 ------ ------ ------ ------- ------ ------ 5,515 4,452 4,551 4,832 6,512 6,314 Cost of revenues........ 3,016 3,125 3,106 3,360 3,484 3,634 ------ ------ ------ ------- ------ ------ Gross profit............ 2,499 1,327 1,445 1,472 3,028 2,680 ------ ------ ------ ------- ------ ------ Operating expenses: Development........... 850 929 934 1,151 1,145 953 Sales and marketing... 433 477 462 530 795 896 General and adminis- trative.............. 630 566 735 653 701 549 ------ ------ ------ ------- ------ ------ Total operating ex- penses............. 1,913 1,972 2,131 2,334 2,641 2,398 ------ ------ ------ ------- ------ ------ Income (loss) from oper- ations................. 586 (645) (686) (862) 387 282 Other income (expense), net.................... (174) (202) (203) (247) (313) (250) ------ ------ ------ ------- ------ ------ Income (loss) before in- come taxes............. 412 (847) (889) (1,109) 74 32 Provision for income taxes.................. -- -- -- -- (2) (9) ------ ------ ------ ------- ------ ------ Net income (loss)....... $ 412 $ (847) $ (889) $(1,109) $ 72 $ 23 ====== ====== ====== ======= ====== ======
25
THREE MONTHS ENDED --------------------------------------------------------- DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, 1994 1995 1995 1995 1995 1996 -------- --------- -------- --------- -------- --------- AS A PERCENTAGE OF TOTAL REVENUES Revenues: Transaction........... 96.6% 94.7% 97.3% 91.8% 93.0% 83.7% Software and other.... 3.4 5.3 2.7 8.2 7.0 16.3 ----- ----- ----- ----- ----- ----- 100.0 100.0 100.0 100.0 100.0 100.0 Cost of revenues........ 54.7 70.2 68.2 69.5 53.5 57.5 ----- ----- ----- ----- ----- ----- Gross profit............ 45.3 29.8 31.8 30.5 46.5 42.5 ----- ----- ----- ----- ----- ----- Operating expenses: Development........... 15.4 20.9 20.5 23.8 17.6 15.1 Sales and marketing... 7.9 10.7 10.2 11.0 12.2 14.2 General and adminis- trative.............. 11.4 12.7 16.2 13.5 10.8 8.7 ----- ----- ----- ----- ----- ----- Total operating ex- penses............. 34.7 44.3 46.9 48.3 40.6 38.0 ----- ----- ----- ----- ----- ----- Income (loss) from oper- ations................. 10.6 (14.5) (15.1) (17.8) 5.9 4.5 Other income (expense), net.................... (3.1) (4.5) (4.4) (5.1) (4.8) (4.0) ----- ----- ----- ----- ----- ----- Income (loss) before in- come taxes............. 7.5 (19.0) (19.5) (22.9) 1.1 0.5 Provision for income taxes.................. -- -- -- -- 0.0 0.1 ----- ----- ----- ----- ----- ----- Net income (loss)....... 7.5% (19.0)% (19.5)% (22.9)% 1.1% 0.4% ===== ===== ===== ===== ===== =====
The Company has experienced fluctuations in its quarterly operating results and anticipates that such fluctuations will continue and could intensify. The Company's quarterly operating results may vary significantly depending on a number of factors, including the timing of the introduction or acceptance of new products and services offered by the Company or its competitors, changes in the mix of products and services provided by the Company, the nature and timing of changes in the Company's clients or their use of the Company's products and services, consolidation among participants and other changes in the wireless telecommunications industry, changes in the client markets served by the Company, changes in regulations affecting the wireless industry, changes in the Company's operating expenses, changes in personnel and changes in general economic conditions. Historically, the Company's quarterly revenues have been highest in the fourth quarter of each calendar year, and have been particularly concentrated in the holiday shopping season between Thanksgiving and Christmas. The Company's transaction revenues, which historically have represented substantially all of the Company's total revenues, are affected by the volume of use of the Company's services, which is influenced by seasonal and retail trends, the success of the carriers utilizing the Company's services in attracting subscribers and the markets served by the Company for its clients. Software and other revenues, which include software license revenues and consulting revenues, have recently represented an increasing proportion of the Company's total revenues. Software license revenues are principally recognized at the time of delivery of licensed products and therefore may result in further fluctuations in the Company's quarterly operating results. Consulting revenues may be influenced by the requirements of one or more of the Company's significant clients, including engagement of the Company for implementing or assisting in implementing special projects of limited duration. There can be no assurance that the Company will be able to achieve or maintain profitability in the future or that its levels of profitability will not vary significantly among quarterly periods. Fluctuations in operating results may result in volatility in the price of the Company's Common Stock. See "Risk Factors--Potential Fluctuations in Quarterly Performance." LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations to date primarily through private placements of equity and debt securities, cash generated from operations, bank borrowings and equipment financings. 26 The Company has financed its operations in part with the proceeds of four offerings of Convertible Preferred Stock and two offerings of subordinated debt. The Company sold shares of its Series A Redeemable Convertible Preferred Stock in February 1991 for an aggregate purchase price of $1.0 million, shares of its Series B Redeemable Convertible Preferred Stock in December 1991 for an aggregate purchase price of $1.1 million and shares of its Series C Redeemable Convertible Preferred Stock in June, July and August of 1993 for an aggregate purchase price of $0.6 million. In August 1994, the Company sold $2.1 million in principal amount of its 8% subordinated notes, together with warrants exercisable to purchase up to 525,000 shares of Common Stock. In August 1995, the Company sold $1.2 million in principal amount of its 16% subordinated notes, together with warrants exercisable to purchase up to 287,750 shares of Common Stock. The Company sold shares of its Series D Preferred Stock in April 1996 for an aggregate purchase price of $6.0 million. A portion of the proceeds of the Series D Preferred Stock was applied to repay the 16% subordinated notes. Net cash provided by (used in) operating activities in the years ended September 30, 1993, 1994 and 1995 and the three months ended December 31, 1995 and March 31, 1996 was $0.4 million, $0.5 million, $1.1 million, $(0.3) million and $1.4 million, respectively. The Company's capital expenditures in the years ended September 30, 1993, 1994 and 1995 and the three months ended December 31, 1995 and March 31, 1996 aggregated $1.0 million, $3.6 million, $3.7 million, $0.3 million and $0.4 million, respectively. The capital expenditures consisted of purchases of fixed assets, principally for the Company's services delivery infrastructure and teleservices call center. The Company leases its facilities and certain equipment under non-cancelable capital and operating lease agreements that expire at various dates through December 2000. The Company anticipates that its capital expenditures in the fiscal year ending December 31, 1996 will be made primarily to acquire, through purchases or capital lease arrangements, additional computer equipment for development activities. The Company currently expects that its capital expenditures, including equipment acquired with capital leases, for the last nine months of 1996 will be approximately $2.7 million. The Company has a $4.0 million working capital line of credit and a $2.0 million equipment line of credit with a bank. The working capital line of credit is secured by a pledge of the Company's accounts receivable, equipment and intangible assets, and borrowing availability is based on the amount of qualifying accounts receivable. Advances under the working capital line of credit bear interest at the bank's prime rate plus .25% (8.5% at June 20, 1996) and advances under the equipment line of credit bear interest at the bank's prime rate plus .75% (9.0% at June 20, 1996). At March 31, 1996 and June 20, 1996, borrowings of $1.5 million were outstanding under the working capital line of credit and no borrowings were outstanding under the equipment line of credit. The Company has agreed to comply with covenants that, among other things, prohibit the declaration or payment of dividends and require the Company to maintain certain financial ratios. The working capital line of credit expires in June 1997, and the equipment line of credit expires in June 1999. As of March 31, 1996, the Company had cash and cash equivalents of $0.6 million and a working capital deficiency of $1.9 million. On a pro forma basis after giving effect to the issuances of the Series D Preferred Stock (which occurred on April 3, 1996) and the application of the proceeds thereof, the Company would have had cash and cash equivalents of $4.7 million. The Company believes that the net proceeds of this offering, together with existing cash balances and funds available under existing lines of credit, will be sufficient to finance the Company's operations and capital expenditures for at least the next twelve months. In the normal course of business, the Company evaluates acquisitions or investments in companies, technologies or assets that complement the Company's business. The Company is not currently involved in negotiations with respect to, and has no agreement or understanding regarding, any such acquisition or investment. INFLATION Although certain of the Company's expenses increase with general inflation in the economy, inflation has not had a material impact on the Company's financial results to date. 27 RECENT ACCOUNTING PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 addresses the accounting for the impairment of long-lived assets, certain identifiable intangibles and goodwill when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The adoption of SFAS No. 121 in 1996 did not have a material impact on the Company's results of operations, financial position or cash flows. In November 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 addresses the financial accounting and reporting standards for stock-based employee compensation plans. SFAS No. 123 permits an entity to either record the effects of stock-based employee compensation plans in its financial statements or present pro forma disclosures in the notes to the financial statements. In connection with the adoption of SFAS No. 123 during 1996, the Company will elect to provide the appropriate disclosures in the notes to its financial statements. Since the Company does not expect to make significant equity awards to outsiders, adoption of SFAS No. 123 is not expected to have a material impact on the Company's results of operations, financial position or cash flows. 28 BUSINESS Lightbridge, Inc. ("Lightbridge" or the "Company") develops, markets and supports a suite of integrated products and services that enable wireless telecommunications carriers to improve their customer acquisition and retention processes. The Company's comprehensive software-based solutions are delivered primarily on an outsourcing and service bureau basis, which allows wireless carriers to focus internal resources on their core business activities. The Company offers on-line, real-time transaction processing and call center support solutions to aid carriers in qualifying and activating applicants for wireless service, as well as software-based sales support services for traditional distribution channels, such as dealers, agents and direct mobile sales forces, and emerging distribution channels, such as mass market retail stores, home shopping and stand-alone kiosks. The Company develops and implements interfaces that fully integrate its acquisition system with carrier and third-party systems, such as those for billing, point-of-sale, acquisition and order fulfillment. The Company recently introduced software-based decision support tools and services that enable carriers to reduce subscriber churn and to make more informed business decisions about their subscribers, markets and distribution channels. The Company's current client base consists of 34 wireless telecommunication clients, including 9 of the 12 largest domestic cellular carriers (based on total population coverage) and the only 2 domestic carriers currently delivering personal communications systems ("PCS") service. In the year ended September 30, 1995, approximately 97% of the Company's revenues was attributable to carriers that were also clients in the preceding fiscal year. INDUSTRY OVERVIEW Wireless telecommunications services have been one of the fastest growing areas of the U.S. telecommunications industry over the last 10 years. Cellular service has represented the largest component of the wireless telecommunications industry to date and has continued to grow rapidly in the 1990s as the market for cellular phones has evolved from serving early adopters to serving mass market consumers. The Cellular Telecommunications Industry Association (the "CTIA") estimates that the number of cellular subscribers in the United States increased from 340,000 in December 1985 to 33.7 million in December 1995, representing a compounded annual growth rate of 58%. The CTIA also estimates that the market penetration of cellular service, as measured by the percentage of the population that subscribes to a cellular service, was approximately 13% as of December 1995. Other wireless telecommunications technologies, services and markets are emerging. In the last year, the Federal Communications Commission (the "FCC") has sold licenses for PCS, a digital technology with the potential to provide enhanced communication quality and security, to more than 60 purchasers. Certain of these purchasers are currently building the infrastructure required to support PCS service, which is expected to compete with cellular service on a nationwide basis. In addition, enhanced specialized mobile radio ("ESMR"), a digital service typically found in fleet dispatch environments, is evolving as another potential competitor of cellular service. Additional wireless technologies and services are expected to continue to develop over the next 10 years, and industry sources estimate that by 2005 approximately 125 million customers will subscribe to wireless telecommunications services in the United States, representing a market penetration of 35% to 45%. The market for wireless telecommunications services outside the United States has also grown significantly in recent years and is expected to continue to do so through at least the end of the decade. One industry analyst estimates that wireless subscribers in Europe, for example, will increase from 18 million in 1995 to 78 million by the end of the year 2000, resulting in a market penetration of approximately 20%. In addition to this rapid growth, a number of recent and anticipated events are causing fundamental changes in the wireless telecommunications industry. The industry continues to experience significant consolidation as cellular carriers are seeking to achieve greater market coverage and economies of scale in operations, marketing, customer service and support. While the number of cellular service subscribers in the United States has grown 29 substantially in recent years, the average revenue per subscriber has declined and is expected to decrease further. The CTIA has reported that revenue per subscriber declined 47% from 1987 to 1995. Carriers are anticipating increased price competition in the wireless telecommunications industry as providers of PCS and other services enter the geographic markets previously served only by cellular carriers. Moreover, as a result of the Telecommunications Act of 1996, carriers are beginning to offer wireless services bundled with wireline services. These changes are causing carriers to seek new ways to reduce their costs and interact more effectively with their subscribers. The process by which a wireless carrier acquires a subscriber is costly and complex. The Company estimates, based on its market research, that acquisition costs typically range from $350 to $500 per subscriber, with the largest portion of those costs consisting of commissions and promotional items, such as subsidies on telephones. Carriers typically offer a variety of rate plans, features and special promotions that change on a regular basis, often making the customer acquisition process complicated for both sales representatives and applicants for service. The complexity of the customer acquisition process has been exacerbated by the recent consolidation of participants in the wireless industry, which has resulted in many carriers employing a number of different legacy systems for credit verification, activation and billing that are not integrated or even compatible. These problems are expected to be magnified for carriers seeking to offer bundled wireless and wireline services. Carriers are therefore seeking ways to reduce the costs and simplify the process of customer acquisition. Acquiring a wireless subscriber is a time-consuming process. The Company's market research has indicated that, while the entire acquisition process typically takes between 15 and 30 minutes, it is not unusual for the process to take up to an hour. Carriers' employees or agents are often required to make duplicate data entries into separate computer systems in order to complete the acquisition process. If a carrier is unable to complete the process of acquiring a potential customer in a single transaction, the customer may decide to become a subscriber of another carrier or not to subscribe to the service at all. Therefore, carriers that are able to provide a more simplified, expedited sales process have a competitive advantage. Distribution channels for wireless telecommunications services are also changing. In the 1980s, substantially all wireless subscriber acquisitions were made through channels such as dealers, agents and direct mobile sales forces. Today carriers also reach potential subscribers through home shopping, telemarketing and a variety of other retail distribution methods and may begin marketing on the Internet. These new distribution channels require that carriers implement new processes for marketing, qualifying and activating new subscribers. Because of declining revenue per subscriber, carriers must retain subscribers for a longer period in order to recover their acquisition costs. Carriers therefore need to reduce their "churn" rates, which measure the extent to which subscribers switch to another carrier's services or otherwise cease to use a carrier's services. Churn has historically been a problem for wireless carriers, which have had an average annual subscriber turnover rate between 25% and 30%. The Company believes that churn may, in part, be attributed to frustration on the part of subscribers resulting from confusion about the broad and changing variety of available service options and the complexity of billing practices, as well as dissatisfaction with the scope and quality of service. In the face of increased competition and growth in the subscriber base, churn is expected to become an increasingly costly problem for carriers. In order to reduce costs and remain competitive, carriers are also seeking to address subscriber fraud. Fraud in the wireless telecommunications industry is generally divided into two categories: technical fraud, which often involves copying or manipulating a cellular telephone's mobile identification number or electronic serial number; and subscription fraud, in which individuals obtain service using false information. Technical fraud can be addressed by changing the ways in which calls are processed. Subscription fraud, however, is most effectively addressed in the customer acquisition process. One industry source estimates that in 1995 subscription fraud generated losses to the industry of over one percent of total industry revenues, or approximately $180 million, and could grow to $500 million by the year 2000 if it is not controlled. 30 The development of new wireless services, carriers and technologies, the emergence of the mass market for wireless services and increased competition have created an environment in which successful carriers must be able to better utilize data and statistical tools to manage their businesses. Carriers are beginning to recognize the need to utilize "data warehouses," repositories of business data organized for analysis, and to acquire the tools necessary for business managers to access and analyze the data. The Company believes that established wireless carriers increasingly are considering outsourcing qualification and activation services as a means by which they can improve flexibility and efficiency while focusing internal resources on their core business activities. Further, the Company believes that many new entrants to the wireless market, such as PCS providers, are considering outsourcing portions of their customer acquisition requirements as an attractive means of expediting their introduction of new services. THE LIGHTBRIDGE SOLUTION Lightbridge's suite of complementary software-based products and services permits a wireless carrier to select applications and functions to create an integrated, customized solution addressing its particular needs. The Company's solutions include: . The Customer Acquisition System ("CAS") provides on-line, real-time transaction processing services that utilize and interface with proprietary and third-party databases to expedite the qualification and activation of applicants for wireless service on a cost-effective basis. . TeleServices consists of call center services that assist wireless carriers in acquiring and activating applicants, using either Lightbridge's CAS or the carrier's own customer acquisition systems. Lightbridge's TeleServices Group also offers telemarketing and customer care activities that assist carriers in acquiring subscribers through new distribution channels and retaining existing subscribers. . Channel Solutions consist of software-based products and services designed to simplify and expedite the customer acquisition process through both existing and emerging distribution channels and to provide wireless carriers with flexibility to capitalize on emerging distribution channels. . Wireless Intelligence solutions are software-based decision support tools and services designed to enable carriers to make more informed business decisions about their subscribers, markets and distribution channels. . Business Integration solutions include consulting services, software and tools to link the Company's acquisition systems with carrier and third- party systems, such as those for billing, point-of-sale, activation and order fulfillment. The Company's services are delivered primarily on an outsourcing and service bureau basis, which allows carriers to focus internal resources on their core business activities. Lightbridge's solutions combine the advantages of distributed access and workflow management, centrally managed client-specified business policies, and links to carrier and third-party systems. The open architecture underlying the Company's software applications supports the development of flexible, integrated solutions, regardless of the type of wireless service provided by a client and independent of the client's computing environment. STRATEGY The Company's objective is to be the leading provider of innovative, software-based solutions for cost-effective customer acquisition and retention for the wireless telecommunications industry. The Company's strategy is based on the following key elements: Continue to Focus on Wireless Telecommunications Industry The Company believes that the wireless industry will continue to grow rapidly and will be characterized by both increased competition and heightened subscriber expectations. As a result, the Company believes there will 31 be significant opportunities to provide carriers with products and services that enable carriers to focus their internal resources on building and managing their telecommunications networks, while outsourcing certain administrative and other functions. By focusing on the wireless telecommunications industry, the Company has developed significant expertise and experience that it intends to employ in providing innovative, flexible solutions to address the changing needs of wireless carriers in both existing and emerging markets. Provide Complete Solutions to Clients Based on its expertise in the wireless industry, Lightbridge seeks to offer complete solutions to wireless carriers, particularly in addressing issues of customer acquisition, fraud and retention. Lightbridge's suite of software- based products and services permits a wireless carrier to select applications and functions to create an integrated, customized solution addressing its particular needs. The Company's services are delivered primarily on an outsourcing and service bureau basis, which allow carriers to focus internal resources on their core business activities. The Company supports its product and service offerings with consulting in related areas such as workflow analysis, requirements definition, credit policy, fraud prevention, channel management and churn control. Continue Commitment to Technological Leadership Lightbridge's products and services are based on its proprietary software technology, which is enhanced regularly to address the evolving needs of wireless carriers. The Company has designed, developed and implemented an open application programming interface and related software specifically to enable the Company to provide flexible, fully integrated solutions to clients with differing needs. The Company has developed and implemented interfaces to more than 30 disparate systems, including carrier legacy systems and third-party systems, such as billing, point-of-sale, activation and order fulfillment. Drawing on its industry and technological expertise, the Company has developed products that enable carriers to access the Company's services through a variety of emerging distribution channels, as well as software-based decision support tools that assist carriers in analyzing their distribution channel performance and churn experience. The Company intends to leverage and expand this capability to offer solutions to wireless carriers, regardless of the type of wireless service (cellular, PCS, ESMR or other) being offered by a client and independent of the client's computing environment. Foster Long-Term Client Relationships The Company's strategy is to use its reputation and experience in servicing leading wireless carriers to market additional products and services to those clients and to attract new clients. In the year ended September 30, 1995, approximately 97% of the Company's total revenues was derived from carriers who were also clients in the preceding fiscal year. Lightbridge has developed long-term consultative relationships with many of the leading wireless carriers in the United States. The experience and expertise gained in these relationships will assist the Company in identifying emerging client needs and developing solutions to address those needs. Leverage and Expand Strategic Relationships An important part of Lightbridge's strategy is to establish strong working relationships with other suppliers to the wireless industry. The Company enters into these relationships to increase the functionality of its products and services and to reduce the time to market for its new products and services. The Company believes these relationships also provide the Company with access to the marketing resources and credibility of larger, more established participants in the wireless industry. Lightbridge's relationships with Pilot Software, Inc. (a subsidiary of Dun & Bradstreet), Trans Union Corporation and XcelleNet, Inc., for example, have provided the Company with access to technology and joint development and marketing efforts that have enabled the Company to offer more fully featured products and services in a shorter period of time. The Company intends to explore ways to expand such relationships and seek out opportunities to develop new strategic relationships. 32 Expand into International Wireless Telecommunications Markets While the Company has offered its products and services only in the United States to date, it believes the significant growth in international wireless telecommunications markets will require carriers in those markets to address many of the same issues currently confronting domestic wireless carriers. The Company intends to leverage its long-term client relationships and strategic partnerships to facilitate and expedite the Company's entry into rapidly expanding international wireless markets. Products and Services Lightbridge's suite of software-based products and services permits a wireless carrier to select applications and functions to create an integrated, customized solution addressing its particular needs. Lightbridge's products and services are provided by five solutions groups: GROUP FUNCTIONS Customer Acquisition System On-line, real-time transaction processing services to aid wireless carriers in qualifying and activating applicants for wireless service, including proprietary databases and processing modules to evaluate existing subscribers and detect potential subscription fraud. TeleServices Call center support services to assist wireless carriers in acquiring and activating applicants for wireless service, including qualification and activation, analyst reviews, telemarketing to existing and new subscribers, back-up and disaster recovery for acquisition and activation services, and customer care. Channel Solutions Software products and services to support a variety of distribution channels, including software applications for in- store use, laptop applications for mobile sales professionals and an interactive multimedia kiosk. Wireless Intelligence Software-based decision support tools and related consulting services to allow wireless carriers to access data and analyze the marketplace in order to make more informed business decisions about their customers, markets and distribution channels. Business Integration Consulting services, software and tools to link wireless carrier legacy systems and third-party systems to the Company's systems, as well as other consulting services to help wireless carriers improve business processes. 33 Customer Acquisition System CAS includes on-line, real-time transaction processing services for the qualification and activation of applicants for wireless service. The following chart illustrates the utilization of CAS: [Image of boxes representing sequence of events as follows: Box 1: Customer indicates intent to purchase phone. Agent enters information into terminal Box 2: CAS validates application for completeness and format Box 3: Application transmitted to Lightbridge via dial-up, leased line or network connection Box 4: Lightbridge checks InSight and Fraud Sentinel and retrieves credit bureau report to evaluate application HIGH RISK [arrow points to alternate box] Box 4A: Confirmation sent to agent indicating security deposit required Box 5: CAS transmits information to billing system; phone activated on switch Box 6: Confirmation sent to agent with customer name, mobile number and account number Box 7: Customer leaves store with activated phone] CAS accepts applicant information on-line from a variety of carrier distribution points, such as retail stores. Upon receipt of information, the system begins a series of steps required to determine the applicant's qualification for the carrier's service through inquiry into Company proprietary databases, such as ProFile, and external sources, such as credit bureaus. The complete applicant file is evaluated by the system and a determination regarding the applicant's creditworthiness is made based on centrally managed client-specified business policies. If an issue is raised regarding qualification of an applicant, the system routes the application to a Company or carrier credit analyst for review and action. The point-of-sale is then notified when a determination is made. If service is to be activated at that time, the system receives, verifies and translates the information necessary to establish the billing account and activate service, transmitting data to the carrier's billing and activation systems. Throughout the process, Lightbridge's client/server system manages the routing of the application and the flow of information, both within the system and, as necessary, to appropriate individuals for their involvement, all in a secure, controlled environment. Introduced in 1989 and enhanced over time, CAS had processed over 12 million applications for wireless service through May 1996. CAS typically enables carriers to qualify applicants and activate service in five to ten minutes while screening for subscriber fraud, thereby assisting the carriers to close sales at the time when the customer is ready to purchase. Although CAS typically requires no human intervention beyond the initial data entry, it permits a carrier to implement policies requiring analyst intervention in carrier-specified situations. When intervention is required, CAS facilitates the on-line handling of exceptions by, among other things, queuing exceptions to manage workflow. CAS includes the following modules, all of which are fully integrated: . Credit Decision System ("CDS") is an integrated qualification system for carriers to acquire qualified applicants rapidly. Using redundant, high- speed data lines to five major credit bureaus, CDS typically provides consumer and business credit decisions in under 20 seconds, based on automated analysis of credit information using a credit policy specified by the carrier. CDS can be integrated with a carrier's existing customer acquisition and billing systems and can be modified quickly to reflect changes in a carrier's credit policies. . Fraud Sentinel is a suite of fraud management tools, available separately or together. The Company believes that Fraud Sentinel is the only pre-screening tool for detection and prevention of subscription fraud available in the wireless industry today. The components of Fraud Sentinel are: 34 ProFile, a proprietary intercarrier database of accounts receivable write-offs and service shut-offs, provides on-line pre-screening of applicants, on-going screening of existing subscribers, and notification if an application is processed for a subscriber whose account has been previously written off by a carrier. Fraud Detect, a multifaceted fraud detection tool provided in partnership with Trans Union Corporation, analyzes data such as an applicant's Social Security Number, date of birth, address, telephone number and driver's license information and identifies any discrepancies. Fraud Detect became commercially available in the second quarter of 1996. Postalpro, a tool to validate addresses, will enable a carrier to detect false addresses, incorrect ZIP codes and contradictions between addresses and ZIP codes before a potential subscriber's service is activated. Postalpro is currently expected to become commercially available by the first quarter of 1997. . InSight is a proprietary database containing information about existing accounts and previous applicants. InSight also evaluates existing subscribers who apply for additional services on the basis of their payment histories. InSight can decrease costs for carriers by reducing the number of credit bureau inquiries and the number of applications requiring manual review. . Workstation Offerings present data electronically to the appropriate person for decision or action and then automatically route data to the next step in the process. Workstation Offerings are: Credit Workstation allows a carrier's credit analyst to enter information or to evaluate applications that were entered at a remote location. Activation Workstation allows the user to review, correct or reprocess activation requests returned from the billing system due to an error. Fulfillment Workstation provides the information necessary to fulfill orders for wireless handsets and accessories at a remote or third-party fulfillment operation. Pricing of CAS is on a per qualification or activation basis and varies with the term of the contract under which services are provided, the volume of transactions, and the other products and services selected and integrated with the services. TeleServices The Company's TeleServices Group provides a range of call center support solutions for the subscriber acquisition and activation process. The Company first offered a TeleServices call center solution to the wireless marketplace in 1990 with its 800-FOR-CREDIT service. Since that time, the Company's TeleServices offerings have expanded to include not only credit decisions and activations, but also analyst reviews, telemarketing to existing and new subscribers, back-up and disaster recovery for acquisition and activation services, and customer care. TeleServices solutions can be provided using CAS or a carrier's own customer acquisition system. The Company's clients typically utilize TeleServices solutions as part of an overall sales and distribution strategy to expand or engage in special projects without incurring the overhead associated with building and maintaining a call center. Some carriers, however, outsource most of their subscriber acquisition and activation activities to the Company. As of March 31, 1996, the TeleServices Group included a total of 182 full-time and part-time employees. Pricing of TeleServices solutions is on a per transaction or per minute basis and varies with the term of the contract under which services are provided, the volume of transactions processed and the other products and services selected and integrated with the services. Channel Solutions The Company's Channel Solutions consist of products and services that support a growing range of distribution channels. The components of Channel Solutions include: . POPS, a Windows-based application typically used in carrier-owned or dealer/agent store locations, features a graphical user interface that allows even inexperienced sales staff to conduct qualification 35 and activation transactions quickly via a dial-up or network connection to CAS. Two of the Company's clients have licensed POPS for more than 500 installed locations. POPS is being marketed both as a new solution and as a replacement to the Company's DOS-based application, which is currently licensed for more than 800 locations. . SAMS, a laptop application, provides a "virtual office" for carriers' mobile sales professionals. The SAMS suite contains a number of tools needed by sales staff, such as coverage maps and product catalogs, as well as the ability to handle qualification and activation transactions via landline, cellular or wireless data connection to CAS. Third-party modules can be integrated into SAMS to provide additional functionality. One of the Company's clients has licensed SAMS for approximately 600 users. . Iris, an interactive multimedia kiosk, uses touch screen technology to provide potential subscribers with educational information ranging from the basic operation of a cellular telephone to the form of monthly bills, display the carrier's coverage area and provide information about available services and telephone models. Iris incorporates a credit card reader for payments and allows a customer to purchase a telephone and complete an application for service, which can then be processed automatically. Iris can dispense a telephone itself or can provide for delivery or in-store pick-up. Iris became commercially available in December 1995. POPS, SAMS and Iris are licensed to clients and require customization and integration with other products and systems to varying degrees. Pricing of POPS, SAMS and Iris varies with the configurations selected, the number of locations licensed and the degree of customization required. Wireless Intelligence The Company's Wireless Intelligence Group provides software-based decision support tools to help carriers analyze their marketplace to improve business operations. As carriers encounter increasing competition and a growing and changing market, the Company believes that the ability to gather, analyze and interpret business data and then take appropriate actions will be essential to their success. Wireless Intelligence is currently comprised of the following two modules: . Channel Wizard allows a carrier to analyze its distribution channel performance by market, subscriber type or other factors, to assist the carrier in making decisions designed to reduce customer acquisition costs and improve channel performance. Channel Wizard is designed to provide up-to-date information in a format that is easy for users without statistical training to operate. Channel Wizard became commercially available in the second quarter of 1996. . Churn Prophet is an analytical tool designed to help carriers reduce churn and increase customer retention. Churn Prophet uses predictive modeling technology to identify characteristics of subscribers who have canceled service in the past and to develop predictions as to which subscribers are likely to cancel service in the future. Customer retention efforts can then be targeted more cost effectively to the subscribers most likely to cancel service. Churn Prophet is currently expected to become commercially available in late 1996. Channel Wizard and Churn Prophet are licensed to clients and require customization and integration with other products and systems to varying degrees. Pricing of Channel Wizard and Churn Prophet varies with the number of users and the degree of customization required. Business Integration The Company's Business Integration Group provides consulting, software and tools to link carrier and third-party systems to the Company's systems. To facilitate the development of these interfaces, Lightbridge developed CASCOMM, a library of software functions for the remote host that enables third-party systems to connect to CAS. CASCOMM is an application layer protocol that gives CAS the appearance of a local process 36 to the third-party system. CASCOMM runs on VMS, NT and certain Unix platforms and supports both TCP/IP and DECnet. To date, the Business Integration Group has implemented more than 30 such interfaces, of which 13 use CASCOMM. The Business Integration Group also provides a range of other consulting services to wireless carriers, employing the Company's expertise and experience in the wireless telecommunications industry. For example, the Business Integration Group helps carriers develop solutions for work flow optimization, management of bad debt, distribution channel analysis, sales automation, churn analysis and data warehouse design. The Company generally charges for consulting services on a per diem basis, but occasionally undertakes smaller consulting projects on a fixed-fee basis. TECHNOLOGY The Company's development efforts have created a proprietary multi-layered software architecture that facilitates the development of application products. This design conforms to the three standard tiers of (1) presentation (front- ends), (2) business logic and (3) database services, each independent of the others. The architecture supports the development of Lightbridge's core products and provides a discrete platform that enables the rapid creation of client-specific requirements. In addition, the architecture is open in terms of its ability to interface with third-party systems, as well as with the Company's Windows-based products. Lightbridge can therefore offer its clients the ability to use and enhance legacy systems and third-party systems (such as billing systems) while implementing the market-oriented products offered by the Company. At the most fundamental layer of its architecture, Lightbridge has written a common, independent library of code that provides a foundation for reusability and, equally importantly, independence from hardware platforms and operating systems. The common library currently supports Unix and OpenVMS. The Lightbridge products are, therefore, portable and able to run on the most suitable hardware platform for the computing needs. A critical element of the Company's development has been the creation and enhancement of Allegro, a peer-to-peer, client/server, transaction management system. Allegro encapsulates a sequence of independent, application servers into a complete transaction, customized for the client's customer acquisition requirements. The solutions may include front-end data capture, customer qualification, fulfillment of physical distribution and connectivity to back office systems such as billing. To an individual user, however, Lightbridge products offer the front-end appearance of a "single virtual machine." Allegro features include data validation, exception handling, process queues, manual review queues and transaction monitors. Lightbridge servers each perform only a single function, without knowledge of the other steps in the transaction processes or their computing environment. Third-party software products are encapsulated so that they are integrated seamlessly into the Allegro system. As a result, the Allegro network is scalable and includes software redundancy. The wireless marketplace continues to grow rapidly and requires quick reaction to evolving market conditions. To meet this requirement, the Company has incorporated a set of software and tools with which its trained staff can provide the rapid customization of front-ends, business rules, system interfaces and reporting. The customization is independent of the core products, so that Lightbridge can provide client-specific enhancements while continuing to develop regular releases of major product enhancements. 37 CLIENTS The Company provides its products and services to wireless carriers across the United States. The Company's current client base consists of 34 wireless telecommunication clients, including 9 of the 12 largest domestic cellular carriers (based on total population coverage) and the only 2 domestic carriers currently delivering PCS service. In the year ended September 30, 1995, approximately 97% of the Company's revenues was attributable to carriers that were also clients in the preceding fiscal year. Lightbridge's clients include:
CELLULAR CARRIERS PCS CARRIERS - ----------------- ------------ AT&T Wireless Services, Inc. American Personal Communications CommNet Cellular Inc. (an affiliate of Sprint Spectrum L.P.) Comcast Cellular Communications, Inc. BellSouth Mobility DCS, Inc. Century Cellunet, Inc. InterCel PCS Services, Inc. Palmer Wireless, Inc. (d/b/a PowerTel)
Revenues attributable to the Company's 10 largest clients accounted for approximately 85%, 90% and 90% of the Company's revenues in the years ended September 30, 1993, 1994 and 1995, respectively. Four clients each accounted for greater than 10% of the Company's revenues in the years ended September 30, 1994 and 1995. GTE Mobile Communications Service Corporation ("GTE Mobile") accounted for 31% of the Company's revenues for the year ended September 30, 1995, and each of AT&T Wireless Services, Inc. ("AT&T Wireless"), Comcast Cellular Communications, Inc. ("Comcast") and Ameritech Mobile Communications, Inc. d/b/a Ameritech Cellular Services ("Ameritech") accounted for greater than 10% of the Company's revenues for that fiscal year. See "Risk Factors--Dependence on Certain Clients" and Note 2 of Notes to Financial Statements. The Company's agreements with its clients set forth the terms on which the Company will provide products and services for the client, but do not typically require the clients to purchase any particular type or quantity of the Company's products or services or to pay any minimum amount for products or services. The Company's agreement with GTE Mobile and certain of its subsidiaries provides that the contract may be terminated by GTE as of June 30 of any year upon 60 days' prior notice. In addition, if the Company fails to meet certain performance criteria, GTE may, among other things, terminate the agreement upon 30 days' prior written notice. The Company has an agreement with AT&T Wireless for the provision of credit decision services. The agreement will expire on December 31, 1996 unless it is terminated earlier, upon not less than 60 days' prior written notice. The Company's agreement with Comcast provides that it may be terminated upon 90 days' written notice following December 31, 1996, upon failure of either party to comply with the terms of the agreement within 30 days after written notice of such failure or upon bankruptcy or insolvency. The Company has agreements with Ameritech and certain of its affiliates that may be terminated upon 90 days' prior written notice by either party thereto or upon 30 days' written notice in the event of failure by the other party to comply with the terms of the agreement. None of the foregoing agreements requires that the client either purchase any particular type or quantity of the Company's products or services or pay any minimum amount for products or services. Because the PCS industry is in its initial stages of development, clients in the PCS market have not generated significant revenues for the Company to date. The Company supplies service to American Personal Communications (now Sprint Spectrum L.P.) in Washington, D.C. and Western Wireless Corporation in Hawaii and certain Western states. These two corporations are the only two carriers currently providing PCS service. There can be no assurance that the PCS market will develop as expected. See "Risk Factors--Dependence on Cellular Market and Emerging Wireless Markets." 38 SALES AND MARKETING The Company's sales strategy is to establish, maintain and foster long-term relationships with its clients. The Company's sales and client services activities are led by "relationship teams," each of which includes a senior management team sponsor. The Company's sales force currently consists of eight relationship managers who report to a senior sales and marketing executive. The Company employs a team approach to selling in order to develop a consultative relationship with existing and prospective clients. Directors of solutions groups and product managers, as well as other executive, technical, operational and consulting personnel, are frequently involved in the business development and sales process. The teams conduct needs assessments and, working with the client, develop a customized solution to meet the client's particular needs. The sales cycle for the Company's products and services is typically 6 to 12 months. See "Risk Factors--Potential Fluctuations in Quarterly Performance." The Company plans to expand its sales and marketing group during 1996 by hiring additional staff experienced in the wireless telecommunications industry. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview" and "--Results of Operations--Three Months Ended March 31, 1996 Compared with Three Months Ended March 31, 1995." The Company's marketing activities include advertising, participation in industry trade shows and panels, substantive articles in trade journals and targeted direct mail. ENGINEERING, RESEARCH AND DEVELOPMENT Lightbridge considers its on-going efforts in engineering, research and development to be a key component of its strategy. The Company believes that its future success will depend in part on its ability to continue to enhance its existing product and service offerings and to develop new products and services to allow carriers to respond to changing market requirements. The Company's research and development activities consist of both long-term efforts to develop and enhance products and services and short-term projects to make modifications to respond to immediate client needs. In addition to internal research and development efforts, the Company intends to continue its strategy of gaining access to new technology through strategic relationships and acquisitions where appropriate. The Company spent approximately $1.1 million, $2.3 million and $3.9 million on engineering, research and development in the years ended September 30, 1993, 1994 and 1995, respectively. As of March 31, 1996, Lightbridge had 49 employees engaged in engineering, research and development. COMPETITION The market for services to wireless carriers is highly competitive and subject to rapid change. The market is fragmented, and a number of companies currently offer one or more services competitive with those offered by the Company. In addition, many wireless carriers are providing or can provide, internally, products and services competitive with those the Company offers. Trends in the wireless telecommunications industry, including greater consolidation and technological or other developments that make it simpler or more cost-effective for wireless carriers to provide certain services themselves, could affect demand for the Company's services and could make it more difficult for the Company to offer a cost-effective alternative to a wireless carrier's own capabilities. In addition, the Company anticipates continued growth in the wireless carrier services industry and, consequently, the entrance of new competitors in the future. The Company believes that the principal competitive factors in the wireless carrier services industry include the ability to identify and respond to subscriber needs, quality and breadth of service offerings, price and technical expertise. The Company believes that its ability to compete also depends in part on a number of competitive factors outside its control, including the ability to hire and retain employees, the development by others of products and services that are competitive with the Company's products and services, the price at which others offer comparable products and services and the extent of its competitors' responsiveness to subscriber needs. 39 Many of the Company's current and potential competitors have significantly greater financial, marketing, technical and other competitive resources than the Company. As a result, the Company's competitors may be able to adapt more quickly to new or emerging technologies and changes in subscriber requirements or may be able to devote greater resources to the promotion and sale of their products and services. There can be no assurance that the Company will be able to compete successfully with its existing competitors or with new competitors. In addition, competition could increase if new companies enter the market or if existing competitors expand their service offerings. An increase in competition could result in price reductions or the loss of market share by the Company and could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. To remain competitive in the wireless carrier services industry, the Company will need to continue to invest in engineering, research and development, and sales and marketing. There can be no assurance that the Company will have sufficient resources to make such investments or that the Company will be able to make the technological advances necessary to remain competitive. In addition, current and potential competitors have established or may in the future establish collaborative relationships among themselves or with third parties, including third parties with whom the Company has a relationship, to increase the visibility and utility of their products and services. Accordingly, it is possible that new competitors or alliances may emerge and rapidly acquire a significant market share. If this were to occur, the Company's business, financial condition, results of operations and cash flow could be materially and adversely affected. GOVERNMENT REGULATION The FCC, under the terms of the Communications Act of 1934, as amended, regulates interstate communications and use of the radio spectrum. Although the Company is not required to and does not hold any licenses or other authorizations issued by the FCC, the wireless carriers that constitute the Company's clients are regulated at both the federal and state levels. Federal and state regulation may decrease the growth of the wireless telecommunications industry, affect the development of the PCS or other wireless markets, limit the number of potential clients for the Company's services, impede the Company's ability to offer competitive services to the wireless telecommunications market, or otherwise have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. The Telecommunications Act of 1996, which in large measure deregulated the telecommunications industry, has caused, and is likely to continue to cause, significant changes in the industry, including the entrance of new competitors, consolidation of industry participants and the introduction of bundled wireless and wireline services. Those changes could in turn subject the Company to increased pricing pressures, decrease the demand for the Company's products and services, increase the Company's cost of doing business or otherwise have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. As a result of offering its ProFile product, the Company is subject to the requirements of the Fair Credit Reporting Act. Although the Company's business activities are not otherwise within the scope of federal or state regulations applicable to credit bureaus and financial institutions, the Company must take into account such regulations in order to provide products and services that help its clients comply with such regulations. The Company monitors regulatory changes and implements changes to its products and services as appropriate. Although the Company attempts to protect itself by written agreements with its clients, failure to reflect the provisions of such regulations in a timely or accurate manner could possibly subject the Company to liabilities that could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. PROPRIETARY RIGHTS The Company's success is dependent upon proprietary technology. The Company relies on a combination of copyrights, the law of trademarks, trade secrets and employee and third-party non-disclosure agreements to establish and protect its rights in its software products and proprietary technology. The Company protects the source code versions of its products as trade secrets and as unpublished copyrighted works, and has internal 40 policies and systems designed to limit access to and require the confidential treatment of its trade secrets. The Company generally operates its Credit Decision System software on an outsourcing basis for its clients. In the case of its Channel Solutions and Wireless Intelligence products, the Company provides the software under license agreements which grant clients the right to use, but contain various provisions intended to protect the Company's ownership of and the confidentiality of the underlying copyrights and technology. The Company requires its employees and other parties with access to its confidential information to execute agreements prohibiting unauthorized use or disclosure of the Company's technology. In addition, all of the Company's employees have entered into non-competition agreements with the Company. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of its technology or independent development by others of similar technology. It may be possible for unauthorized parties to copy certain portions of the Company's products or reverse engineer or obtain and use information that the Company regards as proprietary. The Company has no patents and existing copyright and trade secret laws offer only limited protection. The Company's non-competition agreements with its employees may be enforceable only to a limited extent, if at all. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. The Company has been and may be required from time to time to enter into source code escrow agreements with certain clients and distributors, providing for release of source code in the event the Company breaches its support and maintenance obligations, files for bankruptcy or ceases to continue doing business. The Company's competitive position may be affected by limitations on its ability to protect its proprietary information. However, the Company believes that patent, trademark, copyright, trade secret and other legal protections are less significant to the Company's success than other factors, such as the knowledge, ability and experience of the Company's personnel, new product and service development, frequent product enhancements, customer service and ongoing product support. The Company's agreement with Trans Union Corporation provides Lightbridge with an exclusive right to market the Fraud Detect product to named accounts. The Company's agreement with Pilot Software, Inc. provides a non-exclusive license to use certain software and documentation. Certain other technologies used in the Company's products and services are licensed from third parties. The Company generally pays license fees on these technologies and believes that if the license for any such third-party technology were terminated, it would be able to develop such technology internally or license equivalent technology from another vendor, although no assurance can be given that such development or licensing can be effected without significant delay or expense. Although the Company believes that its products and technology do not infringe on any existing proprietary rights of others, there can be no assurance that third parties will not assert such claims against the Company in the future or that such future claims will not be successful. The Company could incur substantial costs and diversion of management resources with respect to the defense of any claims relating to proprietary rights, which could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. Furthermore, parties making such claims could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief, which could effectively block the Company's ability to make, use, sell, distribute or market its products and services in the United States or abroad. Such a judgment could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. In the event a claim relating to proprietary technology or information is asserted against the Company, the Company may seek licenses to such intellectual property. There can be no assurance, however, that such a license could be obtained on commercially reasonable terms, if at all, or that the terms of any offered licenses will be acceptable to the Company. The failure to obtain the necessary licenses or other rights could preclude the sale, manufacture or distribution of the Company's products and, therefore, could have a material adverse effect on the Company's business, financial condition, results of operations or cash flow. The cost of responding to any such claim may be material, whether or not the assertion of such claim is valid. 41 EMPLOYEES As of March 31, 1996, the Company had a total of 301 full-time and part-time employees. Of these employees, 53 were employed in software and product development, 30 in sales and marketing, client services and account management, 14 in operations, 22 in finance and administration and 182 in teleservices. The number of personnel employed by the Company varies seasonally. See "Risk Factors--Potential Fluctuations in Quarterly Performance." None of the Company's employees is represented by a labor union, and the Company believes that its employee relations are good. The future success of the Company will depend in large part upon its continued ability to attract and retain highly skilled and qualified personnel. Competition for such personnel is intense, particularly for sales and marketing personnel, software developers and service consultants. See "Risk Factors-- Ability to Manage Change" and "--Dependence on Key Personnel." PROPERTIES The Company's headquarters are located in a 39,000 square foot leased facility, and the teleservices group is located in a 27,000 square foot leased facility, both in Waltham, Massachusetts. The leases of these facilities expire between 1999 and 2001. The Company believes its existing facilities are adequate for its current needs and that suitable additional or substitute space will be available as needed on commercially reasonable terms. LEGAL PROCEEDINGS The Company is not currently party to any legal proceedings of a material nature. 42 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company and their ages as of June 20, 1996 are as follows:
NAME AGE POSITION ---------------------- --- --------------------------------------- Pamela D.A. Reeve President, Chief Executive Officer and 46 Director William G. Brown 36 Chief Financial Officer, Vice President of Finance and Administration and Treasurer Michael A. Perfit 40 Senior Vice President of Technology Richard H. Antell 48 Vice President of Software Development Douglas E. Blackwell 40 Vice President of Service Delivery Andrew I. Fillat(1) 48 Director Torrence C. Harder(1) 52 Director Douglas A. Kingsley(2) 34 Director D. Quinn Mills(2) 54 Director
- -------- (1) Member of the Compensation Committee (2) Member of the Audit Committee PAMELA D.A. REEVE has served as the President of the Company since November 1989, as Chief Executive Officer of the Company since September 1993 and as a director of the Company since November 1989. From November 1989 to September 1993, Ms. Reeve served as Chief Operating Officer of the Company. Prior to joining the Company, Ms. Reeve was employed by The Boston Consulting Group. Ms. Reeve is President of the Massachusetts Software Council and also serves as a director of PageMart Wireless, Inc., a provider of wireless messaging services. WILLIAM G. BROWN has served as Chief Financial Officer, Vice President of Finance and Administration and Treasurer of the Company since June 1989. Prior to joining the Company, Mr. Brown was Manager of Financial Reporting and Analysis for Bolt, Beranek and Newman, Inc. and was employed at Deloitte, Haskins and Sells. MICHAEL A. PERFIT, a founder of the Company, has served as Senior Vice President of Technology of the Company since June 1991. From June 1989 to May 1991, Mr. Perfit served as Vice President of Engineering of the Company. Prior to joining the Company, Mr. Perfit was Vice President of Appex, Inc. and held engineering and technical support positions at Interactive Management Systems. RICHARD H. ANTELL has served as Vice President of Software Development of the Company since February 1996. From June 1991 to January 1996, Mr. Antell was Vice President of Engineering of the Company. Prior to joining the Company, Mr. Antell served as Vice President of Application Development of Applied Expert Systems, Inc. and Project Leader of Index Systems, Inc. DOUGLAS E. BLACKWELL has served as Vice President of Service Delivery of the Company since November 1995. From October 1994 to October 1995, Mr. Blackwell served as Vice President of Operations of the Company. From February 1991 to September 1994, Mr. Blackwell was employed as Vice President of Operations of Thomson Financial Services, Inc., an on-line financial transaction and information services firm. Prior to February 1991, Mr. Blackwell was employed at Nolan, Norton and Co., an affiliate of KPMG/Peat Marwick. ANDREW I. FILLAT has served as a director of the Company since April 1996. Since July 1995, Mr. Fillat has served as Senior Vice President of Advent International Corporation, a venture capital investment firm. From April 1989 to June 1995, Mr. Fillat served as Vice President of Advent International Corporation. 43 TORRENCE C. HARDER, a founder of the Company, has served as a director of the Company since June 1989. Mr. Harder has been the President and a director of Harder Management Company, a registered investment advisory firm, since its establishment in 1971. He has also been the President and a director of Entrepreneurial Ventures, Inc., Entrepreneurial Inc., and Entrepreneurial Investment Corp., venture capital investment firms, since their foundings in 1987, 1990 and 1995, respectively. DOUGLAS A. KINGSLEY has served as a director of the Company since April 1996. Since January 1996, Mr. Kingsley has been Vice President of Advent International Corporation, a venture capital investment firm. From September 1990 to December 1995, Mr. Kingsley was an investment manager at Advent International Corporation. Mr. Kingsley is a director of LeCroy Corporation, a manufacturer of electronic instrumentation. D. QUINN MILLS has served as a director of the Company since June 1990. Since 1976, Dr. Mills has served as the Albert J. Weatherhead, Jr. Professor of Economics at the Harvard Business School. Upon the closing of this offering, the Board of Directors will be divided into three classes. One class of directors will be elected each year at the annual meeting of stockholders for a term of office expiring after three years. Mr. Kingsley will serve in the class whose term expires in 1997; Mr. Fillat and Dr. Mills will serve in the class whose term expires in 1998; and Mr. Harder and Ms. Reeve will serve in the class whose term expires in 1999. Each director will serve until the expiration of his or her term and thereafter until his or her successor is duly elected and qualified. The Board of Directors has appointed a Compensation Committee, which provides recommendations concerning salaries and incentive compensation for employees of and consultants to the Company, and an Audit Committee, which reviews the results and scope of the audit and other services provided by the Company's independent auditors. Directors of the Company serve without compensation. Under the Company's 1996 Incentive and Nonqualified Stock Option Plan, non-employee directors of the Company will be eligible to receive automatic formula grants of nonqualified options. See "--Stock Option Plans." Executive officers of the Company are elected annually by the Board of Directors and serve at its discretion or until their successors are duly elected and qualified. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's Board of Directors has established a Compensation Committee, which currently consists of Messrs. Fillat and Harder. Decisions as to executive compensation are made by the Board of Directors, primarily upon the recommendation of the Compensation Committee. During the year ended September 30, 1995, none of the executive officers of the Company served on the board of directors or the compensation committee of any other entity. There are no family relationships among executive officers or directors of the Company. Messrs. Harder, Mills and Perfit have been parties to certain transactions with the Company. See "Certain Transactions." 44 EXECUTIVE COMPENSATION The following table sets forth certain information concerning the compensation earned by the Company's current chief executive officer and the other four most highly paid executive officers of the Company (collectively, the "Named Executive Officers") for services rendered in all capacities to the Company for the year ended September 30, 1995: SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------ ANNUAL COMPENSATION AWARDS --------------------- ------------ SECURITIES UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITIONS(S) SALARY($) BONUS($) OPTIONS(#) COMPENSATION(1) - ------------------------------- ---------- --------- ------------ --------------- Pamela D.A. Reeve,......... $165,000 $55,700 -- $1,696 President and Chief Executive Officer Richard H. Antell,......... 99,000 37,000 -- -- Vice President of Software Development William G. Brown,.......... 90,000 36,400 -- 891 Chief Financial Officer, Vice President of Finance and Administration and Treasurer Douglas E. Blackwell,...... 102,000 15,000 40,000 -- Vice President of Service Delivery Michael A. Perfit,......... 92,700 18,300 -- 695 Senior Vice President of Technology
- -------- (1) Represents matching contributions made by the Company to the Lightbridge, Inc. 401(k) savings plan. BENEFIT PLANS Option Grants Table The following table sets forth certain information with respect to the grant of a stock option by the Company to the only Named Executive Officer to whom stock options were granted during fiscal 1995: OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR INDIVIDUAL GRANTS OPTION TERM(4) ----------------------------------------------------------- ----------------- NUMBER OF PERCENT OF TOTAL SECURITIES OPTIONS GRANTED EXERCISE UNDERLYING OPTIONS TO EMPLOYEES IN PRICE EXPIRATION NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SHARE)(3) DATE 5%($) 10%($) ---- ------------------ ---------------- ------------ ---------- -------- -------- Douglas E. Blackwell.... 40,000 12.4% $.50 11-08-04 $12,578 $31,875
- -------- (1) The option granted is an incentive stock option that becomes exercisable as to 20% of the shares subject thereto on the first anniversary of the date of grant and an additional 5% at the end of each three-month period thereafter. (2) Based on an aggregate of 321,700 shares subject to options granted to employees during fiscal 1995. (3) The exercise price per share equaled the fair market value of the Common Stock on the date of grant, as determined by the Board of Directors. 45 (4) Amounts 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 and are not presented to forecast possible future appreciation, if any, in the price of the Common Stock. The gains shown are net of the option exercise price, but do not include deductions for taxes or other expenses associated with the exercise of the options or the sale of the underlying shares. The actual gains, if any, on the stock option exercises will depend on the future performance of the Common Stock, the optionee's continued employment through applicable vesting periods and the date on which the options are exercised and the underlying shares are sold. On various dates from November 10, 1995 to June 14, 1996, the Company granted options to certain Named Executive Officers as follows: Mr. Antell received options to purchase 100,000 shares of Common Stock at $.75 per share, 20,000 shares of Common Stock at $2.00 per share and 70,000 shares of Common Stock at $8.50 per share; Mr. Blackwell received options to purchase 30,000 shares of Common Stock at $.75 per share, 70,000 shares of Common Stock at $2.00 per share and 20,000 shares of Common Stock at $8.50 per share; and Mr. Brown received options to acquire 100,000 shares of Common Stock at $.75 per share and 70,000 shares of Common Stock at $8.50 per share. Neither Ms. Reeve nor Mr. Perfit received any grants of options to buy shares of Common Stock since September 30, 1995. Option Exercises and Year-End Value Table The following table sets forth certain information with respect to the number and value of unexercised options held by the Named Executive Officers on September 30, 1995. None of the Named Executive Officers exercised stock options in fiscal 1995. FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS FISCAL YEAR END(#) AT FISCAL YEAR-END(1) ------------------------- ------------------------- NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ---- ------------------------- ------------------------- Pamela D.A. Reeve........... 274,500/199,500 $2,201,856/$1,894,019 Richard H. Antell........... 42,500/7,500 $ 421,813/$ 74,437 William G. Brown............ 69,000/11,500 $ 691,919/$ 113,900 Douglas E. Blackwell........ --/40,000 $ --/$ 438,000 Michael A. Perfit........... --/-- $ --/$ --
- -------- (1) There was no public trading market for the Common Stock on September 30, 1995. Accordingly, solely for purposes of this table, the values in these columns have been calculated on the basis of an assumed initial public offering price of $10.00 per share (rather than a determination of the fair market value of the Common Stock on September 30, 1995), less the aggregate exercise price of the options. Stock Option Plans The Company's 1990 Incentive and Nonqualified Stock Option Plan (the "1990 Plan") was adopted by the Board of Directors and approved by the stockholders of the Company in July 1990. The Company's stockholders have since amended the 1990 Plan from time to time to increase the number of shares of Common Stock issuable thereunder, most recently to 2,400,000. In June 1996, the Board of Directors adopted the Company's 1996 Incentive and Nonqualified Stock Option Plan (the "1996 Plan"). The 1996 Plan is expected to be considered by the Company's stockholders in July 1996. A total of 1,000,000 shares of Common Stock are issuable under the 1996 Plan. The 1996 Plan will become effective upon the closing of this offering, and the Company's authority to grant additional options under the 1990 Plan will then terminate. As of June 20, 1996, options to purchase an aggregate of 1,615,800 shares of Common Stock having a weighted average exercise price of $1.80 46 per share were outstanding under the 1990 Plan and options for 777,986 shares had been exercised under the 1990 Plan. The 1996 Plan is administered by a committee of the Board of Directors (the "Committee") consisting of the non-employee directors who are members of the Compensation Committee. All members of the Committee are intended to be "disinterested persons" as that term is defined under rules promulgated by the Securities and Exchange Commission (the "Commission"). The Committee selects the individuals to whom options will be granted and determines the option exercise price and other terms of each option, subject to the provisions of the 1996 Plan. The 1996 Plan authorizes the grant of options to purchase Common Stock intended to qualify as incentive stock options ("Incentive Options"), as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and the grant of options that do not so qualify ("Nonqualified Options"). Under the 1996 Plan, Incentive Options may be granted to employees and officers of the Company or a subsidiary, including members of the Board of Directors who are also employees of the Company or a subsidiary. Nonqualified Options may be granted to officers or other employees of the Company or a subsidiary, to members of the Board of Directors or the board of directors of a subsidiary, whether or not employees of the Company or a subsidiary, and to consultants and other individuals providing services to the Company or a subsidiary. The 1996 Stock Option Plan also provides for automatic formula grants of Nonqualified Options to non-employee directors of the Company ("Outside Directors"). Each Outside Director (i) who is in office immediately after the closing of this offering who holds no outstanding stock option granted to him in his capacity as a director (a "Prior Option") or (ii) who is elected to the Board after the closing of this offering will automatically be granted, immediately after the closing of this offering or upon his or her initial election, as the case may be, a Nonqualified Option (an "Initial Option") to purchase 20,000 shares of Common Stock of the Company, vesting in equal installments on the first three anniversaries of the date of grant (provided that the optionee then remains a director of the Company). In addition, immediately following each annual meeting of stockholders of the Company or special meeting in lieu thereof, there will automatically be granted to each Outside Director reelected at or remaining in office after such meeting a fully-vested Nonqualified Option to purchase 4,000 shares of Common Stock ("Additional Option"), provided that no such Additional Option will be granted to any Outside Director who at the time of the meeting holds any outstanding Initial Option or Prior Option that is not fully vested, unless at least two annual meetings of stockholders of the Company or special meetings in lieu thereof have intervened between the closing of the Company's initial public offering (or, if later, the date of the initial election of such Outside Director) and the meeting following which such automatic grant would occur. Each Nonqualified Option granted to an Outside Director pursuant to this provision of the 1996 Stock Option Plan will expire on the tenth anniversary of the date of grant. The exercise price of each such Nonqualified Option will be equal to the fair market value of the Common Stock on the date the Nonqualified Option is granted. Stock Purchase Plan In June 1996, the Board of Directors adopted the Company's 1996 Employee Stock Purchase Plan (the "Stock Purchase Plan"), under which up to 100,000 shares of Common Stock may be purchased by employees of the Company. The Stock Purchase Plan, which is expected to be considered by the Company's stockholders in July 1996, will become effective upon the closing of this offering. During each six-month offering period under the Stock Purchase Plan, participating employees will be entitled to purchase shares through payroll deductions. The maximum number of shares that may be purchased will be determined on the first day of the offering period pursuant to a formula under which 6% (subject to change by the Committee) of the employee's projected base pay for the offering period is divided by 85% (subject to change by the Committee) of the market value of one share of Common Stock on the first day of the offering period. During each offering period, the price at which the employee will be able to purchase shares of Common Stock will be 85% (subject to change by the Committee) of the last reported sale price of the Common 47 Stock on the Nasdaq National Market on the date that the offering period commences or the date the offering period concludes, whichever is lower. The Stock Purchase Plan will be administered by the Committee. The Company expects that all employees who meet certain minimum criteria based on hours worked per week and length of tenure with the Company will be eligible to participate in the Stock Purchase Plan and that no employee will be able to purchase shares pursuant to the Stock Purchase Plan if after such purchase such employee would own more than a specific percentage of the total combined voting power or value of the stock of the Company. CERTAIN TRANSACTIONS SETTLEMENT AGREEMENT AND RELATED MATTERS On February 2, 1996, Entrepreneurial Limited Partnership I, Entrepreneurial Limited Partnership II, Entrepreneurial Limited Partnership III, Entrepreneurial Limited Partnership IV (collectively, the "Entrepreneurial Partnerships"), Torrence C. Harder, the Company and certain other partnerships and corporations entered into a settlement agreement (the "Settlement Agreement") with Brian E. Boyle relating to litigation between the Company, the Entrepreneurial Partnerships and one corporation, on the one hand, and Mr. Boyle, the Company's former Chief Executive Officer and Chairman of the Board, on the other hand. In the litigation, each of the Company and Mr. Boyle alleged, among other things, that the other had violated certain provisions of contracts between them. On February 2, 1996, after giving effect to the Settlement Agreement, Mr. Boyle was the beneficial owner of 2,258,132 shares of Common Stock, the Entrepreneurial Partnerships were the beneficial owners of an aggregate of 3,639,524 shares of Common Stock and Mr. Harder, a director of the Company, was the beneficial owner of 4,582,384 shares of Common Stock. Mr. Harder serves as a general partner of certain of the Entrepreneurial Partnerships. Mr. Harder is also president and a director and stockholder of the other corporations that were parties to the Settlement Agreement and that also serve as general partners of certain of the Entrepreneurial Partnerships. In addition, D. Quinn Mills, a director of the Company, holds a limited partnership interest in two of the Entrepreneurial Partnerships. Pursuant to the Settlement Agreement, Mr. Boyle granted to the Company options to purchase an aggregate of 600,000 shares of Common Stock owned by him, and granted to the Entrepreneurial Partnerships options to purchase an aggregate of 600,000 shares of Common Stock owned by him. The exercise prices of the options range from $1.70 to $2.20 per share. The options expire between April 1, 1996 and February 3, 1997, and each option may be extended for an additional 45-day period upon payment of a specified per-share amount. The Settlement Agreement also provided for the Company and the Entrepreneurial Partnerships to receive the right to acquire certain interests in the Entrepreneurial Partnerships owned by Mr. Boyle. The Entrepreneurial Partnerships have agreed to cooperate with the Company in order to permit the Company to receive as proceeds of the settlement of the litigation, to the extent practical, shares of Common Stock, rather than interests in the Entrepreneurial Partnerships. On April 1, 1996, the Company and the Entrepreneurial Partnership exercised the options granted by Mr. Boyle that were to expire on that day. Pursuant to such options, the Company repurchased 200,000 shares of Common Stock and the Entrepreneurial Partnerships purchased an aggregate of 200,000 shares of Common Stock, at a price of $1.70 per share. The Company paid $113,000 of the exercise price of its option in cash, and paid the remaining $227,000 by delivering an 8% promissory note payable to Mr. Boyle. In connection with the exercise of the options by the Entrepreneurial Partnerships, the Company loaned an aggregate of $113,000 to the Entrepreneurial Partnerships at an interest rate of 16% per annum, which loan was repaid in May 1996. In May 1996, the Company repurchased an aggregate of 200,000 shares of Common Stock from the Entrepreneurial Partnerships at a price of $1.70 per share and reimbursed the Entrepreneurial Partnerships for legal fees and expenses incurred by them in connection with the litigation against Mr. Boyle in an aggregate amount of $260,000. 48 OTHER On February 23, 1993, the Company entered into license and maintenance agreements with RentGrow, Inc. ("RentGrow") pursuant to which the Company granted to RentGrow license to use and develop the Company's Credit Decision System software in the real estate rental, real estate broker and real estate mortgage brokers markets in exchange for certain payments by RentGrow. The license is exclusive for the first four years and seven months of the agreement and nonexclusive thereafter. Mr. Harder is a director of RentGrow and through the Entrepreneurial Partnerships and another related limited partnership, owned, as of December 31, 1995, approximately 54% (on a fully diluted basis) of the outstanding capital stock of RentGrow. The last payments under the license and maintenance agreements are due in August 1996. The Company has also provided RentGrow with certain administrative and facilities support under a facilities service agreement dated August 1, 1992. The facilities service agreement was of no further effect after July 1995. Total payments under the license, maintenance and facilities service agreements totalled $84,736, $104,278 and $59,107 in the years ended September 30, 1993, 1994 and 1995, respectively. In August 1994, Massachusetts Capital Resource Company, which at that time owned an aggregate of 977,156 shares of Common Stock, and Dr. Mills, acting as custodian for a minor child, made subordinated loans to the Company in the amounts of $2,000,000 and $100,000, respectively, and received warrants to purchase 500,000 shares and 25,000 shares, respectively, of Common Stock at $2.00 per share. The subordinated loans bear interest at the rate of 8% per annum and are payable in installments between September 1997 and June 2001. In August 1995, certain accredited investors made subordinated bridge loans to the Company in the aggregate amount of $1,151,000 and received warrants to purchase an aggregate of 287,750 shares of Common Stock at $2.00 per share. The bridge loans carried interest at the rate of 16% per annum and were repaid in full in April 1996. As part of such bridge loans, one of the Entrepreneurial Partnerships loaned $50,000 to the Company and received a warrant to purchase 12,500 shares of Common Stock. In addition, Michael A. Perfit holds interests in two trusts and a 401(k) plan that loaned an aggregate of $26,000 to the Company and received warrants to purchase an aggregate of 6,500 shares of Common Stock. Mr. Perfit is the Company's Senior Vice President of Technology. 49 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Stock as of June 20, 1996, and as adjusted to reflect the sale by the Company and the Selling Stockholders of the shares of Common Stock offered by this Prospectus, by (i) each person (or group of affiliated persons) known by the Company to own beneficially more than five percent of the outstanding shares of Common Stock, (ii) each of the Selling Stockholders, (iii) each of the directors of the Company, (iv) each of the Named Executive Officers and (v) all directors and executive officers of the Company as a group:
SHARES SHARES TO BE BENEFICIALLY OWNED BENEFICIALLY OWNED PRIOR TO OFFERING(1) NUMBER OF AFTER OFFERING(1) ----------------------- SHARES BEING --------------------- NAME AND ADDRESS(2) NUMBER PERCENT OFFERED NUMBER PERCENT ------------------- ------------ ---------- ------------ ----------- --------- Torrence C. Harder(3)... 4,582,384 40.0% 105,192 4,477,192 30.1% Entrepreneurial Limited Partnership I Entrepreneurial Limited Partnership II Entrepreneurial Limited Partnership III Entrepreneurial Limited 3,439,524 30.0 105,192 3,334,332 22.4 Partnership IV(4)...... c/o The Harder Group 281 Winter Street Waltham, Massachusetts 02154 Andrew I. Fillat(5)..... 2,000,000 17.5 -- 2,000,000 13.4 Douglas A. Kingsley(6).. 2,000,000 17.5 -- 2,000,000 13.4 Advent International Investors II Limited Partnership Advent Partners Limited Partnership Global Private Equity II 2,000,000 17.5 -- 2,000,000 13.4 Limited Partnership(7). 101 Federal Street Boston, Massachusetts 02110 Brian E. Boyle(8)....... 1,858,132 16.2 -- 1,858,132 12.5 31 Hallett Hill Road Weston, Massachusetts 02193 Massachusetts Capital 1,477,156 12.4 51,333 1,425,823 9.3 Resource Company(9).... 420 Boylston Street Boston, Massachusetts 02116 Pamela D.A. Reeve(10)... 748,614 6.4 -- 748,614 4.9 D. Quinn Mills(11)...... 581,640 5.1 18,475 563,165 3.8 Michael A. Perfit(12)... 337,694 3.0 -- 337,694 2.3 William G. Brown(13).... 74,000 * -- 74,000 * Richard H. Antell(14)... 54,000 * -- 54,000 * Douglas E. Blackwell(15).......... 28,000 * -- 28,000 * All directors and executive officers as a group (9 persons)(16)........ 8,406,332 70.4 123,667 8,282,665 53.9
- -------- * Less than 1% (1) Unless otherwise noted, each person or group identified possesses sole voting and investment power with respect to such shares, subject to community property laws where applicable. Shares not outstanding but deemed beneficially owned by virtue of the right of a person or group to acquire them within 60 days of 50 June 20, 1996 are treated as outstanding only for purposes of determining the amount and percent owned by such person or group. The number of shares of Common Stock deemed outstanding prior to this offering consists of (i) 6,193,620 shares of Common Stock outstanding as of June 20, 1996 and (ii) 5,247,324 shares of Common Stock issuable upon conversion of the Convertible Preferred Stock. The number of shares of Common Stock deemed outstanding after this offering includes an additional 3,025,000 shares of Common Stock being offered for sale by the Company in this offering and 407,565 shares of Common Stock expected to be issued in connection with the exercise of certain warrants to purchase shares of the Common Stock. See "Description of Capital Stock--Warrants." Assumes no exercise of the Underwriters' over-allotment option. (2) The address of all persons who are executive officers or directors of the Company is in care of the Company, 281 Winter Street, Waltham, Massachusetts 02154. (3) Consists of 280,000 shares beneficially owned by Mr. Harder's children, 862,860 shares owned by a trust of which Mr. Harder is the trustee and beneficiary and the shares described in Note 4. Mr. Harder is the general partner of, or the majority stockholder of the corporate general partner of, Entrepreneurial Limited Partnership I, Entrepreneurial Limited Partnership II, Entrepreneurial Limited Partnership III and Entrepreneurial Limited Partnership IV (together, the "Partnerships"). Mr. Harder is a director of the Company. Number of Shares Being Offered consists of the shares described in Note 4. (4) Consists of 1,420,240 shares held by Entrepreneurial Limited Partnership I, 798,356 shares held by Entrepreneurial Limited Partnership II, 12,500 shares purchasable upon exercise of a warrant held by Entrepreneurial Limited Partnership III, 808,428 shares held by Entrepreneurial Limited Partnership IV and 400,000 shares purchasable upon exercise of call options held by the partnerships. Number of Shares Being Offered consists of 19,126 shares being offered by Entrepreneurial Limited Partnership I, 28,689 shares being offered by Entrepreneurial Limited Partnership II, 23,907 shares being offered by Entrepreneurial Limited Partnership III and 33,470 shares being offered by Entrepreneurial Limited Partnership IV. The 23,907 shares to be offered by Entrepreneurial Limited Partnership III will be purchased upon the exercise of a stock option granted by a third party. If the underwriters' over-allotment option is exercised in full, the Partnerships will sell an additional 288,528 shares of Common Stock and the shares to be sold and number and percent of shares to be owned beneficially after the offering by the Partnerships will be 393,720, 3,045,804, and 20.5%, respectively. (5) Consists of the shares described in Note 7. Mr. Fillat is the Senior Vice President of Advent International Corporation, which is a general partner of Advent International Investors II Limited Partnership, a general partner of Advent Partners Limited Partnership and a general partner of Advent International Limited Partnership, which is a general partner of Global Private Equity II Limited Partnership. Mr. Fillat holds a limited partnership interest representing beneficial ownership of 5,500 shares held by Advent Partners Limited Partnership. He disclaims beneficial ownership of the remaining 1,994,500 shares. Mr. Fillat is a director of the Company. (6) Consists of the shares described in Note 7. Mr. Kingsley is Vice President of Advent International Corporation, which is a general partner of Advent International Investors II Limited Partnership, a general partner of Advent Partners Limited Partnership and a general partner of Advent International Limited Partnership, which is a general partner of Global Private Equity II Limited Partnership. Mr. Kingsley holds a limited partnership interest representing beneficial ownership of 5,500 shares held by Advent Partners Limited Partnership. He disclaims beneficial ownership of the remaining 1,994,500 shares. Mr. Kingsley is a director of the Company. (7) Consists of 1,668 shares held by Advent International Investors II Limited Partnership, 93,332 shares held by Advent Partners Limited Partnership and 1,905,000 shares held by Global Private Equity II Limited Partnership. (8) Includes 50,000 shares held directly and indirectly by the spouse of Mr. Boyle and 280,000 shares owned by a trust for the benefit of Mr. Boyle's children. Also includes an aggregate of 800,000 shares of Common Stock owned by Mr. Boyle subject to call options held by the Company and certain of its stockholders. See Note 4, "Use of Proceeds" and "Certain Transactions." 51 (9) Includes 500,000 shares currently purchasable upon exercise of a warrant. If the underwriters' over- allotment option is exercised in full, Massachusetts Capital Resource Company will sell an additional 140,798 shares of Common Stock and the shares to be sold and the number and percent of shares to be owned beneficially after the offering by MCRC will be 192,131, 1,285,025 and 8.4%, respectively. (10) Includes 346,000 shares subject to stock options exercisable within 60 days of June 20, 1996. Ms. Reeve is the President and Chief Executive Officer and a director of the Company. (11) Includes 120,000 shares held by the children of Dr. Mills and 25,000 shares purchasable upon exercise of a warrant held by a child of Dr. Mills. Dr. Mills is a director of the Company. Number of Shares Being Offered consists of 12,192 shares being offered by the D. Quinn Mills, Inc. Profit Sharing Plan, 1,261 shares being offered by Deborah Mills Folk, 1,261 shares being offered by Joyce Mills, 1,261 shares being offered by Lisa Mills and 2,500 shares being offered by S.E. Mills. The 2,500 shares to be sold by S.E. Mills will be purchased upon the exercise of a warrant in connection with the closing of this offering. If the underwriters' over-allotment option is exercised in full, Dr. Mills will sell an additional 50,674 shares of Common Stock and the shares to be sold and the number and percent of shares to be owned beneficially after the offering by Dr. Mills will be 69,149, 512,491 and 3.4%, respectively. (12) Consists of 331,194 shares held by various trusts and a pension plan for the benefit of Mr. Perfit and 6,500 shares purchasable upon exercise of a warrant held by various trusts and a pension plan for the benefit of Mr. Perfit. Mr. Perfit is the Senior Vice President of Technology of the Company. (13) Includes 24,000 shares subject to stock options exercisable within 60 days of June 20, 1996. Mr. Brown is the Chief Financial Officer, Vice President of Finance and Administration and Treasurer of the Company. (14) Consists of 54,000 shares subject to stock options exercisable within 60 days of June 20, 1996. Mr. Antell is the Vice President of Software Development of the Company. (15) Consists of 28,000 shares subject to stock options exercisable within 60 days of June 20, 1996. Mr. Blackwell is the Vice President of Service Delivery of the Company. (16) Represents shares described in Notes 3, 5, 6, 10, 11, 12, 13, 14, and 15. 52 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 20,000,000 shares of Common Stock, $.01 par value, 630,516 shares of Series A Redeemable Convertible Preferred Stock, $.01 par value (the "Series A Preferred Stock"), 620,000 shares of Series B Redeemable Convertible Preferred Stock, $.01 par value (the "Series B Preferred Stock"), 225,000 shares of Series C Redeemable Convertible Preferred Stock, $.01 par value (the "Series C Preferred Stock") and 1,000,000 shares of Series D Preferred Stock. As of June 20, 1996 there were outstanding 6,193,620 shares of Common Stock held by 23 holders of record, 630,516 shares of Series A Preferred Stock held by two holders of record, 620,000 shares of Series B Preferred Stock held by 11 holders of record, 200,789 shares of Series C Preferred Stock held by 14 holders of record and 1,000,000 shares of Series D Preferred Stock held by 3 holders of record. Effective upon the closing of this offering, the outstanding shares of Series A Preferred Stock will convert into 1,261,032 shares of Common Stock, the outstanding shares of Series B Preferred Stock will convert into 1,504,412 shares of Common Stock, the outstanding shares of Series C Preferred Stock will convert into 481,880 shares of Common Stock and the outstanding shares of Series D Preferred Stock will convert into 2,000,000 shares of Common Stock. Based on securities outstanding as of June 20, 1996, it is currently expected that, immediately after the closing of this offering, 14,873,509 shares of Common Stock will be outstanding, together with options to acquire 1,615,800 additional shares and warrants to purchase 810,250 additional shares. The Restated Charter, which will eliminate references to the Convertible Preferred Stock, will be filed immediately after the closing of this offering, and the Restated By-Laws will become effective upon the closing of this offering. Upon the effectiveness of the Restated Charter, the authorized capital stock of the Company will consist of 60,000,000 shares of Common Stock, $.01 par value per share, and 5,000,000 shares of Preferred Stock, $.01 par value per share. The description set forth below gives effect to the filing of the Restated Charter and the adoption of the Restated By- Laws. COMMON STOCK Holders of Common Stock are entitled to one vote per share for each share held of record on all matters submitted to a vote of stockholders. Holders of the Common Stock do not have cumulative voting rights, and therefore the holders of a majority of the shares of Common Stock voting for the election of directors may elect all of the Company's directors standing for election. Subject to preferences that may be applicable to the holders of outstanding shares of Preferred Stock, if any, the holders of Common Stock are entitled to receive such lawful dividends as may be declared by the Board of Directors. In the event of a liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, and subject to the rights of the holders of outstanding shares of Preferred Stock, if any, the holders of shares of Common Stock shall be entitled to receive pro rata all of the remaining assets of the Company available for distribution to its stockholders. The Common Stock has no preemptive, redemption, conversion or subscription rights. All outstanding shares of Common Stock are, and the shares of Common Stock to be issued pursuant to this offering will be, fully paid and non-assessable. The issuance of Common Stock or of rights to purchase Common Stock could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of the outstanding voting stock of the Company. PREFERRED STOCK The Board is authorized, subject to any limitations prescribed by Delaware law, to provide for the issuance of Preferred Stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of the shares of each such series and to increase (but not above the total number of authorized shares of Preferred Stock) or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series without further vote or action by the stockholders. The Board is authorized to issue Preferred Stock with voting, conversion and other rights and preferences that could adversely affect the voting power or other rights of the holders of Common Stock. 53 Although the Company has no current plans to issue such shares, the issuance of Preferred Stock or of rights to purchase Preferred Stock could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of the outstanding voting stock of the Company. WARRANTS The Company has issued warrants to purchase an aggregate of 457,288 shares of Common Stock, subject to certain antidilution adjustments, at varying exercise prices. Such warrants will expire by their terms on the closing of this offering. It is currently anticipated that the holders of such warrants will, in accordance with the terms thereof, surrender a portion of the warrants in lieu of payment of the cash exercise price, with the warrants to be valued at the initial public offering price of the Common Stock offered hereby. In addition, the Company has issued warrants (the "Warrants") to purchase an aggregate of 812,750 shares of Common Stock, subject to certain antidilution adjustments, having an exercise price of $2.00 per share. All of the Warrants are exercisable in full. The Warrants expire on dates between August 2000 and July 2001. The holders of the Warrants are entitled to certain registration rights in respect of the shares of Common Stock issuable upon exercise of the Warrants. See "Shares Eligible for Future Sale--Registration Rights." ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE RESTATED CHARTER AND BY-LAWS AND OF DELAWARE LAW Restated Charter and By-Laws The Restated Charter and the Restated By-Laws contain certain provisions that could discourage potential takeover attempts and make more difficult attempts by stockholders to change the Company's management. The Restated Charter authorizes the directors to issue, without stockholder approval, shares of Preferred Stock in one or more series and to fix the voting powers, preferences and rights and the qualifications, limitations and restrictions thereof. The Restated By-Laws provide 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." The classification of the Board of Directors could make it more difficult for a third party to acquire, or discourage a third party from acquiring, control of the Company. The Restated By-Laws provide that stockholders may act only at meetings of stockholders and not by written consent in lieu of a stockholders' meeting. The Restated By- Laws provide that nominations for directors may not be made by stockholders at any annual or special meeting thereof unless the stockholder intending to make a nomination notifies the Company of its intentions a specified number of days in advance of the meeting and furnishes to the Company certain information regarding itself and the intended nominee. These provisions could delay any stockholder actions that are favored by the holders of a majority of the outstanding stock of the Company until the next stockholders' meeting. 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 stock of the Company could only take action at a duly called stockholders meeting and not by written consent. The Restated By-Laws also provide that special meetings of the Company's stockholders may be called only by the President or a majority of the directors and require advance notice of business to be brought by a stockholder before any annual or special meeting of stockholders and the provision of certain information to the Company regarding such stockholder and others known to be supporting such proposal and any material interest they may have in the proposed business. Delaware Anti-Takeover Statute The Company is subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that such stockholder became an interested stockholder, unless (i) prior to such date, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction 54 commenced, excluding for purposes of determining the number of shares outstanding those shares owned (x) by persons who are directors and also officers and (y) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder. Section 203 defines "business combination" to include (i) any merger or consolidation involving the corporation and the interested stockholder; (ii) any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation; (iii) subject to certain exceptions, any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or (v) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an "interested stockholder" as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person associated with, affiliated with or controlling or controlled by such entity or person. LIMITATION OF LIABILITY The Restated Charter provides that no director of the Company shall be personally liable to the Company or to any stockholder for monetary damages arising out of such director's breach of fiduciary duty, except to the extent that the elimination or limitation of liability is not permitted by the Delaware General Corporation Law. The Delaware General Corporation Law, as currently in effect, permits charter provisions eliminating the liability of directors for breach of fiduciary duty, except that directors remain liable for (i) any breach of the director's duty of loyalty to a company or its stockholders, (ii) any acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) any payment of a dividend or approval of a stock purchase that is illegal under Section 174 of the Delaware General Corporation Law or (iv) any transaction from which the director derived an improper personal benefit. A principal effect of this provision of the Restated Charter is to limit or eliminate the potential liability of the Company's directors for monetary damages arising from breaches of their duty of care, unless the breach involves one of the four exceptions described in (i) through (iv) above. The provision does not prevent stockholders from obtaining injunctive or other equitable relief against directors, nor does it shield directors from liability under federal or state securities laws. The Restated Charter and the Restated By-Laws further provide for the indemnification of the Company's directors and officer to the fullest extent permitted by Section 145 of the Delaware General Corporation Law, including circumstances in which indemnification is otherwise discretionary. STOCK TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is . 55 SHARES ELIGIBLE FOR FUTURE SALE Upon the closing of this offering, the Company will have 14,873,509 shares of Common Stock outstanding (assuming no exercise of options or warrants outstanding as of the date of this Prospectus, other than warrants to purchase 2,500 of the shares of Common Stock being offered by one of the Selling Stockholders hereby). Of these shares, all of the shares of Common Stock sold in this offering will be freely tradeable in the public market without restriction under the Securities Act, unless they are purchased by an "affiliate" of the Company (as that term is defined in Rule 144). The remaining 11,673,509 shares will be "restricted securities" as defined in Rule 144 (the "Restricted Shares"). Restricted securities generally may be sold in the public market only if registered under the Securities Act or sold in compliance with Rule 144. As of the consummation of this offering and after giving effect to the sale of the shares of Common Stock offered by the Selling Stockholders hereby, holders of 6,613,131 shares of Common Stock will have rights to require the Company in certain circumstances to register such shares for sale under the Securities Act. See "--Registration Rights". SALES OF RESTRICTED SHARES Of the Restricted Shares, 4,139,689 shares will be eligible for resale in the public market in reliance on Rule 144(k) immediately following the completion of this offering; 1,933,643 of these shares are subject to the lock-up agreements described below. An additional 121,998 Restricted Shares will become eligible for resale in the public market in reliance on Rule 144(k) in the 90 days following the date of this Prospectus; 21,998 of these shares are subject to the lock-up agreements described below. An additional 5,316,432 Restricted Shares will be eligible for resale in the public market pursuant to Rule 144 and Rule 701 under the Securities Act ("Rule 701") beginning approximately 90 days after the date of this Prospectus; 5,293,027 of these shares are subject to the lock-up agreements described below. The remaining 2,095,390 Restricted Shares will become eligible for sale subject to the restrictions of Rule 144 at later dates; 2,086,490 of these shares are subject to the lock-up agreements described below. In general, under Rule 144 as currently in effect, any person (or persons whose shares are aggregated), who has beneficially owned restricted securities for at least two years 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 Common Stock (approximately 148,735 shares, based on the number of shares to be outstanding after this offering) or the average weekly trading volume in the public market during the four calendar weeks preceding the filing of the seller's Form 144, provided certain requirements concerning availability of public information concerning the Company, manner of sale and notice of sale are satisfied. A person who is not an affiliate, has not been an affiliate within three months prior to the sale and has beneficially owned the restricted securities for at least three years is entitled to sell such shares under Rule 144(k) without regard to any of the limitations described above. Rule 144 also provides that affiliates who are selling shares that are not restricted securities must nonetheless comply with the same restrictions applicable to restricted securities with the exception of the holding period requirement. The two- and three-year holding periods described above do not begin to run until the full purchase price or other consideration is paid by the person acquiring the restricted securities from the issuer or an affiliate of the issuer and may include the holding period of a prior owner who is not an affiliate of the issuer. The Commission has proposed certain amendments to Rule 144 that would reduce by one year the holding periods required for shares subject to Rule 144 to become eligible for resale in the public market. This proposal, if adopted, would increase the number of shares of Common Stock eligible for immediate resale following expiration of the lock-up agreements described below. No assurance can be given concerning whether or when the proposal will be adopted by the Commission. Securities issued in reliance on Rule 701 (such as shares of Common Stock issued before the closing of this offering upon the exercise of options granted under the 1990 Stock Option Plan) are also Restricted Shares and, beginning approximately 90 days after the date of this Prospectus, may be resold by persons other than affiliates of the Company subject only to the manner of sale provisions of Rule 144 and may be resold by affiliates under Rule 144 without compliance with its two-year holding period requirement. Outstanding options to purchase 561,180 shares of Common Stock were fully vested as of June 20, 1996, all of which are subject to 180-day lock-up agreements. 56 The Company intends to file one or more registration statements on Form S-8 under the Securities Act to register all shares of Common Stock issued or issuable under the Stock Option Plans and the Stock Purchase Plan. See "Management--Benefit Plans." The registration statements are expected to be filed as soon as practicable after the date of this Prospectus and will become effective immediately upon filing. Shares covered by the registration statements will be eligible for resale in the public market after the effective date of the registration statements, subject to the lock-up agreements described below, if applicable. Prior to this offering there has been no public market for the Common Stock of the Company and no prediction can be made as to the effect, if any, that market sales or the availability for sale of such shares will have on the market price of the Common Stock prevailing from time to time. Nevertheless, sales of substantial numbers of shares in the public market could adversely affect the market price of the Common Stock and could impair the Company's ability to raise capital through a sale of its equity securities. See "Risk Factors--Absence of Public Market; Possible Volatility of Stock Price." LOCK-UP AGREEMENTS The executive officers and directors of the Company, the Selling Stockholders and certain others, who, upon the closing of this offering, will beneficially own an aggregate of 8,050,465 shares of Common Stock, options to purchase 2,140,000 shares of Common Stock and warrants to purchase 41,500 shares of Common Stock, have agreed that they will not, without the prior written consent of Cowen & Company, sell, offer, contract to sell or otherwise dispose of any shares of Common Stock or any securities convertible into or exchangeable for any shares of Common Stock for a period of 180 days after the date of this Prospectus. REGISTRATION RIGHTS Pursuant to a Registration Rights Agreement dated February 11, 1991, as amended, the Company has granted registration rights to certain of its stockholders with respect to certain shares ("Registrable Shares") consisting of (i) 5,247,324 shares of Common Stock issuable upon conversion of the Convertible Preferred Stock, (ii) 525,000 shares of Common Stock issuable upon exercise of two outstanding warrants and (iii) 910,615 shares of Common Stock initially held by two specified stockholders. Holders may request registration of Registrable Shares under the Securities Act as follows. First, holders of 25% of the Registrable Shares then outstanding may, at any time, require the Company to use its best efforts to register all or any portion of their Registrable Shares if the shares to be registered (a) represent all of the Registrable Shares then held by such holders, (b) represent at least 20% of the Registrable Shares originally issued if such holders request the registration of less than all of the Registrable Shares held by them or (c) are reasonably anticipated to be offered at an aggregate price to the public that exceeds $2,000,000. Second, at any time when the Company qualifies to register securities on Form S-3 under the Securities Act, holders of Registrable Shares may request the Company file a registration statement on Form S-3 for a public offering of all or any portion of the Registrable Shares, provided that the reasonably anticipated aggregate price to the public is at least $500,000. Third, each holder of Registrable Shares has incidental ("piggyback") registration rights with respect to registrations of the Company's securities, pursuant to which the holder may request that all or any portion of its Registrable Shares be included in a registration statement (other than a registration statement of Form S-4 or S-8 or certain other forms) being filed by the Company for its own account or otherwise. The Company will pay certain expenses incurred by the holders of Registrable Shares in exercising the foregoing registration rights. 57 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Company and the Selling Stockholders have agreed to sell to each of the Underwriters named below, and each of the Underwriters, for whom Cowen & Company, Montgomery Securities and Prudential Securities Incorporated 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 UNDERWRITER COMMON STOCK - ----------- ------------ Cowen & Company.................................................... Montgomery Securities.............................................. Prudential Securities Incorporated................................. --------- Total.......................................................... 3,200,000 =========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent, including the absence of any material adverse change in the Company's business and the receipt of certain closing certificates, opinions and letters from the Company and its counsel and independent auditors. The nature of the Underwriters' obligations is such that they are committed to purchase all of the shares of Common Stock being offered hereby (other than those covered by the over-allotment option described below) if any of such shares are purchased. The Underwriters propose to offer the shares of Common Stock in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus and in part to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may re-allow, a concession not in excess of $ per share to certain brokers and dealers. After the shares of Common Stock are released for sale to the public, the offering price and other selling terms may from time to time be varied by the Representatives. Certain of the Selling Stockholders have granted the Underwriters an option exercisable for up to 30 days after the date of this Prospectus to purchase up to an aggregate of 480,000 additional shares of Common Stock to cover over- allotments, if any. If the Underwriters exercise their over-allotment option, the Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of shares to be purchased by each of them as shown in the foregoing table bears to the 3,200,000 shares of Common Stock offered hereby. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of the Common Stock offered hereby. The Company and the Selling Stockholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act and to contribute to payments the Underwriters may be required to make in respect thereof. 58 The Company, the Company's executive officers and directors, all Selling Stockholders and certain other stockholders and option holders of the Company have agreed that they will not, without the prior written consent of Cowen & Company, sell, offer, contract to sell, or otherwise dispose of any shares of Common Stock or any securities convertible into or exchangeable for any shares of Common Stock for a period of 180 days after the date of this Prospectus. See "Shares Eligible for Future Sale--Lock-up Agreements." The Representatives have advised the Company and the Selling Stockholders that the Underwriters do not intend to confirm sales of the shares offered hereby to any account over which they exercise discretionary authority. Prior to this offering, there has been no public market for the Common Stock. Consequently, the initial public offering price will be determined by negotiation among the Company, the Selling Stockholders and the Representatives. Among the factors to be considered in such negotiations are the prevailing market conditions, the market prices of securities of publicly traded companies engaged in activities similar to those of the Company, the Company's financial and operating history and condition, estimates of the business potential of the Company, the present state of the Company's development, and other factors deemed relevant. The estimated initial public offering price range set forth on the cover hereof is subject to change as a result of market conditions and other factors. LEGAL MATTERS The validity of the shares offered hereby and certain other legal matters will be passed upon for the Company and the Selling Stockholders by Foley, Hoag & Eliot llp, Boston, Massachusetts. Certain legal matters will be passed upon for the Underwriters by Testa, Hurwitz & Thibeault, llp, Boston, Massachusetts. EXPERTS The Financial Statements of the Company at September 30, 1994 and 1995 and December 31, 1995, and for each of the three years in the period ended September 30, 1995 and for the three-month period ended December 31, 1995, appearing in this Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement on Form S-1 under the Securities Act with respect to the Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the Common Stock, reference is made to such Registration Statement and the exhibits and schedules filed as a part thereof. Statements contained in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and, in each instance, if such contract or document is filed as an exhibit, reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference to such exhibit. The Registration Statement, including exhibits and schedules thereto, may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Regional Offices of the Commission at Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and 7 World Trade Center, Thirteenth Floor, New York, New York 10048. Copies also may be obtained from the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates. 59 LIGHTBRIDGE, INC. INDEX TO FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report.............................................. F-2 Balance Sheets as of September 30, 1994 and 1995, December 31, 1995 and March 31, 1996 (Unaudited)............................................... F-3 Statements of Operations for the Years Ended September 30, 1993, 1994 and 1995 and the Three Months Ended December 31, 1994 (Unaudited), December 31, 1995, March 31, 1995 (Unaudited) and March 31, 1996 (Unaudited)...... F-4 Statements of Stockholders' Deficiency for the Years Ended September 30, 1993, 1994 and 1995 and the Three Months Ended December 31, 1995 and March 31, 1996 (Unaudited)............................................... F-5 Statements of Cash Flows for the Years Ended September 30, 1993, 1994 and 1995 and the Three Months Ended December 31, 1994 (Unaudited), December 31, 1995, March 31, 1995 (Unaudited) and March 31, 1996 (Unaudited)...... F-6 Notes to Financial Statements............................................. F-7
F-1 INDEPENDENT AUDITORS' REPORT The accompanying financial statements give effect to the completion of the two-for-one split of the Company's outstanding common stock which will take place on July 15, 1996. The following report is in the form which will be furnished by Deloitte & Touche llp upon the completion of the two-for-one split of the Company's outstanding common stock described in Note 11 to the financial statements and assuming that from April 22, 1996 to the date of such completion no other material events have occurred that would affect the accompanying financial statements or require disclosure therein. "To the Board of Directors Lightbridge, Inc. Waltham, Massachusetts We have audited the accompanying balance sheets of Lightbridge, Inc. as of September 30, 1994 and 1995 and December 31, 1995, and the related statements of operations, stockholders' deficiency, and cash flows for the years ended September 30, 1993, 1994 and 1995 and the three months ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at September 30, 1994 and 1995 and December 31, 1995, and the results of its operations and its cash flows for the years ended September 30, 1993, 1994 and 1995 and the three months ended December 31, 1995 in conformity with generally accepted accounting principles. Boston, Massachusetts April 22, 1996 (Except for Note 11 as to which the date is July , 1996)" Deloitte & Touche llp Boston, Massachusetts June 21, 1996 F-2 LIGHTBRIDGE, INC. BALANCE SHEETS
SEPTEMBER 30, MARCH 31, ------------------------ DECEMBER 31, 1996 1994 1995 1995 (UNAUDITED) ----------- ----------- ------------ ----------- ASSETS Current assets: Cash and cash equivalents. $ 1,831,916 $ 539,025 $ 58,064 $ 599,589 Accounts receivable....... 2,676,451 2,753,758 4,578,143 3,809,697 Accounts receivable from related parties.......... 107,231 121,100 136,809 255,411 Other current assets...... 223,885 158,571 144,294 325,740 ----------- ----------- ----------- ----------- Total current assets... 4,839,483 3,572,454 4,917,310 4,990,437 Noncurrent receivable from related party............. 45,638 -- -- -- Fixed assets--net.......... 4,101,292 5,319,832 4,881,655 4,515,564 Capitalized software development costs--net.... -- 896,141 762,084 661,992 Deposits................... 167,963 206,620 225,807 229,900 Other assets............... 26,241 219,236 254,625 213,466 ----------- ----------- ----------- ----------- Total assets........... $ 9,180,617 $10,214,283 $11,041,481 $10,611,359 =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities: Accounts payable and accrued expenses......... $ 1,305,254 $ 2,304,595 $ 3,025,038 $ 2,306,477 Short-term borrowings and current portion of subordinated notes payable.................. 250,000 1,976,992 1,500,000 1,500,000 Current portion of obligations under capital leases................... 1,181,581 2,066,748 2,073,895 2,137,097 Deferred revenues......... 58,333 228,650 74,800 776,557 Dividends payable on preferred stock.......... 166,876 166,876 166,876 166,876 Related parties: Accounts payable......... 784 -- -- -- Subordinated notes payable................. -- 69,071 -- -- Interest payable......... 99,670 39,035 44,096 47,072 Current portion of obligations under capital leases.......... 61,952 -- -- -- ----------- ----------- ----------- ----------- Total current liabilities........... 3,124,450 6,851,967 6,884,705 6,934,079 Deferred revenues--related parties................... 2,781 -- -- -- Obligations under capital leases.................... 2,355,733 1,916,609 1,502,128 1,105,915 Notes payable: Unaffiliated parties...... 1,754,018 1,789,643 2,848,837 2,879,207 Related parties........... 87,701 89,576 164,298 166,337 ----------- ----------- ----------- ----------- Total liabilities...... 7,324,683 10,647,795 11,399,968 11,085,538 ----------- ----------- ----------- ----------- Commitments and contingencies (Note 5) Redeemable convertible preferred stock at redemption value (liquidation preference of $3,115,315, $3,297,859, $3,343,494 and $3,389,129 at September 30, 1994 and 1995 and December 31, 1995 and March 31, 1996, respectively)............. 2,948,439 3,130,983 3,176,618 3,222,253 ----------- ----------- ----------- ----------- Stockholders' deficiency: Common stock, $.01 par value; 20,000,000 shares authorized; 6,505,282, 6,507,798, 6,582,148 and 6,582,648 shares issued, 6,505,282, 6,506,650, 6,581,000 and 6,581,500 shares outstanding at September 30, 1994 and 1995, December 31, 1995 and March 31, 1996, respectively............. 65,053 65,078 65,822 65,827 Additional paid-in capital.................. 100,003 -- -- -- Warrants.................. 262,500 406,375 406,375 406,375 Note receivable, stockholder.............. (13,085) (13,085) (13,085) (13,085) Accumulated deficit....... (1,506,976) (4,022,289) (3,993,643) (4,016,142) ----------- ----------- ----------- ----------- Total.................. (1,092,505) (3,563,921) (3,534,531) (3,557,025) Less treasury stock, at cost..................... -- (574) (574) (139,407) ----------- ----------- ----------- ----------- Total stockholders' deficiency............ (1,092,505) (3,564,495) (3,535,105) (3,696,432) ----------- ----------- ----------- ----------- Total liabilities and stockholders' deficiency............ $ 9,180,617 $10,214,283 $11,041,481 $10,611,359 =========== =========== =========== ===========
See notes to financial statements. F-3 LIGHTBRIDGE, INC. STATEMENTS OF OPERATIONS
THREE MONTHS ENDED THREE MONTHS ENDED YEARS ENDED SEPTEMBER 30, DECEMBER 31, MARCH 31, ------------------------------------ ----------------------- ---------------------- 1993 1994 1995 1994 1995 1995 1996 ---------- ----------- ----------- ----------- ---------- ---------- ---------- (UNAUDITED) (UNAUDITED) Revenues (Includes sales to a related party of $84,736, $104,278, $59,017, $21,075, $10,644, $11,551 and $3,125, respectively).. $6,985,912 $13,397,863 $19,350,467 $5,514,643 $6,512,050 $4,452,371 $6,314,336 Cost of revenues 3,553,577 7,415,356 12,607,879 3,015,687 3,484,175 3,125,648 3,634,509 ---------- ----------- ----------- ---------- ---------- ---------- ---------- Gross profit............ 3,432,335 5,982,507 6,742,588 2,498,956 3,027,875 1,326,723 2,679,827 ---------- ----------- ----------- ---------- ---------- ---------- ---------- Operating expenses: Development............ 1,164,469 2,317,454 3,864,000 849,705 1,144,973 928,800 953,057 Sales and marketing.... 829,004 814,891 1,901,716 433,509 794,687 476,400 895,369 General and administrative........ 1,309,049 1,643,496 2,583,912 629,841 700,640 566,260 549,015 ---------- ----------- ----------- ---------- ---------- ---------- ---------- Total operating expenses............ 3,302,522 4,775,841 8,349,628 1,913,055 2,640,300 1,971,460 2,397,441 ---------- ----------- ----------- ---------- ---------- ---------- ---------- Income (loss) from operations............. 129,813 1,206,666 (1,607,040) 585,901 387,575 (644,737) 282,386 Other income (expense): Interest income: Related parties........ 11,788 12,604 8,688 2,633 1,551 2,640 1,576 Other.................. 4,328 9,384 29,006 9,120 510 6,481 4,273 Interest expense: Related parties........ (125,600) (20,753) (3,908) (53,201) (60,586) (52,205) (52,953) Other.................. (124,704) (224,927) (859,660) (131,800) (246,525) (155,999) (202,933) Other nonoperating expense............... (21,048) (9,802) -- (930) (7,923) (3,090) -- ---------- ----------- ----------- ---------- ---------- ---------- ---------- Income (loss) before provision for income taxes.................. (125,423) 973,172 (2,432,914) 411,723 74,602 (846,910) 32,349 Provision for income taxes.................. -- 22,900 -- -- 2,397 -- 9,458 ---------- ----------- ----------- ---------- ---------- ---------- ---------- Net income (loss)....... $ (125,423) $ 950,272 $(2,432,914) $ 411,723 $ 72,205 $ (846,910) $ 22,891 ========== =========== =========== ========== ========== ========== ========== Pro forma net income (loss) per common share.................. $ (0.19) $ 0.01 $ 0.00 =========== ========== ========== Pro forma weighted average number of common and common equivalent shares outstanding............ 12,770,413 13,270,516 13,333,827 =========== ========== ==========
See notes to financial statements. F-4 LIGHTBRIDGE, INC. STATEMENTS OF STOCKHOLDERS' DEFICIENCY
COMMON STOCK TREASURY STOCK ADDITIONAL NOTE TOTAL ----------------- ---------------- PAID-IN RECEIVABLE, ACCUMULATED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL WARRANTS STOCKHOLDER DEFICIT DEFICIENCY --------- ------- ------ --------- ---------- -------- ----------- ----------- ------------- Balance, October 1, 1992................... 5,281,988 $52,820 -- $ -- $ -- $ -- $(13,085) $(2,331,825) $(2,292,090) Issuance of common stock for: Cash................... 619,416 6,194 -- -- 19,286 -- -- -- 25,480 Convertible notes and interest payable...... 517,778 5,178 -- -- 405,419 -- -- -- 410,597 Dividends on redeemable convertible preferred stock.................. -- -- -- -- (150,421) -- -- -- (150,421) Net loss................ -- -- -- -- -- -- -- (125,423) (125,423) --------- ------- ----- --------- --------- -------- -------- ----------- ----------- Balance, September 30, 1993................... 6,419,182 64,192 -- -- 274,284 -- (13,085) (2,457,248) (2,131,857) Issuance of common stock for cash............... 86,100 861 -- -- 8,263 -- -- -- 9,124 Issuance of stock purchase warrants...... -- -- -- -- -- 262,500 -- -- 262,500 Dividends on redeemable convertible preferred stock.................. -- -- -- -- (182,544) -- -- -- (182,544) Net income.............. -- -- -- -- -- -- -- 950,272 950,272 --------- ------- ----- --------- --------- -------- -------- ----------- ----------- Balance, September 30, 1994................... 6,505,282 65,053 -- -- 100,003 262,500 (13,085) (1,506,976) (1,092,505) Issuance of common stock for cash............... 2,516 25 -- -- 142 -- -- -- 167 Issuance of stock purchase warrants...... -- -- -- -- -- 143,875 -- -- 143,875 Dividends on redeemable convertible preferred stock.................. -- -- -- -- (100,145) -- -- (82,399) (182,544) Repurchase of common stock for cash......... -- -- 1,148 (574) -- -- -- -- (574) Net loss................ -- -- -- -- -- -- -- (2,432,914) (2,432,914) --------- ------- ----- --------- --------- -------- -------- ----------- ----------- Balance, September 30, 1995................... 6,507,798 65,078 1,148 (574) -- 406,375 (13,085) (4,022,289) (3,564,495) Issuance of common stock for cash............... 74,350 744 -- -- 2,076 -- -- -- 2,820 Dividends on redeemable convertible preferred stock.................. -- -- -- -- (2,076) -- -- (43,559) (45,635) Net income.............. -- -- -- -- -- -- -- 72,205 72,205 --------- ------- ----- --------- --------- -------- -------- ----------- ----------- Balance, December 31, 1995................... 6,582,148 65,822 1,148 (574) -- 406,375 (13,085) (3,993,643) (3,535,105) Unaudited: Issuance of common stock for cash........ 500 5 -- -- 245 -- -- -- 250 Treasury stock purchase option payments....... -- -- -- (138,833) -- -- -- -- (138,833) Dividends on redeemable convertible preferred stock................. -- -- -- -- (245) -- -- (45,390) (45,635) Net income............. -- -- -- -- -- -- -- 22,891 22,891 --------- ------- ----- --------- --------- -------- -------- ----------- ----------- Balance, March 31, 1996 (unaudited)............ 6,582,648 $65,827 1,148 $(139,407) $ -- $406,375 $(13,085) $(4,016,142) $(3,696,432) ========= ======= ===== ========= ========= ======== ======== =========== ===========
See notes to financial statements. F-5 LIGHTBRIDGE, INC. STATEMENTS OF CASH FLOWS
THREE MONTHS THREE MONTHS YEARS ENDED ENDED ENDED SEPTEMBER 30, DECEMBER 31, MARCH 31, ----------------------------------- ------------------------ ---------------------- 1993 1994 1995 1994 1995 1995 1996 --------- ----------- ----------- ----------- ----------- ---------- ---------- (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net income (loss)...... $(125,423) $ 950,272 $(2,432,914) $ 411,723 $ 72,205 $ (846,910) $ 22,891 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.......... 868,965 1,000,057 2,567,767 555,966 864,192 692,487 896,725 Amortization of discount on notes..... -- 4,219 76,500 9,375 87,853 9,375 32,409 Changes in assets and liabilities: Accounts receivable... (847,786) (1,278,988) (77,307) (1,474,071) (1,840,094) 1,608,187 649,844 Other assets.......... (54,475) (269,299) (173,594) (227,752) (30,014) (279,048) (187,434) Accounts payable and accrued liabilities.. 274,697 341,878 935,172 610,339 725,504 (543,519) (715,585) Deferred revenues..... 297,752 (254,721) 167,536 655,094 (153,850) (178,625) 701,757 --------- ----------- ----------- ----------- ----------- ---------- ---------- Net cash provided by (used in) operating activities......... 413,730 493,418 1,063,160 540,674 (274,204) 461,947 1,400,607 --------- ----------- ----------- ----------- ----------- ---------- ---------- Cash flows used in investing activities: Purchases of fixed assets................ (309,868) (339,223) (1,391,679) (359,874) (184,186) (358,623) (185,123) Capitalization of software costs........ -- -- (980,453) (310,652) -- (187,640) -- --------- ----------- ----------- ----------- ----------- ---------- ---------- Net cash used in investing activities......... (309,868) (339,223) (2,372,132) (670,526) (184,186) (546,263) (185,123) --------- ----------- ----------- ----------- ----------- ---------- ---------- Cash flows from financing activities: Proceeds from notes payable and warrants.. 210,000 2,350,000 1,901,000 -- 500,000 750,000 -- Payments on notes payable............... (501,000) (50,000) -- -- -- -- -- Payments under capital lease obligations..... (412,988) (823,085) (1,884,512) (410,045) (525,391) (470,593) (535,376) Proceeds from issuance of common stock....... 25,480 9,124 167 -- 2,820 524 250 Payments toward the purchase of treasury stock................. -- -- (574) -- -- (574) (138,833) Proceeds from issuance of mandatory redeemable convertible preferred stock, net.. 584,228 -- -- -- -- -- -- --------- ----------- ----------- ----------- ----------- ---------- ---------- Net cash provided by (used in) financing activities......... (94,280) 1,486,039 16,081 (410,045) (22,571) 279,357 (673,959) --------- ----------- ----------- ----------- ----------- ---------- ---------- Net increase (decrease) in cash and cash equivalents............ 9,582 1,640,234 (1,292,891) (539,897) (480,961) 195,041 541,525 Cash and cash equivalents, beginning of period.............. 182,100 191,682 1,831,916 1,831,916 539,025 1,292,019 58,064 --------- ----------- ----------- ----------- ----------- ---------- ---------- Cash and cash equivalents, end of period................. $ 191,682 $ 1,831,916 $ 539,025 $ 1,292,019 $ 58,064 $1,487,060 $ 599,589 ========= =========== =========== =========== =========== ========== ========== Cash paid for interest.. $ 152,292 $ 283,272 $ 904,605 $ 251,372 $ 176,271 $ 200,623 $ 213,908 ========= =========== =========== =========== =========== ========== ========== Cash paid for income taxes.................. $ -- $ 5,300 $ 25,000 $ 25,000 $ 15,700 $ -- $ 9,200 ========= =========== =========== =========== =========== ========== ==========
See notes to financial statements. F-6 LIGHTBRIDGE, INC. NOTES TO FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1994, MARCH 31, 1995 AND 1996 IS UNAUDITED.) 1. BUSINESS AND TECHNOLOGY ACQUISITIONS Business--Lightbridge, Inc. (formerly Credit Technologies, Inc.) (the "Company") was incorporated in June 1989 under the laws of the state of Delaware. The Company develops and markets customer acquisition solutions for the wireless communications industry. Effective November 1, 1994, the Company changed its name and reincorporated as Lightbridge, Inc. During 1995, the Board of Directors passed a resolution to change the fiscal year end to December 31. Technology Acquisitions--During the year ended September 30, 1995, the Company completed the following technology acquisitions: . In November 1994, the Company purchased the technology for a pen-based software product for $400,000. . In February 1995, the Company purchased the software technology for a multimedia kiosk for $45,000. The Company is also obligated to make royalty payments to the former owners based on future sales of the product. The costs associated with these acquisitions was recorded as capitalized software costs, since such products had reached technological feasibility at the date of acquisition. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents--Cash and cash equivalents include short-term, highly liquid instruments, which consist primarily of money market accounts, purchased with remaining maturities of three months or less. Fixed Assets--Fixed assets are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets ranging from three to five years. Leasehold improvements are amortized over the term of the lease or the lives of the assets, whichever is shorter. Revenue Recognition and Concentration of Credit Risk--Revenue from processing of qualification and activation transactions for wireless telecommunications carriers is recognized in the period when services are performed. Revenues derived from software implementation projects are recognized throughout the performance period of the contracts. Revenues arising from the prepayment of fees or from licensing agreements where the Company has continuing vendor obligations are deferred. Software-related revenues are less than 10% of total revenue for all periods presented with the exception of the three months ended March 31, 1996 during which these items comprised approximately 16% of total revenue. Substantially all of the Company's customers are providers of cellular telephone service and are generally granted credit without collateral. The Company's revenues vary throughout the year with the period of highest revenue generally occurring during the period October 1 through December 31. F-7 LIGHTBRIDGE, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Customers exceeding 10% of the Company's revenue during the years ended September 30, 1993, 1994 and 1995 and the three months ended December 31, 1994 and 1995 and March 31, 1995 and 1996 are as follows:
PERCENT OF REVENUE ---------------------------------------------- THREE MONTHS ENDED YEARS ENDED ---------------------------- SEPTEMBER 30, DECEMBER 31, MARCH 31, ---------------- --------------- ---------- CUSTOMER 1993 1994 1995 1994 1995 1995 1996 -------- ---- ---- ---- ------ ------ ---- ---- A............................... 20% 32% 31% 32% 22% 32% 19% B............................... 14 12 11 -- 18 12 14 C............................... -- 10 -- -- -- -- -- D............................... -- 10 11 12 10 10 -- E............................... -- -- 10 11 11 13 10 F............................... -- -- -- -- -- -- 10 --- --- --- ------ ------ --- --- 34% 64% 63% 55% 61% 67% 53% === === === ====== ====== === ===
For periods in which a customer represented less than 10% of revenues, such customer's percent of revenue for that period is not presented. Income Taxes--The Company has adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No. 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of existing assets and liabilities. Deferred income tax assets are principally the result of net operating loss carryforwards and differences in depreciation and amortization for financial statement purposes and income tax purposes, and are recognized to the extent realization of such benefits is more likely than not. Software Development Costs--Software development costs are capitalized after establishment of technological feasibility as provided for under SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." During the year ended September 30, 1995, the Company capitalized approximately $980,400 of software development costs associated with the development of two new products, including the costs of purchasing certain technology (see Note 1). Capitalized software development costs are being amortized to cost of revenues using the straight-line method over 24 months which results in the highest levels of amortization. Accumulated amortization was approximately $84,000, $218,000 and $318,000 at September 30, 1995, December 31, 1995 and March 31, 1996, respectively. There were no amounts capitalized prior to the year ended September 30, 1995. Development Costs--Development costs, which consist of research into and development of new products and services, are expensed as incurred, except costs which may be subject to capitalization under the provisions of SFAS No. 86. Supplemental Cash Flow Information--The Company entered into the following noncash transactions:
THREE MONTHS THREE MONTHS YEARS ENDED ENDED ENDED SEPTEMBER 30, DECEMBER 31, MARCH 31, ------------------------------ ------------------- ----------------- 1993 1994 1995 1994 1995 1995 1996 -------- ---------- ---------- ---------- -------- -------- -------- Capital lease obligations incurred for the acquisition of fixed assets.......... $653,057 $3,256,900 $2,268,605 $1,720,863 $118,057 $407,945 $202,364 ======== ========== ========== ========== ======== ======== ======== Exchange of notes and interest payable for common stock.......... $410,597 ========
F-8 LIGHTBRIDGE, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Pro Forma Income (Loss) Per Common Share--Pro forma income (loss) per common share is based on the weighted average number of common and dilutive common equivalent shares (common stock options and warrants) outstanding. The pro forma weighted average number of common shares assumes that all series of redeemable convertible preferred stock had been converted to common stock as of the original issuance date. Common equivalent shares are not included in the per share calculations where the effect of their inclusion would be anti- dilutive, except in accordance with the requirements of Securities and Exchange Commission Staff Accounting Bulletin No. 83. That Bulletin requires all common shares issued and options or warrants to purchase common stock granted by the Company during the twelve-month period prior to the filing of a proposed initial public offering be included in the calculation as if they were outstanding for all periods. Shares of Series D redeemable convertible preferred stock have been treated as outstanding in all periods for pro forma income (loss) per common share pursuant to the Bulletin. Historical income (loss) per share, which excludes the assumed conversion of the redeemable convertible preferred stock, was as follows (in thousands):
THREE MONTHS THREE MONTHS YEARS ENDED ENDED ENDED SEPTEMBER 30, DECEMBER 31, MARCH 31, --------------------------------- -------------------- -------------------- 1993 1994 1995 1994 1995 1995 1996 --------- --------- ----------- --------- --------- --------- --------- Net income (loss)....... $(125,423) $ 950,272 $(2,432,914) $ 411,723 $ 72,205 $(846,910) $ 22,891 Accretion of preferred dividends.............. (150,421) (182,544) (182,544) (45,635) (45,635) (45,635) (45,635) --------- --------- ----------- --------- --------- --------- --------- Net income (loss) available for common stock.................. $(275,844) $ 767,728 $(2,615,458) $ 366,088 $ 26,570 $(892,545) $ (22,744) ========= ========= =========== ========= ========= ========= ========= Net income (loss) per common share........... $ (0.04) $ 0.10 $ (0.35) $ 0.05 $ -- $ (0.12) $ -- Weighted average number of common and common equivalent shares outstanding............ 6,681,065 7,904,836 7,523,088 8,003,263 8,023,192 7,522,478 8,086,503
Fair Value of Financial Instruments--In the opinion of management, the estimated fair value of the Company's financial instruments, which include cash equivalents, accounts receivable and long-term debt, approximates their carrying value. New Accounting Pronouncements-- Impairment of Long-Lived Assets--In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 addresses the accounting for the impairment of long-lived assets, certain identifiable intangibles and goodwill when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The adoption of SFAS No. 121 in 1996 did not have a material impact on the Company's results of operations, financial position or cash flows. Stock-Based Compensation--In November 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 addresses the financial accounting and reporting standards for stock-based employee compensation plans. SFAS No. 123 permits an entity to either record the effects of stock-based employee compensation plans in its financial statements or present pro forma disclosures in the notes to the financial statements. In connection with the adoption of SFAS No. 123 during 1996, the Company will elect to provide the appropriate disclosures in the notes to the financial statements. Since the Company does not expect to make significant equity awards to outsiders, adoption of SFAS No. 123 will not significantly impact the Company's results of operations, financial position or cash flows. F-9 LIGHTBRIDGE, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Significant Estimates--The preparation of financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates. These estimates include provisions for bad debts, certain accrued liabilities, recognition of revenue and expenses, and recoverability of deferred tax assets. These estimates could change; however, the Company does not expect any changes in the near term that would have a significant impact on the financial statements. Interim Information--The results of operations and cash flows for the three- month periods ended December 31, 1994 and 1995 and March 31, 1995 and 1996 are not necessarily indicative of results which would be expected for a full year. In the opinion of management, the financial statements for the unaudited periods presented include all adjustments necessary for a fair presentation in accordance with generally accepted accounting principles, consisting solely of normal recurring accruals and adjustments. 3. FIXED ASSETS Fixed assets consisted of the following:
SEPTEMBER 30, ------------------------ DECEMBER 31, MARCH 31, 1994 1995 1995 1996 ----------- ----------- ------------ ----------- Furniture and fixtures.. $ 18,704 $ 118,408 $ 117,876 $ 124,519 Leasehold improvements.. 319,828 877,778 867,726 872,691 Computer equipment...... 528,784 1,115,014 1,161,052 1,248,397 Computer equipment under capital leases......... 4,858,573 6,942,977 6,972,938 7,133,488 Computer software....... 353,550 685,546 829,436 905,337 ----------- ----------- ----------- ----------- 6,079,439 9,739,723 9,949,028 10,284,432 Less accumulated depre- ciation and amortization....... (1,978,147) (4,419,891) (5,067,373) (5,768,868) ----------- ----------- ----------- ----------- Fixed assets--net....... $ 4,101,292 $ 5,319,832 $ 4,881,655 $ 4,515,564 =========== =========== =========== ===========
Accumulated amortization of equipment under capital leases was $1,242,725, $3,155,114, $3,606,915 and $4,117,964 at September 30, 1994 and 1995, December 31, 1995 and March 31, 1996, respectively. 4. NOTES PAYABLE The carrying value of notes payable consisted of the following:
SEPTEMBER 30, 1994 SEPTEMBER 30, 1995 DECEMBER 31, 1995 MARCH 31, 1996 -------------------- --------------------- --------------------- --------------------- HELD BY HELD BY HELD BY HELD BY HELD BY HELD BY HELD BY HELD BY RELATED UNAFFILIATED RELATED UNAFFILIATED RELATED UNAFFILIATED RELATED UNAFFILIATED PARTIES PARTIES PARTIES PARTIES PARTIES PARTIES PARTIES PARTIES ------- ------------ -------- ------------ -------- ------------ -------- ------------ Line-of-credit/demand note borrowings........ $ -- $ 250,000 $ -- $1,000,000 $ -- $1,500,000 $ -- $1,500,000 8% subordinated notes... 87,701 1,754,018 89,576 1,789,643 90,045 1,798,549 90,357 1,804,487 16% subordinated notes.. -- -- 69,071 976,992 74,253 1,050,288 75,980 1,074,720 ------- ---------- -------- ---------- -------- ---------- -------- ---------- Total................... 87,701 2,004,018 158,647 3,766,635 164,298 4,348,837 166,337 4,379,207 Less current portion.... -- 250,000 69,071 1,976,992 -- 1,500,000 -- 1,500,000 ------- ---------- -------- ---------- -------- ---------- -------- ---------- Long-term portion....... $87,701 $1,754,018 $ 89,576 $1,789,643 $164,298 $2,848,837 $166,337 $2,879,207 ======= ========== ======== ========== ======== ========== ======== ==========
F-10 LIGHTBRIDGE, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) During 1994 and 1995, the Company had a line of credit agreement with a bank (the "Bank Agreement") which permitted the Company to borrow up to $2,000,000 ($1,000,000 during 1994) subject to certain borrowing formulas established by the bank. Interest based on prime plus .5% was charged on any outstanding borrowings. In December 1995, the Bank Agreement was amended to reduce the amount of permitted borrowings to $1,500,000 and the outstanding borrowings under the Bank Agreement, $1,500,000, were converted to a demand note due in March 1996. At December 31, 1995, the Company was not in compliance with certain covenants contained in the Bank Agreement including covenants related to liquidity, tangible net worth, profitability and debt to tangible net worth, as defined. The Company obtained an agreement from the bank for these violations, in which the bank agreed to forebear from exercising its remedies for default, including the right to require payment on demand prior to March 1996. The demand note was collateralized by the Company's accounts receivable, equipment and intangible assets. The weighted average interest rate for borrowings under the Bank Agreement during the years ended September 30, 1994 and 1995 and the three months ended December 31, 1995 approximated 9.75%, 9.9% and 9.5%, respectively. Subsequent to December 31, 1995, the Bank Agreement was amended (the "Amended Bank Agreement") to replace the demand note with a line-of-credit feature and certain other provisions were modified to increase the maximum borrowing limit to $4,000,000, decrease the interest rate to prime plus .25% and extend the agreement to June, 1997. The Amended Bank Agreement contains certain restrictions which, among others, limits the Company's ability to pay cash dividends and requires the Company to achieve defined levels of quarterly earnings and tangible net worth, as well as meeting defined ratios of senior liabilities to net worth and quick assets. Borrowings under the Amended Bank Agreement are collateralized by the Company's accounts receivable, equipment and intangible assets. The Company has a $500,000 line of credit to be used for equipment purchases (the "Equipment Line"). Borrowings under the Equipment Line are payable in 36- monthly installments of principal and interest commencing April 5, 1995 and ending March 5, 1998. Interest on the Equipment Line is payable at prime plus 1%. Subsequent to December 31, 1995, certain provisions of the Equipment Line were modified whereby the interest rate was reduced to prime plus .75%, the maximum borrowing amount was increased to $2,000,000 and expiration date was changed to June, 1999. At December 31, 1995, there were no borrowings outstanding on the Equipment Line. 8% Subordinated Notes--In August 1994, the Company issued $2,100,000 of subordinated notes to certain holders of the Company's common and mandatory redeemable preferred stock, with immediately exercisable warrants for the purchase of 525,000 shares of the Company's common stock. The warrants are exercisable through June 30, 2001 at a price of $2 per share and have been appraised and recorded at an aggregate market value of $262,500. The related discount on the subordinated notes ($262,500 at time of issuance) is being accreted over the term of the notes. Interest expense for the years ended September 30, 1994 and 1995 and for the three months ended December 31, 1995, includes accretion related to these notes of approximately $4,200, $37,500 and $9,375, respectively. Interest on the notes is payable quarterly at an annual rate of 8%. Principal is payable in quarterly installments of $131,250 beginning on September 30, 1997 through maturity (2001). The notes are redeemable at the Company's option at par plus declining premiums at various dates. 16% Subordinated Notes--In August 1995, the Company issued $1,151,000 of 16% subordinated notes to certain holders of the Company's redeemable preferred stock, with immediately exercisable warrants for the purchase of 287,750 shares of the Company's common stock. Interest on the notes was accrued monthly, and principal and accrued interest were payable at January 31, 1996. Such repayment obligations were extended by the note holders until such time as the Company completed the placement of its Series D Preferred Stock, which occurred on April 4, 1996. The warrants are exercisable through June 30, 2001 at a price of $2 per share and F-11 LIGHTBRIDGE, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) have been appraised and recorded at an aggregate market value of $143,875. The related discount on the subordinated note ($143,875 at time of issuance) is being accreted over the originally scheduled term of the notes. Interest expense for the year ended September 30, 1995 and for the three months ended December 31, 1995 includes approximately $38,900 and $78,500 of accretion, respectively. The Company repaid principal and interest related to these notes in full upon the sale of its Series D Preferred Stock. The amount outstanding related to these notes has been classified as long term at December 31, 1995, reflecting the Company's refinancing of this obligation through the issuance of Series D Preferred Stock. 5. COMMITMENTS AND CONTINGENCIES Leases--The Company leases computer and other equipment under various, noncancelable leases which have been capitalized for financial reporting purposes. The Company has noncancelable operating lease agreements for office space and certain equipment. Future minimum payments under capital and operating leases consist of the following at December 31, 1995:
YEAR ENDING OPERATING DECEMBER 31 CAPITAL LEASES LEASES ----------- -------------- ---------- 1996............................................. $ 2,373,156 $1,243,125 1997............................................. 1,530,940 1,231,090 1998............................................. 53,499 1,059,725 1999............................................. -- 1,028,706 2000............................................. -- 887,684 Thereafter....................................... -- 431,657 ----------- ---------- Total minimum lease payments..................... 3,957,595 $5,881,987 ========== Less amount representing interest................ (381,572) ----------- Present value of future minimum lease payments... 3,576,023 Less current portion............................. (2,073,895) ----------- Long-term portion................................ $ 1,502,128 ===========
During the year ended September 30, 1994, certain payments due under capital lease agreements with related parties were not made at the request of the lessor. Such deferred payments aggregated $784, $0 and $0 at September 30, 1994 and 1995 and December 31, 1995, respectively, and are included in accounts payable--related parties. No interest was accrued on these amounts subsequent to their original due date. Rent expense for operating leases was $271,982, $453,687, $1,502,745, $405,302, $420,883 and $355,602 for the years ended September 30, 1993, 1994 and 1995, for the three months ended December 31, 1995 and March 31, 1995 and 1996, respectively. Litigation--Subsequent to December 31, 1995, the Company and certain affiliates (the "Entrepreneurial Partnerships") (collectively, the "Plaintiffs") reached an agreement to settle various lawsuits between the Plaintiffs and a former director of the Company. In addition to settling all claims and disputes, the former director agreed, in exchange for payments of $25,500, to grant the Company and the Entrepreneurial Partnerships' various options to purchase the Company's common stock from the former director (the "Settlement Shares"). The Company's purchase option permits the Company to purchase Settlement Shares in 200,000 share allotments during three specified periods of time through February 1997 at purchase prices of $1.70, $1.95 and $2.20 per F-12 LIGHTBRIDGE, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) share during the first, second and final share allotments, respectively. In the event that the Company chooses not to immediately pay for the Settlement Shares, a portion of the purchase price (66 2/3%) may be financed by issuing the former director an 8% two-year note. On April 1, 1996, the Company exercised its option to purchase 200,000 Settlement Shares at a price of $1.70 per share for cash consideration of $113,333 deposited with the selling shareholder on March 28, 1996 and an 8% two-year note for $226,667. In connection with the exercise of the options by the Entrepreneurial Partnerships, on March 28, 1996 the Company loaned an aggregate of $113,333 to the Entrepreneurial Partnerships at an interest rate of 16%. In May 1996, the Company repurchased for cash consideration an additional 200,000 shares of its common stock from certain Entrepreneurial Partnerships at a price of $1.70 per share and reimbursed the Entrepreneurial Partnerships, by means of a distribution, certain legal fees and expenses incurred by them in connection with the litigation against the former director in an aggregate amount of $260,000. 6. REDEEMABLE CONVERTIBLE PREFERRED STOCK Redeemable convertible preferred stock, par value of $.01, consists of the following at September 30, 1994 and 1995 and December 31, 1995 and March 31, 1996: . Series A; 630,516 shares authorized, issued and outstanding . Series B; 620,000 shares authorized, issued and outstanding . Series C; 200,789 shares authorized, issued and outstanding Changes in redeemable convertible preferred stock were as follows:
SERIES A SERIES B SERIES C TOTAL ---------- ---------- -------- ---------- Balances, October 1, 1993............. $1,130,475 $1,204,729 $597,567 $2,932,771 Dividends accreted.................... 15,668 -- -- 15,668 ---------- ---------- -------- ---------- Balances, September 30, 1994.......... 1,146,143 1,204,729 597,567 2,948,439 Dividends accreted.................... 60,978 76,104 45,462 182,544 ---------- ---------- -------- ---------- Balances, September 30, 1995.......... 1,207,121 1,280,833 643,029 3,130,983 Dividends accreted.................... 15,244 19,026 11,365 45,635 ---------- ---------- -------- ---------- Balances, December 31, 1995........... 1,222,365 1,299,859 654,394 3,176,618 Dividends accreted.................... 15,244 19,026 11,365 45,635 ---------- ---------- -------- ---------- Balances, March 31, 1996.............. $1,237,609 $1,318,885 $665,759 $3,222,253 ========== ========== ======== ==========
In February 1991, the Company issued 630,516 shares of redeemable convertible preferred stock ("Series A Preferred Stock") for an aggregate purchase price of $1,000,000, of which 315,258 shares were issued to a third- party investor and 315,258 shares were issued to certain Entrepreneurial Partnerships which are related parties. In December 1991, the Company issued 620,000 shares of redeemable convertible preferred stock ("Series B Preferred Stock") for an aggregate purchase price of $1,085,000. In June 1993, the Company issued 200,789 shares of redeemable convertible preferred stock ("Series C Preferred Stock") for an aggregate purchase price of $602,367. In April 1996, the Company issued 1,000,000 shares of redeemable convertible preferred stock ("Series D Preferred Stock") for an aggregate purchase price of $6,000,000. F-13 LIGHTBRIDGE, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Conversion--Each share of Series A Preferred Stock is convertible into two shares of common stock. Each share of Series B and Series C Preferred Stock is convertible into approximately 2.42 and 2.40 shares of common stock, respectively. The Series A, Series B and Series C Preferred Stock ("Serial Preferred Stock") is convertible upon a sale of the Company's stock or net assets for an amount in excess of $7,500,000, with a minimum price per share of $5.25. Dividends--On October 1, 1992, the Series A and Series B Preferred Stock began accruing dividends at the rate of 8% per annum. The Series C Preferred Stock began accruing dividends at the rate of 8% per annum beginning on October 1, 1993. The Series A and Series B Preferred Stock dividends are payable in cash for fiscal years in which the Company has net income in excess of $500,000 and will accrue in all other years. Accrued dividends outstanding for any year are payable in cash in subsequent years to the extent net income has exceeded the required minimum of $500,000 by an additional $500,000. No dividends have been paid in the years ended September 30, 1994 and 1995 and the three months ended December 31, 1995. For financial reporting purposes, the dividends are being accreted ratably over the period the Serial Preferred Stock is expected to be outstanding to the extent not required to be paid. Dividends payable for all periods presented consisted of $80,076 and $86,800 required to be paid on the Series A and Series B Preferred Stock, respectively, as a result of the Company's 1994 net income. Liquidation Preference--In the event of a liquidation, merger, consolidation, or sale of the Company's assets, the holders of the various classes of Serial Preferred Stock will be entitled to receive a liquidation preference equal to their aggregate purchase price plus accreted and unpaid dividends outstanding prior to any distributions to holders of common stock of the Company. Redemption--The Series A and Series B Preferred Stock have a mandatory redemption date of December 31, 1997. The Series C Preferred Stock has a mandatory redemption date of December 31, 1999. The redemption amount equals the higher of the fair market value of the preferred stock as of the fiscal year end closest to the redemption date or an amount equal to the aggregate purchase price plus accrued dividends outstanding. Voting Rights--Each share of Serial Preferred Stock entitles the holder to the number of votes per share equivalent to the number of common shares into which each share of preferred stock is then convertible. Equity Financing--The Company secured a round of equity financing, which consisted of the issuance of the Series D Preferred Stock on April 4, 1996. The total proceeds from the financing were $6,000,000 and were used, in part, to retire the 16% subordinated notes. 7. COMMON STOCK, OPTIONS AND WARRANTS (SEE NOTE 11) Increase in Authorized Shares--On March 29, 1996, the Company's Board of Directors increased the number of authorized shares of $.01 par value common stock from 7,000,000 to 10,000,000 shares, of which 1,000,000 of such shares was reserved for the conversion of the Company's Series D Preferred Stock. Stock Option Plan--Under the Company's stock option plan, the Company may grant either incentive or nonqualified stock options to officers, directors, employees or consultants for the purchase of up to 1,800,000 shares of common stock. Options will be granted with an exercise price equal to the common stock's market value at the date of grant, as determined by the Board of Directors, and will expire ten years later. On March 29, 1996, the Board of Directors increased the number of options available for grant to 2,400,000. F-14 LIGHTBRIDGE, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Stock option activity was as follows:
THREE MONTHS YEARS ENDED ENDED SEPTEMBER 30, ----------------------- --------------------- DECEMBER 31, MARCH 31, 1994 1995 1995 1996 --------- ---------- ------------ ---------- Outstanding, beginning of period........................ 991,184 716,100 1,013,700 1,072,700 Granted: Options.................... 200,000 321,700 233,500 20,500 Range of exercise prices in dollars per share......... $ 0.375 $ .50-.75 $ 0.75 $ 0.75 Exercised.................... (86,100) (2,516) (74,350) (500) Cancelled.................... (388,984) (21,584) (100,150) (62,950) --------- ---------- ---------- ---------- Outstanding, end of period..... 716,100 1,013,700 1,072,700 1,029,750 ========= ========== ========== ========== Options exercisable............ 426,832 447,028 ========== ========== Aggregate option price......... $ 55,724 $ 69,108 ========== ==========
Common Stock Warrants--The Company has issued warrants to purchase 1,270,038 shares of the Company's common stock at exercise prices ranging from $0.793 to $2.00 per share. Warrants issued prior to August 1994 were assigned nominal value based upon management's estimate of their fair market value. Warrants issued in connection with the Company's issuance of subordinated notes (see Note 4) have been ascribed an aggregate value of $406,375. Reserved Shares--The Company has reserved 4,920,020 shares of common stock for issuance upon the conversion of the Serial Preferred Stock and for the exercise of stock options and warrants. Note Receivable, Stockholder--The Company holds a note receivable from a stockholder for the purchase of common stock of the Company. The note, which totals $13,085, is collateralized by the common stock held by the noteholder, is due on demand and bears interest at 12%. 8. INCOME TAXES In October 1993, the Company implemented the provisions of SFAS No. 109. The cumulative effect of this change did not have a material effect on the Company's results of operations, financial position or cash flows as a result of the valuation allowance established at the time of adoption. The income tax (benefit) provision for the years ended September 30, and for the three months ended December 31, consisted of the following:
THREE MONTHS YEARS ENDED SEPTEMBER 30, ENDED --------------------------- DECEMBER 31, 1993 1994 1995 1995 ------ ----------- ------ ------------ Current: Federal.......................... $ -- $ 299,341 $ -- $2,397 State............................ -- 89,156 -- -- Deferred: Federal.......................... -- (278,341) -- -- State............................ -- (87,256) -- -- ------- ----------- ------- ------ Income tax provision............... $ -- $ 22,900 $ -- $2,397 ======= =========== ======= ======
F-15 LIGHTBRIDGE, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows:
SEPTEMBER 30, ------------------------ DECEMBER 31, 1994 1995 1995 ----------- ----------- ------------ Deferred tax assets: Depreciation and amortization...... $ 962,278 $ 1,894,190 $ 2,167,010 Interest on capital leases......... 237,740 451,069 495,678 Accrued expenses and reserves...... 102,453 227,787 239,212 Net operating loss carryforwards... 282,962 946,098 842,847 Deferred tax liabilities: Equipment leases capitalized....... (1,038,500) (2,012,418) (2,292,090) Other.............................. (7,582) (10,985) (12,127) Valuation allowance.................. (539,351) (1,495,741) (1,440,530) ----------- ----------- ----------- Net deferred tax asset............... $ -- $ -- $ -- =========== =========== ===========
The following is a reconciliation of income taxes at the federal statutory rate to the Company's effective tax rate:
SEPTEMBER 30, -------------------- DECEMBER 31, 1993 1994 1995 1995 ----- ---- ----- ------------ Statutory federal income tax rate....... (34)% 34 % (34)% 34% Loss producing no tax benefit........... 34 -- 34 -- Alternative minimum tax asset, not assured of realization................. -- 2 -- 3 Net operating loss carryforwards........ -- (34) -- (34) ----- ---- ----- ---- Effective tax rate...................... -- % 2 % -- % 3 % ===== ==== ===== ====
The net change in the valuation allowance for the years ended September 30, 1994 and 1995, and the three month period ended December 31, 1995 was an increase (decrease) of ($409,258), $956,390 and $(55,211), respectively. At December 31, 1995, the Company had net operating loss carryforwards for federal income tax purposes of $2.1 million, expiring at various dates through 2010. 9. EMPLOYEE PROFIT SHARING PLAN The Company has a 401(k) Employee Profit Sharing Plan (the "Plan"). Under the Plan, the Company, at its discretion, may make contributions to match employee contributions. All employees of the Company are eligible to participate, subject to employment eligibility requirements. Vesting of employer contributions occurs ratably over a five-year period. Employer contributions amounted to approximately $14,000, $27,500, $43,000 $20,000 and $10,000 for the years ended September 30, 1993, 1994 and 1995 and the three months ended December 31, 1995 and March 31, 1996, respectively. 10. RELATED-PARTY TRANSACTIONS Under an agreement dated February 28, 1990, the Company granted an exclusive license to Rent Grow, Inc. ("Rent Grow"), a company having certain common investors with the Company, to use the Company's Credit Decision System in the rental real estate market. Under the terms of the agreement, the Company is to receive $250,000, comprised of five installments in varying amounts through August 1996. For financial F-16 LIGHTBRIDGE, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) reporting purposes, the remaining receivable has been recorded at its net present value, estimated to be approximately $87,000, $46,000 and $46,000 at September 30, 1994 and 1995 and December 31, 1995, respectively. In addition, this agreement provides for the Company to maintain the licensed software, at Rent Grow's option, at an annual amount equal to 15% of the license amount, which the Company believes exceeds the cost of providing such maintenance. The Company has received advances from various Entrepreneurial Partnerships and their general partners and has issued preferred stock to various Entrepreneurial Partnerships. The Company leased computer equipment from various Entrepreneurial Partnerships. The general partners of these partnerships are also stockholders of the Company. In 1992, the Company sold and leased back equipment from an Entrepreneurial Partnership resulting in a gain of $12,518, which was deferred and amortized over the capital lease term. The amount deferred was $2,781, $0 and $0 as of September 30, 1994 and 1995 and December 31, 1995, respectively. 11. SUBSEQUENT EVENTS Stock Split--On June 14, 1996, the Board of Directors authorized a two for one stock split effective on July 15, 1996. All shares and per share information included in the financial statements has been restated to reflect this stock split. In addition, the number of shares of authorized common stock was increased to 20,000,000. The Board also voted to increase the number of authorized shares of common stock to 60,000,000, effective immediately after closing of the Company's initial public offering. Employee Stock Plans--On June 14, 1996, the Board of Directors authorized and the stockholders approved the adoption of the following plans for the issuance of options or sale of shares to employees, all to be effective immediately after the closing of the Company's initial public offering: 1996 Incentive and Nonqualified Stock Option Plan--The 1996 Incentive and Nonqualified Stock Option Plan provides for the issuance of up to 1,000,000 options to purchase shares of common stock. Options may be either qualified incentive stock options or nonqualified stock options at the discretion of the Board of Directors. Exercise prices will be either fair market value on the date of grant, in the case of incentive stock options, or set by the Board of Directors at the date of grant, in the case of nonqualified options. 1996 Stock Purchase Plan--The 1996 Stock Purchase Plan provides for the sale of up to 100,000 shares of common stock to employees every six months through payroll deductions. Employees will be allowed to purchase shares at a 15% discount from the lower of fair value at the beginning or end of the purchase periods. * * * * * * F-17 [IMAGE OF LIGHTBRIDGE, INC. LOGO] - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- No dealer, salesperson or other person has been authorized to give any infor- mation or to make any representations other than those contained in this Pro- spectus in connection with the offering covered by this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company, the Selling Stockholders or the Under- writers. This Prospectus does not constitute an offer to sell, or a solicita- tion of an offer to buy, the Common Stock in any jurisdiction where, or to any person to whom, it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any cir- cumstances, create an implication that there has not been any change in the facts set forth in this Prospectus or in the affairs of the Company since the date hereof. ------------------- TABLE OF CONTENTS
Page ---- Prospectus Summary........................................................ 3 Risk Factors.............................................................. 6 Use of Proceeds........................................................... 15 Dividend Policy........................................................... 15 Capitalization............................................................ 16 Dilution.................................................................. 17 Selected Financial Data................................................... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 19 Business.................................................................. 29 Management................................................................ 43 Certain Transactions...................................................... 48 Principal and Selling Stockholders........................................ 50 Description of Capital Stock.............................................. 53 Shares Eligible for Future Sale........................................... 56 Underwriting.............................................................. 58 Legal Matters............................................................. 59 Experts................................................................... 59 Additional Information.................................................... 59 Index to Financial Statements............................................. F-1
------------------- Until , 1996 (25 days after the date of this Prospectus), all dealers ef- fecting transactions in the Common Stock offered hereby, whether or not par- ticipating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when act- ing as underwriters and with respect to their unsold allotments or subscriptions. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 3,200,000 Shares [LIGHTBRIDGE LOGO APPEARS HERE] Common Stock ------------------- PROSPECTUS ------------------- COWEN & COMPANY MONTGOMERY SECURITIES PRUDENTIAL SECURITIES INCORPORATED , 1996 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the various expenses to be paid by the Company in connection with the issuance and distribution of the securities being registered, other than underwriting discounts and commissions. All amounts shown are estimates except for amounts of filing and listing fees. The Company will pay all expenses in connection with the issuance and distribution of any securities sold by the Selling Stockholders, except for underwriting discounts and commissions and for any fees of counsel selected by any particular Selling Stockholder to act in addition to or in lieu of the counsel for the Selling Stockholders appointed by the Company. Filing fee of Securities and Exchange Commission.................. $ 16,140 Filing fee of National Association of Securities Dealers, Inc..... 4,180 Listing fee of Nasdaq Stock Market, Inc........................... 50,000 Premium for directors' and officers' insurance.................... * Accounting fees and expenses...................................... * Blue sky fees and expenses (including related legal fees)......... 25,000 Legal fees and expenses........................................... * Printing and engraving expenses................................... * Transfer agent fees............................................... * Miscellaneous..................................................... * -------- Total......................................................... $850,000 ========
- -------- * To be completed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law affords a Delaware corporation the power to indemnify its present and former directors and officers under certain conditions. Article SEVENTH of the Restated Charter provides that the Company shall indemnify each person who at any time is, or shall have been, a director or officer of the Company, and is threatened to be or is made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is, or was, a director or officer of the Company, or served at the request of the Company as a director, officer, employee, trustee, or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred in connection with any such action, suit or proceeding to the maximum extent permitted by the Delaware General Corporation Law. Section 102(b)(7) of the Delaware General Corporation Law gives a Delaware corporation the power to adopt a charter provision eliminating or limiting the personal liability of directors to the corporation or its stockholders for breach of fiduciary duty as directors, provided that such provision may not eliminate or limit the liability of directors for (i) any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) any acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) any payment of a dividend or approval of a stock purchase that is illegal under Section 174 of the Delaware Corporation Law or (iv) any transaction from which the director derived an improper personal benefit. Article NINTH of the Restated Charter provides that to the maximum extent permitted by the General Corporation Law of the State of Delaware, no director of the Company shall be personally liable to the Company or to any of its stockholders for monetary damages arising out of such director's breach of fiduciary duty as a director of the Company. No amendment to or repeal of the provisions of Article NINTH shall apply to or have any effect of the liability or the alleged liability of any director of the Corporation with respect to any act or failure to act of such director occurring prior to such amendment or repeal. A principal effect of such Article II-1 NINTH is to limit or eliminate the potential liability of the Company's directors for monetary damages arising from breaches of their duty of care, unless the breach involves one of the four exceptions described in (i) through (iv) above. Article NINTH does not prevent stockholders from obtaining injunctive or other equitable relief against directors, nor does it shield directors from liability under federal or state securities laws. Section 145 of the Delaware General Corporation Law also affords a Delaware corporation the power to obtain insurance on behalf of its directors and officers against liabilities incurred by them in those capacities. The Company is procuring a directors' and officers' liability and company reimbursement liability insurance policy that (a) insures directors and officers of the Company against losses (above a deductible amount) arising from certain claims made against them by reason of certain acts done or attempted by such directors or officers and (b) insures the Company against losses (above a deductible amount) arising from any such claims, but only if the Company is required or permitted to indemnify such directors or officers for such losses under statutory or common law or under provisions of the Restated Charter or the Restated By-Laws. Reference is also made to Section 6 of the Underwriting Agreement between the Company, the Selling Stockholders and the Underwriters, filed as Exhibit 1.1 of this Registration Statement, for a description of indemnification arrangements between the Company, the Selling Stockholders and the Underwriters. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES The following information is furnished with regard to all securities sold by the Company within the past three years which were not registered under the Securities Act. (a) On the dates set forth below the Company issued and sold the number of shares of its Common Stock indicated upon exercise of stock options held by certain of its employees.
NUMBER OF DATE OF SALE SHARES ISSUED EXERCISE PRICE ------------ ------------- -------------- June 30, 1993................................ 500,000 $20,000.00 September 1, 1993............................ 2,000 180.00 September 30, 1993........................... 50,000 2,000.00 December 30, 1993............................ 50,000 2,000.00 April 1, 1994................................ 1,100 88.00 June 1, 1994................................. 750 60.00 September 30, 1994........................... 27,500 1,100.00 February 1, 1995............................. 1,046 69.84 April 27, 1995............................... 1,470 99.60 December 1, 1995............................. 51,850 2,108.00 December 28, 1995............................ 22,500 900.00 January 29, 1996............................. 400 200.00 January 31, 1996............................. 100 50.00 March 1, 1996................................ 1,900 112.00 March 15, 1996............................... 5,150 1,807.50 April 30, 1996............................... 12,000 9,000.00 June 1, 1996................................. 120 18.00
(b) On April 3, 1996, the Company issued and sold 1,000,000 shares of its Series D Redeemable Convertible Preferred Stock to accredited investors for an aggregate price of $6,000,000. II-2 (c) On the dates set forth below the Company issued and sold to accredited investors, including certain of its existing stockholders, 16% subordinated promissory notes in the principal amounts indicated and warrants to purchase the number of shares of Common Stock indicated. The aggregate price paid by each purchaser for the note and warrants was equal to the principal amount of the note purchased.
NUMBER OF SHARES PRINCIPAL AMOUNT OF COMMON STOCK DATE OF SALE OF NOTES UNDERLYING WARRANTS ------------ ---------------- ------------------- August 24, 1995...................... $151,000 37,750 August 17, 1995...................... 300,000 75,000 August 16, 1995...................... 50,000 12,500 August 15, 1995...................... 100,000 25,000 August 14, 1995...................... 100,000 25,000 August 11, 1995...................... 200,000 50,000 August 4, 1995....................... 250,000 62,500
(d) On August 29, 1994, the Company issued and sold to accredited investors 8% subordinated promissory notes in the aggregate principal amount of $2,100,000 and warrants to purchase 525,000 shares (subject to certain adjustments) of Common Stock for a price of $2,100,000. (e) On August 10, 1993, the Company issued and sold 8,333 shares of Series C Redeemable Convertible Preferred Stock to an accredited investor for an aggregate price of $24,999. The issuances described in Item 15(a) were made in reliance upon the exemptions from registration set forth in Rule 701 under the Securities Act. The other issuances described in this Item 15 were made in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act relating to sales by an issuer not involving any public offering. None of the foregoing transactions involved a distribution or public offering. No underwriters were engaged in connection with the foregoing issuances of securities, and no underwriting commissions or discounts were paid. ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES (A) EXHIBITS
EXHIBIT NO. DESCRIPTION ------- ----------- 1.1 Underwriting Agreement 3.1* Certificate of Incorporation of the Company, as amended 3.2 Proposed form of Amended and Restated Certificate of Incorporation of the Company to become effective immediately following the offering 3.3 By-Laws of the Company 3.4 Proposed form of Amended and Restated By-Laws 4.1* Specimen certificate for the Common Stock of the Company 5.1* Opinion of Foley, Hoag & Eliot LLP 10.1* 1991 Registration Rights Agreement dated February 11, 1991, as amended, between the Company and the persons named therein 10.2* Subordinated Note and Warrant Purchase Agreement dated as of August 29, 1994 between the Company and the Purchasers named therein, including form of Subordinated 14% Promissory Notes and form of Common Stock Purchase Warrants 10.3* Form of Common Stock Purchase Warrants issued in August 1995 10.4* Amended and Restated Credit Agreement dated as of June 18, 1996, between the Company and Silicon Valley Bank
II-3
EXHIBIT NO. DESCRIPTION ------- ----------- 10.5* Settlement Agreement dated February 2, 1996 between the Company, BEB, Inc., BEB Limited Partnership I, BEB Limited Partnership II, BEB Limited Partnership III, BEB Limited Partnership IV, certain related parties and Brian Boyle 10.6* 1990 Incentive and Non-Qualified Stock Option Plan 10.7* 1996 Incentive and Non-Qualified Stock Option Plan 10.8* 1996 Employee Stock Purchase Plan 10.9 Office Lease dated September 21, 1993, as amended, between the Company and L&E Investment of Massachusetts One, Inc. 10.10 Office Lease dated September 30, 1994, as amended, between the Company and Hobbs Brook Office Park 11.1 Statement re computation of per share earnings 23.1 Consent of Deloitte & Touche llp 23.2* Consent of Foley, Hoag & Eliot llp (included in Exhibit 5.1) 24.1 Power of Attorney (contained on the signature page of this Registration Statement) 27 Financial Data Schedules for year ended September 30, 1995 and three months ended December 31, 1995 and March 31, 1996
- -------- * To be filed by amendment. (B) FINANCIAL STATEMENT SCHEDULES. Financial statement schedules have been omitted because they are inapplicable or the required information is shown in the Financial Statements and the Notes thereto. ITEM 17. UNDERTAKINGS. 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. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, 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 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 Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, 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 of 1933, 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 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WALTHAM, THE COMMONWEALTH OF MASSACHUSETTS, ON JUNE 21, 1996. Lightbridge, Inc. /s/ Pamela D. A. Reeve By: _________________________________ PAMELA D. A. REEVE PRESIDENT AND CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY We, the undersigned officers and directors of Lightbridge, Inc., hereby severally constitute and appoint Pamela D. A. Reeve, William G. Brown and John D. Patterson, Jr., 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 462(b) under the Securities Act of 1933 and generally to do all such things in our names and on our behalf in our capacities as officers and directors to enable the Registrant to comply with the provisions of the Securities Act of 1933 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 said Rule 462(b). PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE /s/ Pamela D. A. Reeve President, Chief June 21, 1996 - ------------------------------------- Executive Officer PAMELA D. A. REEVE and Director (Principal Executive Officer) /s/ William G. Brown Chief Financial June 21, 1996 - ------------------------------------- Officer, Vice WILLIAM G. BROWN President of Finance and Administration and Treasurer (Principal Financial and Accounting Officer) /s/ Andrew I. Fillat Director June 21, 1996 - ------------------------------------- ANDREW I. FILLAT II-5 SIGNATURE TITLE DATE /s/ Torrence C. Harder Director June 21, 1996 - ------------------------------------- TORRENCE C. HARDER /s/ Douglas A. Kingsley Director June 21, 1996 - ------------------------------------- DOUGLAS A. KINGSLEY /s/ D. Quinn Mills Director June 21, 1996 - ------------------------------------- D. QUINN MILLS II-6 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ------- ----------- 1.1 Underwriting Agreement 3.1* Certificate of Incorporation of the Company, as amended 3.2 Proposed form of Amended and Restated Certificate of Incorporation of the Company to become effective immediately following the offering 3.3 By-Laws of the Company 3.4 Proposed form of Amended and Restated By-Laws 4.1* Specimen certificate for the Common Stock of the Company 5.1* Opinion of Foley, Hoag & Eliot LLP 10.1* 1991 Registration Rights Agreement dated February 11, 1991, as amended, between the Company and the persons named therein 10.2* Subordinated Note and Warrant Purchase Agreement dated as of August 29, 1994 between the Company and the Purchasers named therein, including form of Subordinated 14% Promissory Notes and form of Common Stock Purchase Warrants 10.3* Form of Common Stock Purchase Warrants issued in August 1995 10.4* Amended and Restated Credit Agreement dated as of June 18, 1996, between the Company and Silicon Valley Bank 10.5* Settlement Agreement dated February 2, 1996 between the Company, BEB, Inc., BEB Limited Partnership I, BEB Limited Partnership II, BEB Limited Partnership III, BEB Limited Partnership IV, certain related parties and Brian Boyle 10.6* 1990 Incentive and Non-Qualified Stock Option Plan 10.7* 1996 Incentive and Non-Qualified Stock Option Plan 10.8* 1996 Employee Stock Purchase Plan 10.9 Office Lease dated September 21, 1993, as amended, between the Company and L&E Investment of Massachusetts One, Inc. 10.10 Office Lease dated September 30, 1994, as amended, between the Company and Hobbs Brook Office Park 11.1 Statement re computation of per share earnings 23.1 Consent of Deloitte & Touche llp 23.2* Consent of Foley, Hoag & Eliot llp (included in Exhibit 5.1) 24.1 Power of Attorney (contained on the signature page of this Registration Statement) 27 Financial Data Schedules for year ended September 30, 1995 and three months ended December 31, 1995 and March 31, 1996
- -------- * To be filed by amendment. EX-1.1 2 UNDERWRITING AGREEMENT EXHIBIT 1.1 _________________ Shares/1/ Lightbridge, Inc. Common Stock UNDERWRITING AGREEMENT ---------------------- _____________, 1996 COWEN & COMPANY Montgomery Securities Prudential Securities Incorporated As Representatives of the Several Underwriters c/o Cowen & Company Financial Square New York, New York 10005 Dear Sirs: 1. Introductory. Lightbridge, Inc., a Delaware corporation (the ------------ "Company"), and certain stockholders of the Company named in Schedule B hereto (the "Selling Stockholders") propose to sell, pursuant to the terms of this Agreement, to the several underwriters named in Schedule A hereto (the "Underwriters," or, each, an "Underwriter"), an aggregate of ______________ shares of Common Stock, $.01 par value (the "Common Stock") of the Company, of which __________ shares will be sold by the Company and __________ shares will be sold by the Selling Stockholders. The aggregate of ______________ shares so proposed to be sold is hereinafter referred to as the "Firm Stock." The respective amounts of the Firm Stock to be so purchased by the several Underwriters are set forth opposite their names in Schedule A hereto, and the respective amounts to be sold by the Selling Stockholders are set forth opposite their names in Schedule B hereto. The Company and the Selling Stockholders also have granted to the Underwriters, upon the terms and conditions set forth in Section 3 hereof, up to an additional ______________ shares of Common Stock (the "Optional Stock"). The Firm Stock and the Optional Stock are hereinafter collectively referred to as the "Stock." Cowen & Company ("Cowen"), Montgomery Securities and Prudential Securities Incorporated are acting as representatives of the several Underwriters and in such capacity are hereinafter referred to as the "Representatives." _______________________ /(1)/ Plus an option to purchase up to ______________ additional shares from the Company to cover over-allotments. - 2 - 2. (a) Representations and Warranties of the Company. The --------------------------------------------- Company represents and warrants to, and agrees with, the several Underwriters that: (i) A registration statement on Form S-1 (File No. 333-__________) in the form in which it became or becomes effective and also in such form as it may be when any post-effective amendment thereto shall become effective with respect to the Stock, including any preeffective prospectuses included as part of the registration statement as originally filed or as part of any amendment or supplement thereto, or filed pursuant to Rule 424 under the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder, copies of which have heretofore been delivered to you, has been carefully prepared by the Company in conformity with the requirements of the Securities Act and has been filed with the Commission under the Securities Act; one or more amendments to such registration statement, including in each case an amended preeffective prospectus, copies of which amendments have heretofore been delivered to you, have been so prepared and filed. If it is contemplated, at the time this Agreement is executed, that a post-effective amendment to the registration statement will be filed and must be declared effective before the offering of the Stock may commence, the term "Registration Statement" as used in this Agreement means the registration statement as amended by said post-effective amendment. The term "Registration Statement" as used in this Agreement shall also include any registration statement relating to the Stock that is filed and declared effective pursuant to Rule 462(b) under the Securities Act. All copies of Registration Statements that have been delivered to you are identical to the electronically transmitted copies thereof filed with the Commission pursuant to the Commission's Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"), except to the extent permitted by Regulation S-T. The term "Prospectus" as used in this Agreement means the prospectus in the form included in the Registration Statement, or, (A) if the prospectus included in the Registration Statement omits information in reliance on Rule 430A under the Securities Act and such information is included in a prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act, the term "Prospectus" as used in this Agreement means the prospectus in the form included in the Registration Statement as supplemented by the addition of the Rule 430A information contained in the prospectus filed with the Commission pursuant to Rule 424 (b) and (B) if prospectuses that meet the requirements of Section 10(a) of the Securities Act are delivered pursuant to Rule 434 under the Securities Act, then (i) the term "Prospectus" as used in this Agreement means the "prospectus subject to completion" (as such term is defined in Rule 434 (g) under the Securities Act) as supplemented by (a) the addition of Rule 430A information or other information contained in the form of prospectus delivered pursuant to Rule 434 (b) (2) under the Securities Act or (b) the information contained in the term sheets described in Rule 434 (b) (3) under the Securities Act, and (ii) the date of such prospectuses shall be deemed to be the date of the term sheets. The term "Preeffective Prospectus" as used in this Agreement means the prospectus subject - 3 - to completion in the form included in the Registration Statement at the time of the initial filing of the Registration Statement with the Commission, and as such prospectus shall have been amended from time to time prior to the date of the Prospectus. For purposes of this Agreement, all references to the Registration Statement, any Pre- effective Prospectus, the Prospectus, or any amendment or supplement to any of the foregoing shall be deemed to include the respective copies thereof filed with the Commission pursuant to EDGAR. (ii) The Commission has not issued or threatened to issue any order preventing or suspending the use of any Preeffective Prospectus, and, at its date of issue, each Preeffective Prospectus conformed in all material respects with the requirements of the Securities Act and did not include 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, in light of the circumstances under which they were made, not misleading; and, when the Registration Statement becomes effective and at all times subsequent thereto up to and including the Closing Dates, the Registration Statement and the Prospectus and any amendments or supplements thereto contained and will contain all material statements and information required to be included therein by the Securities Act at the time of the filing thereof and conformed and will conform in all material respects to the requirements of the Securities Act and neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, included or will include any untrue statement of a material fact or omitted or will omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the -------- ------- foregoing representations, warranties and agreements shall not apply to information contained in or omitted from any Preeffective Prospectus or the Registration Statement or the Prospectus or any such amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of any Underwriter, directly or through you (or by any Selling Stockholder), specifically for use in the preparation thereof; there is no franchise, lease, contract, agreement or document required to be described in the Registration Statement or Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed therein as required; and all descriptions of any such franchises, leases, contracts, agreements or documents contained in the Registration Statement are accurate descriptions of such documents in all material respects. (iii) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, and except as set forth or contemplated in the Prospectus, the Company has not incurred any liabilities or obligations, direct or contingent, nor entered into any transactions not in the ordinary course of business, and there has not been any material adverse change in the condition (financial or otherwise), properties, business, management, net worth or results of operations of the Company, or any change in the capital stock, or any material change in the short-term or long-term debt of the Company. - 4 - (iv) The financial statements, together with the related notes, set forth in the Prospectus and elsewhere in the Registration Statement fairly present, on the basis stated in the Registration Statement, the financial position and the results of operations and changes in financial position of the Company at the respective dates or for the respective periods therein specified. Such statements and related notes and schedules have been prepared in accordance with generally accepted accounting principles applied on a consistent basis except as may be set forth in the Prospectus. The selected financial and statistical data set forth in the Prospectus under the caption "Selected Financial and Other Operating Data" fairly present, on the basis stated in the Registration Statement, the information set forth therein. (v) Deloitte & Touche LLP, who have expressed their opinions on the audited financial statements and related schedules included in the Registration Statement and the Prospectus are independent public accountants as required by the Securities Act and the Rules and Regulations. (vi) The Company has been duly organized and is validly existing and in good standing as a corporation under the laws of its jurisdiction of organization, with power and authority (corporate and other) to own or lease its business as described in the Prospectus; the Company is in possession of and operating in material compliance with all franchises, grants, authorizations, licenses, permits, easements, consents, certificates and orders required for the conduct of its business, all of which are valid and in full force and effect; and the Company is duly qualified to do business and in good standing as a foreign corporation in all other jurisdictions where its ownership or leasing of properties or the conduct of its business requires such qualification. The Company has all requisite power and authority, and all necessary consents, approvals, authorizations, orders, registrations, qualifications, licenses and permits of and from all public regulatory or governmental agencies and bodies to own, lease and operate its properties and conduct its business as now being conducted and as described in the Registration Statement and the Prospectus, and no such consent, approval, authorization, order, registration, qualification, license or permit contains a materially burdensome restriction not adequately disclosed in the Registration Statement and the Prospectus. The Company does not own or control, directly or indirectly, any corporation, association or other entity. (vii) The Company's authorized and outstanding capital stock is on the date hereof, and will be on the Closing Date, as set forth under the heading "Capitalization" in the Prospectus; the outstanding shares of capital stock (including the outstanding shares of Stock) of the Company conform to the description thereof in the Prospectus and have been duly authorized and validly issued and are fully paid and nonassessable, are duly listed on the Nasdaq National Market and have been issued in compliance with all federal and state securities - 5 - laws and were not issued in violation of or subject to any preemptive rights or similar rights to subscribe for or purchase securities and conform to the description thereof contained in the Prospectus. Except as disclosed in and or contemplated by the Prospectus and the financial statements of the Company and related notes thereto included in the Prospectus, the Company does not have outstanding any options or warrants to purchase, or any preemptive rights or other rights to subscribe for or to purchase any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations, except for options granted subsequent to the date of information provided in the Prospectus pursuant to the Company's employee and stock option plans as disclosed in the Prospectus. The description of the Company' s stock option and other stock plans or arrangements, and the options or other rights granted or exercised thereunder, as set forth in the Prospectus, accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. (viii) The Stock to be issued and sold by the Company to the Underwriters hereunder has 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 nonassessable and free of any preemptive or similar rights and will conform to the description thereof in the Prospectus. (ix) Except as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any executive officers or directors is a party or of which any property of the Company or any affiliate is subject, which, if determined adversely to the Company or any executive officers or directors, might individually or in the aggregate (i) prevent or adversely affect the transactions contemplated by this Agreement, (ii) suspend the effectiveness of the Registration Statement, (iii) prevent or suspend the use of the Preeffective Prospectus in any jurisdiction or (iv) result in a material adverse change in the condition (financial or otherwise), properties, business, management, net worth or results of operations of the Company; and to the best of the Company's knowledge no such proceedings are threatened or contemplated against the Company or any affiliate by governmental authorities or others. The Company is not a party nor subject to the provisions of any material injunction, judgment, decree or order of any court, regulatory body or other governmental agency or body. The description of the Company's litigation under the heading "Legal Proceedings" in the Prospectus is true and correct and complies with the Rules and Regulations. (x) The execution, delivery and performance of this Agreement and the consummation of the transactions herein contemplated will not 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, note agreement or other material agreement or instrument to which the Company is a party or by which it or any of its properties is or may be bound, the Certificate of Incorporation, By-laws or other organizational - 6 - documents of the Company, or any law, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its properties or will result in the creation of a lien. (xi) No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation by the Company of the transactions contemplated by this Agreement, except such as may be required by the National Association of Securities Dealers, Inc. (the "NASD") or under the Securities Act or the securities or "Blue Sky" laws of any jurisdiction in connection with the purchase and distribution of the Stock by the Underwriters. (xii) The Company has the full corporate power and authority to enter into this Agreement and to perform its obligations hereunder (including to issue, sell and deliver the Stock), and this Agreement has been duly and validly authorized, executed and delivered by the Company and is a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that rights to indemnity and contribution hereunder may be limited by federal or state securities laws or the public policy underlying such laws. (xiii) The Company is in all material respects in compliance with, and conducts its business in material conformity with, all applicable federal, state, local and foreign laws, rules and regulations (including but not limited to the Foreign Corrupt Practices Act and any rules and regulations of the Federal Communications Commission) or any court or governmental agency or body and the Company has all permits or licenses required thereunder; to the knowledge of the Company, otherwise than as set forth in the Registration Statement and the Prospectus, no prospective change in any of such federal or state laws, rules or regulations has been adopted which, when made effective, would have a material adverse effect on the operations of the Company. (xiv) The Company has filed all necessary federal, state, local and foreign income, payroll, franchise and other tax returns and have paid all taxes shown as due thereon or with respect to any of its properties, and there is no tax deficiency that has been, or to the knowledge of the Company has been threatened or is likely to be, asserted against the Company or any of its properties or assets that would adversely affect the financial position, business or operations of the Company. (xv) No person or entity has the right to require registration of shares of Common Stock or other securities of the Company because of the filing or effectiveness of the Registration Statement or otherwise, except for persons and entities who have expressly waived such right or who have been given proper notice and have failed to exercise such right within the time or times required under the terms and conditions of such right. - 7 - (xvi) Neither the Company nor any of its officers or directors has taken or will take, directly or indirectly, any action designed or intended to stabilize or manipulate the price of any security of the Company, or which caused or resulted in, or which might in the future reasonably be expected to cause or result in, stabilization or manipulation of the price of the Common Stock of the Company. (xvii) The Company has provided you with all financial statements since inception to the date hereof that are available to the officers of the Company, including financial statements for the three months ended December 31, 1995 and the six months ended June 30, 1996. (xviii) The Company owns, possesses, or has rights to use all patents, trademarks, trademark registrations, service marks, service mark registrations, tradenames, copyrights, licenses, inventions, trade secrets and rights described in the Prospectus as being owned or used by it or necessary for the conduct of its business, and the Company has not received notice of any claim to the contrary or any challenge by any other person to the rights of the Company with respect to the foregoing. The Company's business as now conducted does not and will not infringe or conflict with in any material respect patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses or other intellectual property or franchise right of any person. No claim has been made against the Company alleging the infringement by the Company of any patent, trademark, service mark, tradename, copyright, trade secret, license in or other intellectual property right or franchise right of any person. (xix) No breach or default exists in the due performance and observance by the Company of any term, covenant or condition of all contracts required by Item 601(b)(10) of Regulation S-K under the Securities Act to be filed as exhibits to the Registration Statement. To the Company's knowledge, no other party to such contract is in material default under or in breach of any such obligations. The Company has not received any notice of such default or breach. (xx) The Company is not involved in any labor dispute nor is any such dispute threatened. The Company is not aware that (A) any executive, key employee or significant group of employees of the Company plans to terminate employment with the Company or (B) any such executive or key employee is subject to any noncompete, nondisclosure, confidentiality, employment, consulting or similar agreement that would be violated by the present or proposed business activities of the Company. The Company does not have or expects to have any liability for any prohibited transaction or funding deficiency or any complete or partial withdrawal liability with respect to any pension, profit sharing or other plan which is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), to which the Company makes or ever has made a contribution and in which any employee of the Company is or has ever been a participant. With respect to such - 8 - plans, the Company is in compliance in all material respects with all applicable provisions of ERISA. (xxi) The Company has, and the Company as of the Closing Dates will have, good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by it which is material to the business of the Company, in each case free and clear of all liens, encumbrances and defects except such as are described the Prospectus or such as would not have a material adverse effect on the Company; and any real property and buildings held under lease by the Company are, or will be as of the Closing Dates, held by it under valid, subsisting and enforceable leases with such exceptions as would not have a material adverse effect on the Company, in each case except as described in or contemplated by the Prospectus. (xxii) The Company is insured by insurers of financial responsibility against such losses and risks and in such amounts as are customary in the business in which it is engaged; and no such insurer has notified or indicated to the Company that it will not be able to renew its existing insurance coverage as and when such coverage expires; and the Company has no reason to believe that, if such coverage is not renewed, that it will not be able to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company, except as described in or contemplated by the Prospectus. (xxiii) Other than as contemplated by this Agreement, there is no broker, finder or other party that is entitled to receive from the Company any brokerage or finder's fee or other fee or commission as a result of any of the transactions contemplated by this Agreement. (xxiv) The Company has complied with all provisions of Section 517.0 75 Florida Statutes (Chapter 92-198; Laws of Florida). (xxv) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (xxvi) To the Company's knowledge, neither the Company nor any employee or agent of the Company has made any payment or received or retained any payment - 9 - in violation of any law, rule or regulation, which payment, receipt or retention of funds is of a character required to be disclosed in the Prospectus. (xxvii) The Company is not or will not become an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended, after the closing of the offering and the application of the proceeds therefrom. (xxiii) Each certificate signed by any officer of the Company and delivered to the Underwriters or counsel for the Underwriters shall be deemed to be a representation and warranty by the Company as to the matters covered thereby. (xxiv) The Company has obtained the written agreement described in Section 8 (k) of this Agreement from each of its officers, directors and holders of Common Stock. (b) Representations and Warranties and Agreements of the ---------------------------------------------------- Selling Stockholders. Each Selling Stockholder represents and warrants to, and - -------------------- agrees with, the several Underwriters that such Selling Stockholder: (i) Now has, and on the Closing Dates will have, valid and marketable title to the Stock to be sold by such Selling Stockholder, free and clear of any lien, claim, security interest or other encumbrance, including, without limitation, any restriction on transfer, and has full right, power and authority to enter into this Agreement, the Power of Attorney and the Custody Agreement (each as hereinafter defined), and, to the extent such Selling Stockholder is a corporation, has been duly organized and is validly existing and in good standing as a corporation under the laws of its jurisdiction of organization. (ii) Now has, and on the Closing Dates will have, upon delivery of and payment for each share of Stock hereunder, full right, power and authority and approval required by law to sell, transfer, assign and deliver the Stock being sold by such Selling Stockholder hereunder, and each of the several Underwriters will acquire valid and marketable title to all of the Stock being sold to the Underwriters by such Selling Stockholder, free and clear of any liens, encumbrances, equities claims, restrictions on transfer or other defects whatsoever. (iii) For a period of 180 days after the date of this Agreement, without the consent of Cowen, such Selling Stockholder will not offer to sell, sell, contract to sell or otherwise dispose of any shares of Common Stock or securities convertible into or exchangeable for shares of Common Stock, including, without limitation shares of Common Stock which may be deemed to be beneficially owned by the undersigned in accordance with the Rules and Regulations, except for the Stock being sold hereunder. - 10 - (iv) Has duly executed and delivered a power of attorney, in substantially the form heretofore delivered by the Representatives (the "Power of Attorney"), appointing ______________ and ______________, and each of them, as attorney-in-fact (the "Attorneys-in-fact") with authority to execute and deliver this Agreement on behalf of such Selling Stockholder, to authorize the delivery of the shares of Stock to be sold by such Selling Stockholder hereunder and otherwise to act on behalf of such Selling Stockholder in connection with the transactions contemplated by this Agreement. (v) Has duly executed and delivered a custody agreement, in substantially the form heretofore delivered by the Representatives (the "Custody Agreement"), with the Company as custodian (the "Custodian"), pursuant to which certificates in negotiable form for the shares of Stock to be sold by such Selling Stockholder hereunder have been placed in custody for delivery under this Agreement. (vi) Has, by execution and delivery of each of this Agreement, the Power of Attorney and the Custody Agreement, created valid and binding obligations of such Selling Stockholder, enforceable against such Selling Stockholder in accordance with the terms of such agreements and documents, except to the extent that rights to indemnity hereunder may be limited by federal or state securities laws or the public policy underlying such laws. (vii) The performance of this Agreement, the Custody Agreement and the Power of Attorney, and the consummation of the transactions contemplated hereby and thereby will not result in a breach or violation by such Selling Stockholder of any of the terms or provisions of, or constitute a default by such Selling Stockholder under, any indenture, mortgage, deed of trust, trust (constructive or other), loan agreement, lease, franchise, license or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder or any of its properties is bound, or any judgment of any court or governmental agency or body applicable to such Selling Stockholder or any of its properties, or to such Selling Stockholder's knowledge, any statute, decree, order, rule or regulation of any court or governmental agency or body applicable to such Selling Stockholder or any of its properties. (viii) Has reviewed the Registration Statement and Prospectus and, although such Selling Stockholder has not independently verified the accuracy or completeness of all the information contained therein, nothing has come to the attention of such Selling Stockholder that would lead such Selling Stockholder to believe that on the Effective Date, the Registration Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; and, on the Effective Date the Prospectus contained and, on the Closing Date and any later date on which Optional Stock is to be purchased, contains any untrue statement of a material fact or omitted or omits to state any material fact necessary - 11 - in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Each Selling Stockholder agrees that the shares of Stock represented by the certificates held in custody under the Custody Agreement are for the benefit of and coupled with and subject to the interests of the Underwriters, the other Selling Stockholders and the Company hereunder, and that the arrangement for such custody and the appointment of the Attorneys-in-fact are irrevocable; that the obligations of such Selling Stockholder hereunder shall not be terminated by operation of law, whether by the death or incapacity, liquidation or distribution of such Selling Stockholder, or any other event, that if such Selling Stockholder should die or become incapacitated or is liquidated or dissolved or any other event occurs, before the delivery of the Stock hereunder, certificates for the Stock to be sold by such Selling Stockholder shall be delivered on behalf of such Selling Stockholder in accordance with the terms and conditions of this Agreement and the Custody Agreement, and action taken by the Attorneys-in-fact or any of them under the Power of Attorney shall be as valid as if such death, incapacity, liquidation or dissolution or other event had not occurred, whether or not the Custodian, the Attorneys-in-fact or any of them shall have notice of such death, incapacity, liquidation or dissolution or other event. 3. Purchase by, and Sale and Delivery to, Underwriters -- Closing -------------------------------------------------------------- Dates. The Company and the Selling Stockholders agree, severally and not - ----- jointly, to sell to the Underwriters the Firm Stock with the number of shares to be sold by the Company and each Selling Shareholder being the number of Shares set opposite his, her or its name in Schedule B and on the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Underwriters agree, severally and not jointly, to purchase the Firm Stock from the Company and the Selling Stockholders, the number of shares of Firm Stock to be purchased by each Underwriter being set opposite its name in Schedule A, subject to adjustment in accordance with Section 12 hereof. The number of shares of Stock to be purchased by each Underwriter from each Selling Stockholder hereunder shall bear the same proportion to the total number of shares of Stock to be purchased by such Underwriter hereunder as the number of shares of stock being sold by each Selling Stockholder bears to the total number o shares of Stock being sold by all Selling Stockholders, subject to adjustment by the Representatives to eliminate fractions. The purchase price per share to be paid by the Underwriters to the Company and the Selling Stockholders will be $ _____ per share (the "Purchase Price"). The Company and the Selling Stockholders will deliver the Firm Stock to the Representatives for the respective accounts of the several Underwriters in the form of definitive certificates, issued in such names and in such denominations as the Representatives may direct by notice in writing to the Company given at or prior to 12:00 Noon, New York Time, on the second full business day preceding the First Closing Date (as defined below) or, if no such direction is received, in the names of the respective Underwriters or in such other names as - 12 - Cowen may designate (solely for the purpose of administrative convenience) and in such denominations as Cowen may determine, against payment of the aggregate Purchase Price therefor by wire transfer (same day funds), payable to the order of the Company, all at the offices of Foley, Hoag & Eliot, One Post Office Square, Boston, Massachusetts 02109. The time and date of the delivery and closing shall be at 10:00 A.M., New York Time, on ___________, 1996, in accordance with Rule 15c6-1 of the Exchange Act. The time and date of such payment and delivery are herein referred to as the "First Closing Date". The Closing Date and the location of delivery of, and the form of payment for, the Firm Stock may be varied by agreement between the Company and Cowen. The Closing Date may be postponed pursuant to the provisions of Section 12. The Company and the Selling Stockholders shall make the certificates for the Stock available to the Representatives for examination on behalf of the Underwriters not later than 10:00 A.M., New York Time, on the business day preceding the Closing Date at the offices of Cowen & Company, Financial Square, New York, New York 10005. It is understood that Cowen, Montgomery Securities or Prudential Securities Incorporated, individually and not as Representatives of the several Underwriters, may (but shall not be obligated to) make payment to the Company on behalf of any Underwriter or Underwriters, for the Stock to be purchased by such Underwriter or Underwriters. Any such payment by Cowen, Montgomery Securities or Prudential Securities Incorporated shall not relieve such Underwriter or Underwriters from any of its or their other obligations hereunder. The several Underwriters agree to make an initial public offering of the Firm Stock at the initial public offering price as soon after the effectiveness of the Registration Statement as in their judgment is advisable. The Representatives shall promptly advise the Company and the Selling Stockholders of the making of the initial public offering. For the purpose of covering any over-allotments in connection with the distribution and sale of the Firm Stock as contemplated by the Prospectus, the Company and each of the Selling Stockholders hereby grants to the Underwriters an option to purchase, severally and not jointly, up to the aggregate number of shares of Optional Stock set forth opposite the Company's and each such Selling Stockholder's name on Schedule B hereto, for an aggregate of up to____________ shares. The price per share to be paid for the Optional Stock shall be the Purchase Price. The option granted hereby may be exercised as to all or any part of the Optional Stock at any time, and from time to time, not more than thirty (30) days subsequent to the effective date of this Agreement. No Optional Stock shall be sold and delivered unless the Firm Stock previously has been, or simultaneously is, sold and delivered. The right to purchase the Optional Stock or any portion thereof may be surrendered and terminated at any time upon notice by the Underwriters to the Company and the Selling Stockholders. The option granted hereby may be exercised by the Underwriters by giving written notice from Cowen to the Company and the Selling Stockholders setting forth the number of shares of the Optional Stock to be purchased by them and the date and time for delivery of and payment for the Optional Stock. Each date and time for delivery of and payment - 13 - for the Optional Stock (which may be the First Closing Date, but not earlier) is herein called the "Option Closing Date" and shall in no event be earlier than two (2) business days nor later than ten (10) business days after written notice is given. (The Option Closing Date and the First Closing Date are herein called the "Closing Dates"). All purchases of Optional Stock shall be made first from the Company and then the Selling Stockholders on a pro rata basis. Optional Stock shall be purchased for the account of each Underwriter in the same proportion as the number of shares of Firm Stock set forth opposite such Underwriter's name in Schedule B hereto bears to the total number of shares of Firm Stock (subject to adjustment by the Underwriters to eliminate odd lots). Upon exercise of the option by the Underwriters, the Company and the Selling Stockholders agree to sell to the Underwriters the number of shares of Optional Stock set forth in the written notice of exercise and the Underwriters agree, severally and not jointly and subject to the terms and conditions herein set forth, to purchase the number of such shares determined as aforesaid. The Company and the Selling Stockholders will deliver the Optional Stock to the Underwriters (in the form of definitive certificates, issued in such names and in such denominations as the Representatives may direct by notice in writing to the Company and the Selling Stockholders given at or prior to 12:00 Noon, New York Time, on the second full business day preceding the Option Closing Date or, if no such direction is received, in the names of the respective Underwriters or in such other names as Cowen may designate (solely for the purpose of administrative convenience) and in such denominations as Cowen may determine, against payment of the aggregate Purchase Price therefor by wire transfer (same day funds), payable to the order of the Company and the Company as Custodian for the Selling Stockholders or payable as directed by the Company and such Custodian all at the offices of Foley, Hoag & Eliot, One Post Office Square, Boston, Massachusetts 02109. The Company and the Selling Stockholders shall make the certificates for the Optional Stock available to the Underwriters for examination not later than 10:00 A.M., New York Time, on the business day preceding the Option Closing Date at the offices of Cowen & Company, Financial Square, New York, New York 10005. The Option Closing Date and the location of delivery of, and the form of payment for, the Option Stock may be varied by agreement between the Company, the Custodian for the Selling Stockholders and Cowen. The Option Closing Date may be postponed pursuant to the provisions of Section 12. 4. Covenants and Agreements of the Company. The Company covenants --------------------------------------- and agrees with the several Underwriters that: (a) The Company will (i) if the Company and the Representatives have determined not to proceed pursuant to Rule 430A, use its best efforts to cause the Registration Statement to become effective, (ii) if the Company and the Representatives have determined to proceed pursuant to Rule 430A, use its best efforts to comply with the provisions of and make all requisite filings with the Commission pursuant to Rule 430A and Rule 424 of the Rules and Regulations and (iii) if the Company and the Representatives have determined to deliver Prospectuses pursuant to Rule 434 of the Rules and Regulations, to use its best efforts to comply with all the applicable provisions thereof. The Company will advise the Representatives promptly as to the time at which - 14 - the Registration Statement becomes effective, will advise the Representatives promptly of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the institution of any proceedings for that purpose, and will use its best efforts to prevent the issuance of any such stop order and to obtain as soon as possible the lifting thereof, if issued. The Company will advise the Representatives promptly of the receipt of any comments of the Commission or any request by the Commission for any amendment of or supplement to the Registration Statement or the Prospectus or for additional information and will not at any time file any amendment to the Registration Statement or supplement to the Prospectus which shall not previously have been submitted to the Representatives a reasonable time prior to the proposed filing thereof or to which the Representatives shall not have previously approved in writing (such approval not to be unreasonably withheld or delayed) or which is not in compliance with the Securities Act and the Rules and Regulations. (b) The Company will prepare and file with the Commission, promptly upon the request of the Representatives, any amendments or supplements to the Registration Statement or the Prospectus which in the opinion of the Representatives may be necessary to enable the several Underwriters to continue the distribution of the Stock and will use its best efforts to cause the same to become effective as promptly as possible. (c) If at any time after the effective date of the Registration Statement when a prospectus relating to the Stock is required to be delivered under the Securities Act any event relating to or affecting the Company occurs as a result of which the Prospectus or any other prospectus as then in effect would include an untrue statement of a material fact, or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Securities Act, the Company will promptly notify the Representatives thereof and will prepare an amended or supplemented prospectus which will correct such statement or omission; and in case any Underwriter is required to deliver a prospectus relating to the Stock nine (9) months or more after the effective date of the Registration Statement, the Company upon the request of the Representatives and at the expense of such Underwriter will prepare promptly such prospectus or prospectuses as may be necessary to permit compliance with the requirements of Section 10(a)(3) of the Securities Act. (d) The Company will deliver to the Representatives, at or before the Closing Dates, signed copies of the Registration Statement, as originally filed with the Commission, and all amendments thereto including all financial statements and exhibits thereto, and will deliver to the Representatives such number of copies of the Registration Statement, including such financial statements, but without exhibits, and all amendments thereto, as the Representatives may reasonably request. The Company will deliver or mail to or upon the order of the Representatives, from time to time until the effective date of the Registration Statement, as many copies of the Preeffective Prospectus as the Representatives may reasonably request. The Company will deliver or mail to or upon the order of the Representatives on the date of the initial public offering, and thereafter - 15 - from time to time during the period when delivery of a prospectus relating to the Stock is required under the Securities Act, as many copies of the Prospectus, in final form or as thereafter amended or supplemented as the Representatives may reasonably request; provided, however, that the expense -------- ------- of the preparation and delivery of any prospectus required for use nine (9) months or more after the effective date of the Registration Statement shall be borne by the Underwriters required to deliver such prospectus. (e) The Company will make generally available to its Stockholders as soon as practicable, but not later than fifteen (15) months after the effective date of the Registration Statement, an earnings statement which will be in reasonable detail (but which need not be audited) and which will comply with Section 11(a) of the Securities Act, covering a period of at least twelve (12) months beginning after the "effective date" (as defined in Rule 158 under the Securities Act) of the Registration Statement. (f) The Company will cooperate with the Representatives to enable the Stock to be registered or qualified for offering and sale by the Underwriters and by dealers under the securities laws of such jurisdictions as the Representatives may designate, provided that such jurisdictions are within the United States, Guam or Puerto Rico, and at the request of the Representatives will make such applications and furnish such consents to service of process or other documents as may be required of it as the issuer of the Stock for that purpose; provided, however, that the Company -------- ------- shall not be required to qualify to do business or to file a general consent (other than that arising out of the offering or sale of the Stock) to service of process in any such jurisdiction where it is not now so subject. The Company will, from time to time, prepare and file such statements and reports as are or may be required of it as the issuer of the Stock to continue such qualifications in effect for so long a period as the Representatives may reasonably request for the distribution of the Stock. The Company will advise the Representatives promptly after the Company becomes aware of the suspension of the qualifications or registration of (or any such exception relating to) the Common Stock of the Company for offering, sale or trading in any jurisdiction or of any initiation or threat of any proceeding for any such purpose, and in the event of the issuance of any orders suspending such qualifications, registration or exception, the Company will, with the cooperation of the Representatives use its best efforts to obtain the withdrawal thereof. (g) The Company will furnish to its stockholders annual reports containing financial statements certified by independent public accountants and with quarterly summary financial information in reasonable detail which may be unaudited. Stockholders. (h) The Company will use its best efforts to list the Stock, subject to official notice of issuance, on the Nasdaq National Market. (i) The Company will maintain a transfer agent and registrar for its Common Stock. - 16 - (j) Prior to filing its first six quarterly statements on Form 10-Q, the Company will have its independent auditors perform a limited quarterly review of its quarterly numbers. (k) The Company will not offer, sell, assign, transfer, encumber, contract to sell, grant an option to purchase or otherwise dispose of any shares of Common Stock or securities convertible into or exercisable or exchangeable for Common Stock (including, without limitation, Common Stock of the Company which may be deemed to be beneficially owned by the Company in accordance with the Rules and Regulations) during the 180 days following the date on which the price of the Common Stock to be purchased by the Underwriters is set (except with prior written consent of each of the Representatives), other than the Company's sale of Common Stock hereunder and the Company's issuance of Common Stock upon the exercise of warrants and stock options which are presently outstanding and described in the Prospectus or pursuant to the Company's stock option plans. (l) The Company will apply the net proceeds from the sale of the Stock as set forth in the description under "Use of Proceeds" in the Prospectus which description complies in all material respects with the requirements of Item 504 of Regulation S-K. (m) The Company will supply you with copies of all correspondence to and from, and all documents issued to and by, the Commission in connection with the registration of the Stock under the Securities Act and the Exchange Act. (n) Prior to the Closing Dates, the Company will furnish to you, as soon as they have been prepared, copies of any unaudited interim financial statements of the Company for any periods subsequent to the periods covered by the financial statements appearing in the Registration Statement and the Prospectus. (o) Prior to the First Closing Date, the Company will issue no press release or other communications directly or indirectly and hold no press conference with respect to the Company, the financial condition, results of operation, business, prospects, assets or liabilities of any of them, or the offering of the Stock, without your prior written consent. For a period of twelve (12) months following the Closing Date, the Company will use its best efforts to provide to you copies of each press release or other public communications with respect to the financial condition, results of operations, business, prospects, assets or liabilities of the Company at least twenty-four (24) hours prior to the public issuance thereof or such longer advance period as may reasonably be practicable. (p) During the period of five (5) years hereafter, the Company will furnish to the Representatives, and upon request of the Representatives, to each of the Underwriters: (i) as soon as practicable after the end of each fiscal year, copies of the Annual Report of the Company containing the balance sheet of the Company as of the close of such fiscal year and statements of income, stockholder's equity and cash flows for the year then ended and the opinion thereon of the Company's independent public accountants; (ii) as -17- soon as practicable after the end of each fiscal year, copies of the Annual Report of the Company containing the balance sheet of the Company as of the close of such fiscal year and statements of income, stockholder's equity and cash flows for the year then ended and the opinion thereon of the Company's independent public accountants; (ii) as soon as practicable after the filing thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report filed by the Company with the Commission, or the NASD or any securities exchange; and (iii) as soon as available, copies of any report or communication of the Company mailed generally to holders of its Common Stock and (iv) from time to time, such other information concerning the Company as you may reasonably request. 5. Payment of Expenses. (a) The Company will pay (directly or by ------------------- reimbursement) all costs, fees and expenses incurred in connection with or incident to the performance of the obligations of the Company and of the Selling Stockholders under this Agreement and in connection with the transactions contemplated hereby, including but not limited to (i) all expenses and taxes incident to the issuance and delivery of the Stock to the Representatives; (ii) all expenses incident to the registration of the Stock under the Securities Act; (iii) the costs of preparing stock certificates (including printing and engraving costs); (iv) all fees and expenses of the registrar and transfer agent of the Stock; (v) all necessary issue, transfer and other stamp taxes in connection with the issuance and sale of the Stock to the Underwriters; (vi) fees and expenses of the Company's counsel and the Company's independent accountants; (vii) all costs and expenses incurred in connection with the preparation, printing, filing, shipping and distribution of the Registration Statement, each Preeffective Prospectus and the Prospectus (including all exhibits and financial statements) and all amendments and supplements provided for herein, the Selling Stockholders' Powers of Attorney, the Custody Agreements, the "Agreement Among Underwriters" between the Representatives and the Underwriters, the Master Selected Dealers' Agreement, the Underwriters' Questionnaire and the Blue Sky memoranda and this Agreement; (viii) all filing fees, attorneys fees' and expenses incurred by the Company or the Underwriters in connection with exemptions from the qualifying or registering (or obtaining qualification or registration of) all or any part of the Stock for offer and sale and determination of its eligibility for investment under the Blue Sky or other securities laws of such jurisdictions as the Representatives may designate; (ix) all fees and expenses paid or incurred in connection with filings made with the NASD; and (x) all other reasonable costs and expenses incident to the performance of their obligations hereunder which are not otherwise specifically provided for in this Section. (b) Each Selling Stockholder will pay (directly or by reimbursement) all fees and expenses incident to the performance of such Selling Stockholder's obligations under this Agreement which are not otherwise specifically provided for herein, including but not limited to any fees and expenses of counsel for such Selling Stockholder, such Selling Stockholder's pro rata share of fees and expenses of the Attorneys-in-fact and the Custodian and all expenses and taxes incident to the sale and delivery of the Stock to be sold by such Selling Stockholder to the Underwriters hereunder. (c) In addition to their other obligations under Section 6(a) hereof, the Company and the Selling Stockholders agree that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon (i) any misstatement or omission or any alleged misstatement or omission or (ii) any breach or inaccuracy in their representations and warranties, they will reimburse each Underwriter on a -18- quarterly basis for all reasonable legal or other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Company's and Selling Stockholders' obligation to reimburse each Underwriter for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, each Underwriter shall promptly return it to the Company or the Selling Stockholder, as the case maybe, together with interest, compounded daily, determined on the basis of the prime rate (or other commercial lending rate for borrowers of the highest credit standing) announced from time to timed by Chemical Bank, New York, New York (the "Prime Rate"). Any such interim reimbursement payments which are not made to an Underwriter in a timely manner as provided below shall bear interest at the Prime Rate from the due date for such reimbursement. This expense reimbursement agreement will be in addition to any other liability which the Company and the Selling Stockholders may otherwise have. The request for reimbursement will be sent to the Company with a copy to each Selling Stockholder. In the event that the Company fails to make such reimbursement payment within thirty (30) days of the reimbursement request, the Representatives shall notify the Selling Stockholders of their obligation to make such reimbursement payments within fifteen (15) days; provided, however, that each Selling Stockholder shall be required to advance at such time only its pro rata portion of the reimbursement payment. To the extent that any Selling Stockholder fails to pay its pro rata portion in timely response to the Underwriters' request, the other Selling Stockholders shall be jointly and severally liable for such reimbursement payment and each shall render such payment to the Representatives within fifteen (15) days of written demand therefor by the Representatives. (d) In addition to its other obligations under Section 6(b) hereof, each Underwriter severally agrees that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any misstatement or omission of a material fact, or any alleged misstatement or omission of a material fact, described in Section 6(b) hereof which relates to information furnished by the Underwriters to the Company, it will reimburse the Company (and, to the extent applicable, each officer, director, or controlling person or Selling Stockholder) on a quarterly basis for all reasonable legal or other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Underwriters' obligation to reimburse the Company (and, to the extent applicable, each officer, director, or controlling person or Selling Stockholder) for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, the Company (and, to the extent applicable, each officer, director, or controlling person or Selling Stockholder) shall promptly return it to the Underwriters together with interest, compounded daily, determined on the basis of the Prime Rate. Any such interim reimbursement payments which are not made to the Company within thirty (30) days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. -19- (e) It is agreed that any controversy arising out of the operation of the interim reimbursement arrangements set forth in paragraph (c) and/or (d) of this Section 5, including the amounts of any requested reimbursement payments and the method of determining such amounts, shall be settled by arbitration conducted under the provisions of and pursuant to the arbitration procedures of the American Arbitration Association. Any such arbitration must be commenced by service of a written demand for arbitration or written notice of intention to arbitrate, therein electing the arbitration tribunal. In the event the party demanding arbitration does not make such designation of an arbitration tribunal in such demand or notice, then the party responding to said demand or notice is authorized to do so. Such an arbitration would be limited to the operation of the interim reimbursement provisions contained in paragraph (c) and/or (d) of this Section 5 and would not resolve the ultimate propriety or enforceability of the obligation to reimburse expenses which is created by the provisions of Section 6. 6. Indemnification and Contribution. (a) The Company agrees to -------------------------------- indemnify and hold harmless each Underwriter and each person, if any, who controls such Underwriter within the meaning of the Securities Act and the respective officers, directors, shareholders, partners and employees of each of such Underwriter or person who controls such Underwriter (collectively, the "Underwriter Indemnified Parties" and, each, an "Underwriter Indemnified Party"), against any losses, claims, damages, liabilities or expenses (including the reasonable cost of investigating and defending against any claims therefor and counsel fees incurred in connection therewith) , joint or several, which may be based upon the Securities Act, the Exchange Act or any other statute or at common law, on the ground or alleged ground that any Preeffective Prospectus, the Registration Statement or the Prospectus (or any Preeffective Prospectus, the Registration Statement or the Prospectus as from time to time amended or supplemented) includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, unless such statement or omission was made in reliance upon, and in conformity with, written information furnished to the Company by any Underwriter, directly or through the Representatives, specifically for use in the preparation thereof; provided, that with respect to any untrue statement or omission or alleged untrue statement or omission made in any Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Underwriter Indemnified Party from whom the person asserting any such losses, claims, damages or liabilities purchased the shares of Stock concerned to the extent that any such loss, claim, damage or liability of such Underwriter Indemnified Party results from the fact that a copy of the Prospectus was not sent or given to such person at or prior to the written confirmation of the sale of such shares of Stock to such person as required by the Securities Act and if the untrue statement or omission concerned has been corrected in the Prospectus. The Company will be entitled to participate at its own expense in the defense or, if it so elects, to assume the defense of any suit brought to enforce any such liability, but if the Company elects to assume the defense, such defense shall be conducted by counsel chosen by it. In the event the Company elects to assume the defense of any such suit and retain such counsel, any Underwriter Indemnified Parties, defendant or defendants in the suit, may retain additional counsel but shall bear the fees and expenses of such counsel unless (i) the Company shall have specifically authorized in writing the retaining of such counsel or (ii) the -20- parties to such suit include any such Underwriter Indemnified Parties, and the Company and such Underwriter Indemnified Parties at law or in equity have been advised by counsel to the Underwriters that one or more legal defenses may be available to it or them which may not be available to the Company, in which case the Company shall not be entitled to assume the defense of such suit notwithstanding its obligation to bear the fees and expenses of such counsel. This indemnity agreement is not exclusive and will be in addition to any liability which the Company might otherwise have and shall not limit any rights or remedies which may otherwise be available at law or in equity to each Underwriter Indemnified Party. (b) Each Selling Stockholder agrees to indemnify and hold harmless each Underwriter Indemnified Party against any losses, claims, damages, liabilities or expenses (including, unless such Selling Stockholder elects to assume the defense, the reasonable cost of investigating and defending against any claims therefor and counsel fees incurred in connection therewith), joint or several, which may be based upon the Securities Act, the Exchange Act or any other statute or at common law, on the ground or alleged ground that any Preeffective Prospectus, the Registration Statement or the Prospectus (or any Preeffective Prospectus, the Registration Statement or the Prospectus, as from time to time amended and supplemented) includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, unless such statement or omission was made in reliance upon, and in conformity with, written information any Underwriter, directly or through Representatives, specifically for use in the preparation thereof; provided, that with respect to any untrue statement or omission or alleged untrue statement or omission made in any Registration Statement, the indemnity agreement contained in this subsection (b) shall not inure to the benefit of any Underwriter Indemnified Party from whom the person asserting any such losses, claims, damages or liabilities purchased the shares of Stock concerned to the extent that any such loss, claim, damage or liability of such Underwriter Indemnified Party results from the fact that a copy of the Prospectus was not sent or given to such person at or prior to the written confirmation of the sale of such shares of Stock to such person as required by the Securities Act and if the untrue statement or omission concerned has been corrected in the Prospectus. Such Selling Stockholder shall be entitled to participate at his own expense in the defense, or, if he so elects, to assume the defense of any suit brought to enforce any such liability, but, if such Selling Stockholder elects to assume the defense, such defense shall be conducted by counsel chosen by him. In the event that any Selling Stockholder elects to assume the defense of any such suit and retain such counsel, the Underwriter Indemnified Parties, defendant or defendants in the suit, may retain additional counsel but shall bear the fees and expenses of such counsel unless (i) such Selling Stockholder shall have specifically authorized the retaining of such counsel or (ii) the parties to such suit include such Underwriter Indemnified Parties, and such Selling Stockholder and such Underwriter Indemnified Parties have been advised by counsel that one or more legal defenses may be available to it or them which may not be available to such Selling Stockholder, in which case, such Selling Stockholder shall not be entitled to assume the defense of such suit notwithstanding its obligation to bear the fees and expenses of such counsel. This indemnity agreement is not exclusive and will be in addition to any liability which such Selling Stockholder might otherwise have and shall not limit any rights or remedies which may otherwise be available at law or in equity to each Underwriter Indemnified Party. The Company and the -21- Selling Stockholders may agree, as among themselves and without limiting the rights of the Underwriters under this Agreement, as to their respective amounts of such liability for which they each shall be responsible. (c) Each Underwriter severally agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement and each person, if any, who controls the Company within the meaning of the Securities Act (collectively, the "Company Indemnified Parties") and each Selling Stockholder and each person, if any, who controls a Selling Stockholder within the meaning of the Securities Act (collectively, the "Stockholder Indemnified Parties"), against any losses, claims, damages, liabilities or expenses (including, unless the Underwriter or Underwriters elect to assume the defense, the reasonable cost of investigating and defending against any claims therefor and counsel fees incurred in connection therewith), joint or several, which arise out of or are based in whole or in part upon the Securities Act, the Exchange Act or any other federal, state, local or foreign statute or regulation, or at common law, on the ground or alleged ground that any Preeffective Prospectus, the Registration Statement or the Prospectus (or any Preeffective Prospectus, the Registration Statement or the Prospectus, as from time to time amended and supplemented) includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, but only insofar as any such statement or omission was made in reliance upon, and in conformity with, written information furnished to the Company by such Underwriter, directly or through the Representatives, specifically for use in the preparation thereof provided, however, that in no case is such Underwriter to be liable with respect to any claims made against any Company Indemnified Part or Stockholder with respect to any claims made against any Company Indemnified Party or Stockholder Indemnified Part against whom the action is brought unless such Company Indemnified Party or Stockholder Indemnified Party shall have notified such Underwriter in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon the Company Indemnified Party or Stockholder Indemnified Party, but failure to notify such Underwriter of such claim shall not relieve it from any liability which it may have to any Company Indemnified Party or Stockholder Indemnified Party otherwise than on account of its indemnity agreement contained in this paragraph. Such Underwriter shall be entitled to participate at its own expense in the defense, or, if it so elects, to assume the defense of any suit brought to enforce any such liability, but, if such Underwriter elects to assume the defense, such defense shall be conducted by counsel chosen by it. In the event that any Underwriter elects to assume the defense of any such suit and retain such counsel, the Company Indemnified Parties or Stockholder Indemnified Parties and any other Underwriter or Underwriters or controlling person or persons, defendant or defendants in the suit, shall bear the fees and expenses of any additional counsel retained by them, respectively unless (i) the Underwriter shall have specifically authorized in writing the retaining of such counsel or (ii) the parties to such suit include the Company or a Stockholder Indemnified Party, and the Underwriters and such Company or Stockholder Indemnified Party at law or in equity have been advised by counsel to the Company or such Stockholder Indemnified Party that one or more defenses may be available to them which may not be available to the Underwriters, in which case the Underwriters shall not be entitled to assume the defense of such suit notwithstanding its obligation to bear fees and expenses of such -22- counsel. The Underwriter against whom indemnity may be sought shall not be liable to indemnify any person for any settlement of any such claim effected without such Underwriter's consent. This indemnity agreement is not exclusive and will be in addition to any liability which such Underwriter might otherwise have and shall not limit any rights or remedies which may otherwise be available at law or in equity to any Company Indemnified Party or Stockholder Indemnified Party. (d) If the indemnification provided for in this Section 6 is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) or (c) above in respect of any losses, claims, damages, liabilities or expenses (or actions in respect thereof) referred to herein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (or actions in respect thereof) in such proportion as is 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. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters, 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, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, the Selling Stockholders or the Underwriters and the parties' relative intent, 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 contribution were 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 account of the equitable considerations referred to above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or expenses (or actions in respect thereof) referred to above shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating, defending, settling or compromising any such claim. Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the shares of the Stock underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The Underwriters' obligations to contribute are several in proportion to their respective underwriting obligations and not joint. No person guilty of fraudulent misrepresentation (within the meaning of Section -23- 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 7. Survival of Indemnities, Representations, Warranties, etc. The --------------------------------------------------------- respective indemnities, covenants, agreements, representations, warranties and other statements of the Company, the Selling Stockholders and the several Underwriters, as set forth in this Agreement or made by them respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter, the Selling Stockholders the Company or any of its officers or directors or any controlling person, and shall survive delivery of and payment for the Stock. 8. Conditions of Underwriters Obligations. The respective -------------------------------------- obligations of the several Underwriters hereunder shall be subject to the accuracy, at and (except as otherwise stated herein) as of the date hereof and at and as of the Closing Dates, of the representations and warranties made herein by the Company and the Selling Stockholders, to compliance at and as of the Closing Dates by the Company and the Selling Stockholders with their covenants and agreements herein contained and other provisions hereof to be satisfied at or prior to the Closing Dates, and to the following additional conditions: (a) The Registration Statement shall have become effective and no stop order suspending the effectiveness thereof shall have been issued and no proceedings for that purpose shall have been initiated or, to the knowledge of the Company or the Representatives, shall be threatened by the Commission, and any request for additional information on the part of the Commission (to be included in the Registration Statement or the Prospectus or otherwise) shall have been complied with to the reasonable satisfaction of the Representatives. Any filings of the Prospectus, or any supplement thereto, required pursuant to Rule 424 (b) or Rule 434 of the Rules and Regulations, shall have been made in the manner and within the time period required by Rule 424(b) and Rule 434 of the Rules and Regulations, as the case may be. (b) The Representatives shall have been satisfied that there shall not have occurred any change prior to the Closing Dates in the condition (financial or otherwise), properties, business, management, net worth or results of operations of the Company, or any change in the capital stock, or any material change in short-term or long-term debt of the Company, such that (i) the Registration Statement or the Prospectus, or any amendment or supplement thereto, contains an untrue statement of fact which, in the opinion of the Representatives, is material, or omits to state a fact which, in the opinion of the Representatives, is required to be stated therein or is necessary to make the statements therein not misleading, or (ii) it is unpracticable in the reasonable judgment of the Representatives to proceed with the public offering or purchase the Stock as contemplated hereby. (c) The Representatives shall be satisfied that no legal or governmental action, suit or proceeding affecting the Company which is material -24- and adverse to the Company or which affects or may affect the Company's or the Selling Stockholders' ability to perform their respective obligations under this Agreement shall have been instituted or threatened and there shall have occurred no material adverse development in any existing such action, suit or proceeding. (d) At the time of execution of this Agreement, the Representatives shall have received from Deloitte & Touche LLP, independent certified public accountants, a letter, dated the date hereof, in form and substance satisfactory to the Underwriters. (e) The Representatives shall have received from Deloitte & Touche LLP, independent certified public accountants, a letter, dated the Closing Dates, to the effect that such accountants reaffirm, as of the Closing Dates, and as though made on the Closing Date(s), the statements made in the letter furnished by such accountants pursuant to paragraph (d) of this Section 8. (f) The Representatives shall have received from Foley, Hoag & Eliot, counsel for the Company and for the Selling of Stockholders, an opinion, dated the Closing Dates, to the effect set forth in Exhibit I hereto. (g) The Representatives shall have received from Testa, Hurwitz & Thibeault, counsel for the Underwriters, their opinion or opinions dated the Closing Dates with respect to the incorporation of the Company, the validity of the Stock, the Registration Statement and the Prospectus and such other related matters as they may reasonably request, and the Company and the Selling Stockholders shall have furnished to such counsel such documents as they may request for the purpose of enabling them to pass upon such matters. (h) The Representatives shall have received a certificate, dated the Closing Dates, of the Chief Executive Officer or the President and the chief financial or accounting officer of the Company to the effect that: (i) No stop order suspending the effectiveness of the Registration Statement has been issued, and, to the best of the knowledge of the signers, no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act; (ii) Neither any Preeffective Prospectus, as of its date, nor the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, as of the time when the Registration Statement became effective and at all times subsequent thereto up to the delivery of such certificate, included any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; -25- (iii) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, and except as set forth or contemplated in the Prospectus, the Company has not incurred any material liabilities or obligations, direct or contingent, nor entered into any material transactions not in the ordinary course of business and there has not been any material adverse change in the condition (financial or otherwise), properties, business, management, net worth or results of operations of the Company, or any change in the capital stock, or any material change in the short-term or long-term debt of the Company; (iv) The representations and warranties of the Company in this Agreement are true and correct at and as of the Closing Dates, and the Company has complied with all the agreements and performed or satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Dates; and (v) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, and except as disclosed in or contemplated by the Prospectus, (i) there has not been any material adverse change or a development involving a material adverse change in the condition (financial or otherwise), properties, business, management, net worth or results of operations of the Company; (ii) the business and operations conducted by the Company have not sustained a loss by strike, fire, flood, accident or other calamity (whether or not insured) of such a character as to interfere materially with the conduct of the business and operations of the Company; (iii) no legal or governmental action, suit or proceeding is pending or threatened against the Company which is material to the Company, whether or not arising from transactions in the ordinary course of business, or which may materially and adversely affect the transactions contemplated by this Agreement; (iv) since such dates and except as so disclosed, the Company has not incurred any material liability or obligation, direct, contingent or indirect, made any change in its capital stock (except pursuant to its stock plans), made any material change in its short-term or funded debt or repurchased or otherwise acquired any of the Company's capital stock; and (v) the Company has not declared or paid any dividend, or made any other distribution, upon its outstanding capital stock payable to stockholders of record on a date prior to the Closing Date. (i) The Representatives shall have received a certificate or certificates, dated the Closing Dates, of each of the Selling Stockholders to the effect that as of the Closing Dates its representations and warranties in this Agreement are true and correct as if made on and as of the Closing Dates, and that it has performed all its obligations and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Dates. -26- (j) The Company and each of the Selling Stockholders shall have furnished to the Representatives such additional certificates as the Representatives may have reasonably requested as to the accuracy, at and as of the Closing Dates, of the representations and warranties made herein by them and as to compliance at and as of the Closing Dates by them with their covenants and agreements herein contained and other provisions hereof to be satisfied at or prior to the Closing Dates, and as to satisfaction of the other conditions to the obligations of the Underwriters hereunder. (k) Cowen shall have received the written agreements of the officers, directors and holders of Common Stock and options to purchase Common Stock listed in Schedule C that each will not offer, sell, assign, transfer, encumber, contract to sell, grant an option to purchase or otherwise dispose of, other than by operation of law, gifts, pledges or dispositions by estate representatives, any shares of Common Stock (including, without limitation, Common Stock of the Company which may be deemed to be beneficially owned by the undersigned in accordance with the Rules and Regulations) during the 180 days following the date of the final Prospectus, except for the Stock being sold hereunder by the Selling Stockholders. All opinions, certificates, letters and other documents will be in compliance with the provisions hereunder only if they are satisfactory in form and substance to the Representatives. The Company will furnish to the Representatives conformed copies of such opinions, certificates, letters and other documents as the Representatives shall reasonably request. If any of the conditions hereinabove provided for in this Section shall not have been satisfied when and as required by this Agreement, this Agreement may be terminated by the Representatives by notifying the Company of such termination in writing or by telegram at or prior to the Closing Dates, but Cowen shall be entitled to waive any of such conditions. 9. Effective Date. This Agreement shall become effective -------------- immediately as to Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 and, as to all other provisions, at 11:00 a.m. New York City time on the first full business day following the effectiveness of the Registration Statement or at such earlier time after the Registration Statement becomes effective as the Representatives may determine on and by notice to the Company or by release of any of the Stock for sale to the public. For the purposes of this Section 9, the Stock shall be deemed to have been so released upon the release for publication of any newspaper advertisement relating to the Stock or upon the release by you of telegrams (i) advising Underwriters that the shares of Stock are released for public offering or (ii) offering the Stock for sale to securities dealers, whichever may occur first. 10. Termination. This Agreement (except for the provisions of ----------- Section 5) may be terminated by the Company at any time before it becomes effective in accordance with Section 9 by notice to the Representatives and may be terminated by the Representatives at any time before it becomes effective in accordance with Section 9 by notice to the Company. In the -27- event of any termination of this Agreement under this or any other provision of this Agreement, there shall be no liability of any party to this Agreement to any other party, other than as provided in Sections 5, 6 and 11 and other than as provided in Section 12 as to the liability of defaulting Underwriters. This Agreement may be terminated after it becomes effective by the Representatives by notice to the Company (i) if at or prior to the First Closing Date, or the Option Closing Date trading in securities on any of the New York Stock Exchange, American Stock Exchange, or the Nasdaq National Market shall have been suspended or minimum or maximum prices shall have been established on any such exchange or market, or a banking moratorium shall have been declared by New York or United States authorities; (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market; (iii) if at or prior to the First Closing Date or the Option Closing Date there shall have been (A) an outbreak or escalation of hostilities between the United States and any foreign power or of any other insurrection or armed conflict involving the United States or (B) any change in financial markets or any calamity or crisis which, in the judgment of the Representatives, makes it impractical or inadvisable to offer or sell the Firm Stock or Optional Stock, as applicable, on the terms contemplated by the Prospectus; (iv) if there shall have been any development or prospective development involving particularly the business or properties or securities of the Company or the transactions contemplated by this Agreement, which, in the judgment of the Representatives, makes it impracticable or inadvisable to offer or deliver the Firm Stock or the Optional Stock, as applicable, on the terms contemplated by the Prospectus; (v) if there shall be any litigation or proceeding, pending or threatened, which, in the judgment of the Representatives, makes it impracticable or inadvisable to offer or deliver the Firm Stock or Optional Stock, as applicable, on the terms contemplated by the Prospectus; or (vi) if there shall have occurred any of the events specified in the immediately preceding clauses (i) - (v) together with any other such event that makes it, in the judgment of the Representatives, impractical or inadvisable to offer or deliver the Firm Stock or Optional Stock, as applicable, on the terms contemplated by the Prospectus. 11. Reimbursement of Underwriters. Notwithstanding any other ----------------------------- provisions hereof, if this Agreement shall not become effective by reason of any election of the Company or the Selling Stockholders pursuant to the first paragraph of Section 10 or shall be terminated by the Representatives under Section 8 or Section 10, the Company will bear and pay the expenses specified in Section 5 hereof and, in addition to their obligations pursuant to Section 6 hereof, the Company will reimburse the reasonable out-of-pocket expenses of the several Underwriters (including reasonable fees and disbursements of counsel for the Underwriters) incurred in connection with this Agreement and the proposed purchase of the Stock, and promptly upon demand the Company will pay such amounts to you as Representatives. 12. Substitution of Underwriters. If any Underwriter or Underwriters ---------------------------- shall default in its or their obligations to purchase shares of Stock hereunder and the aggregate number of shares which such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed ten percent (10%) of the total number of shares underwritten, the other Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to -28- purchase the shares which such defaulting Underwriter or Underwriters agreed but failed to purchase. If any Underwriter or Underwriters shall so default and the aggregate number of shares with respect to which such default or defaults occur is more than ten percent (10%) of the total number of shares underwritten and arrangements satisfactory to the Representatives and the Company for the purchase of such shares by other persons are not made within forty-eight (48) hours after such default, this Agreement shall terminate. If the remaining Underwriters or substituted Underwriters are required hereby or agree to take up all or part of the shares of Stock of a defaulting Underwriter or Underwriters as provided in this Section 12, (i) the Company and the Selling Stockholders shall have the right to postpone the Closing Dates for a period of not more than five (5) full business days in order that the Company and the Selling Stockholders may effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees promptly to file any amendments to the Registration Statement or supplements to the Prospectus which may thereby be made necessary, and (ii) the respective numbers of shares to be purchased by the remaining Underwriters or substituted Underwriters shall be taken as the basis of their underwriting obligation for all purposes of this Agreement. Nothing herein contained shall relieve any defaulting Underwriter of its liability to the Company, the Selling Stockholders or the other Underwriters for damages occasioned by its default hereunder. Any termination of this Agreement pursuant to this Section 12 shall be without liability on the part of any non-defaulting Underwriter, the Selling Stockholders or the Company, except for expenses to be paid or reimbursed pursuant to Section 5 and except for the provisions of Section 6. 13. Notices. All communications hereunder shall be in writing and, ------- if sent to the Underwriters shall be mailed, delivered or telegraphed and confirmed to you, as their Representatives c/o Cowen & Company at Financial Square, New York, New York 10005 except that notices given to an Underwriter pursuant to Section 6 hereof shall be sent to such Underwriter at the address furnished by the Representatives or, if sent to the Company, shall be mailed, delivered or telegraphed and confirmed at Lightbridge, Inc., 281 Winter Street, Waltham, Massachusetts 02154. With respect to the Selling Stockholders, notices may be sent to an Attorney-in-Fact. 14. Successors. This Agreement shall inure to the benefit of and be ---------- binding upon the several Underwriters, the Company and the Selling Stockholders and their respective successors and legal representatives. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person other than the persons mentioned in the preceding sentence any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person; except that the representations, warranties, covenants, agreements and indemnities of the Company and the Selling Stockholders contained in this Agreement shall also be for the benefit of -29- the person or persons, if any, who control any Underwriter or Underwriters within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and the indemnities of the several Underwriters shall also be for the benefit of each director of the Company, each of its officers who has signed the Registration Statement and the person or persons, if any, who control the Company or any Selling Stockholders within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act. 15. Applicable Law. This Agreement shall be governed by and -------------- construed in accordance with the laws of the State of New York. 16. Authority of the Representatives. In connection with this -------------------------------- Agreement, you will act for and on behalf of the several Underwriters, and any action taken under this Agreement by Cowen, as Representative, will be binding on all the Underwriters; and any action taken under this Agreement by any of the Attorneys-in-fact will be binding on all of the Selling Stockholders. 17. Partial Unenforceability. The invalidity or unenforceability of ------------------------ any Section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other Section, paragraph or provision hereof. If any Section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable. 18. General. This Agreement constitutes the entire agreement of the ------- parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof. In this Agreement, the masculine, feminine and neuter genders and the singular and the plural include one another. The section headings in this Agreement are for the convenience of the parties only and will not affect the construction or interpretation of this Agreement. This Agreement may be amended or modified, and the observance of any term of this Agreement may be waived, only by a writing signed by the Company, the Selling Stockholders and the Representatives. 19. Counterparts. This Agreement may be signed in two (2) or more ------------ counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Any person executing and delivering this Agreement as Attorney-in-fact for the Selling Stockholders represents by so doing that he has been duly appointed as Attorney-in-fact by such Selling Stockholder pursuant to a validly existing and binding Power of Attorney which authorizes such Attorney-in-fact to take such action. -30- If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter and your acceptance shall constitute a binding agreement between us. Very truly yours, LIGHTBRIDGE, INC. By:____________________________________ Name: Title: SELLING STOCKHOLDERS LISTED IN SCHEDULE B By:_____________________________________ less than more than Attorney-in-fact By:_____________________________________ less than more than Attorney-in-fact Acting on behalf of the Selling Stockholders listed in Schedule B. -31- Accepted and delivered in New York New York as of the date first above written. COWEN & COMPANY MONTGOMERY SECURITIES PRUDENTIAL SECURITIES INCORPORATED By: COWEN & COMPANY Acting on their own behalf and as Representatives of several Underwriters referred to in the foregoing Agreement. By: Cowen Incorporated, its general partner By:_____________________________ Name: Title: -32- SCHEDULE A
Number of Firm Shares to be Name Purchased - ---- --------- Cowen & Company............................................. Montgomery Securities....................................... Prudential Securities Incorporated.......................... Total................................................... =========
-33- SCHEDULE B Number Number of of Optional Firm Shares to Shares to be Sold be Sold ------- ------- Selling Stockholders - -------------------- -34- SCHEDULE C LOCKUP AGREEMENTS [to include all stock and optionholders] EX-3.2 3 PROPOSED FORM OF AMENDED AND RESTATED CERTIFICATE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF LIGHTBRIDGE, INC. The following Amended and Restated Certificate of Incorporation: (i) amends and restates the provisions of the Certificate of Incorporation of Lightbridge, Inc. (the "Corporation") originally filed with the Secretary of State of the State of Delaware on June 16, 1989, as amended to date; (ii) supersedes the Certificate of Incorporation and all amendments thereto and restatements thereof; and (iii) has been duly proposed by the Board of Directors of the Corporation and duly adopted by the stockholders of the Corporation in accordance with the provisions of Sections 228, 242 and 245 of the Delaware General Corporation Law. FIRST: The name of the corporation (the "Corporation") is Lightbridge, ----- Inc. SECOND: The address of the registered office of the Corporation in the ------ State of Delaware is 229 South State Street, Dover, County of Kent, and the name of its registered agent at such address is The Prentice-Hall Corporation System, Inc. THIRD: The nature of the business or purpose to be conducted or promoted ----- is as follows: To engage in the business of designing, developing, marketing, licensing, buying and selling computer software of all types and descriptions; to provide computer and computer software related consulting services, including but not limited to software installation, development, consulting and any other activities related thereto. To acquire, hold, dispose of, buy, sell, underwrite, handle on commission and otherwise deal in stocks, shares, bonds, notes and obligations of the interests in corporations, joint-stock companies, trusts, associations, partnerships, firms or persons and all forms of public and municipal securities of this or any other country, or any right or interest therein, and while owner thereof, to exercise all rights, powers and privileges of ownership in the same manner and to the same extent that an individual might. To acquire, hold, use, construct, maintain and dispose of buildings, plants, factories, mills, machinery, works and all other real and personal property, tangible or intangible, of whatever kind and wherever situated, or any right or interest therein for the purposes of the foregoing businesses, and as a going business or otherwise, all or any part of the assets of any corporation, joint-stock company, trust, association, firm or person, and in such cases to assume all or any part of its, his or her liabilities. To engage in, transact and carry on any or all of the above businesses or any other business or activity necessary or convenient for or incidental to any or all of the foregoing or which can advantageously be conducted in connection therewith, and to engage in, transact and carry on any business or lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares of all classes of capital stock which ------ the Corporation shall have authority to issue shall be ____________, consisting of (i) ___________ shares of common stock, par value $.01 per share ("Common Stock"), and (ii) ___________ shares of preferred stock, par value $.01 per share ("Preferred Stock"). The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation: A. COMMON STOCK. ------------ 1. General. The voting, dividend and liquidation rights of the holders of ------- the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors upon any issuance of the Preferred Stock of any series. 2. Voting. The holders of Common Stock will be entitled to one vote per ------ share on all matters to be voted on by the stockholders of the Corporation. There shall be no cumulative voting. 3. Dividends. Dividends may be declared and paid on the Common Stock from --------- funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding Preferred Stock. 4. Liquidation. Upon the dissolution or liquidation of the Corporation, ----------- whether voluntary or involuntary, holders of Common Stock will be entitled to receive all assets of the Corporation available for distribution to its stockholders, subject to any preferential liquidation rights of any then outstanding Preferred Stock. B. PREFERRED STOCK. --------------- Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation as hereinafter provided. No share of Preferred Stock that is redeemed, purchased or acquired by the Corporation may be reissued except as otherwise provided herein or by law. Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purposes of voting by classes unless expressly provided herein, in any such resolution or resolutions, or by law. Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issue of the shares thereof, to determine and fix such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation thereof, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the General Corporation Law of Delaware. Without limiting the generality of the foregoing, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock of any other series to the extent permitted by law. Except as otherwise provided by law or by this Amended and Restated Certificate of Incorporation, no vote of the holders of the Preferred Stock or Common Stock shall be a prerequisite to the issuance of any shares of any series of the Preferred Stock authorized by and complying with the conditions of the Amended and Restated Certificate of Incorporation, the right to have such vote being expressly waived by all present and future holders of the capital stock of the Corporation. FIFTH: In furtherance of and not in limitation of powers conferred by ----- statute, it is further provided that: (a) Subject to the limitations and exceptions, if any, contained in the by-laws of the Corporation, the by-laws may be adopted, amended or repealed by the Board of Directors of the Corporation. (b) Elections of directors need not be by written ballot. (c) Subject to any applicable requirements of law, the books of the Corporation may be kept outside the State of Delaware at such location as may be designated by the Board of Directors or in the by-laws of the Corporation. SIXTH: The Corporation is to have perpetual existence. ----- SEVENTH: The Corporation shall indemnify each person who at any time is, ------- or shall have been a director or officer of the Corporation, and is threatened to be or is made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is, or was, a director or officer of the Corporation, or served at the request of the Corporation as a director, officer, employee, trustee, or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred in connection with any such action, suit or proceeding to the maximum extent permitted by the General Corporation Law of the State of Delaware. -3- The foregoing right of indemnification shall in no way be exclusive of any other rights of indemnification to which any such director or officer may be entitled, under any by-law, agreement, vote of directors or stockholders or otherwise. No amendment to or repeal of the provisions of this paragraph shall deprive a person of the benefit of this paragraph with respect to any act or failure to act of such director occurring prior to such amendment or repeal. EIGHTH: Whenever a compromise or arrangement is proposed between this ------ Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders of this Corporation, as the case may be, and also on this Corporation. NINTH: To the maximum extent permitted by the General Corporation Law of ----- the State of Delaware as the same exists or may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or to any of its stockholders for monetary damages arising out of such director's breach of fiduciary duty as a director of the Corporation. No amendment to or repeal of the provisions of this paragraph shall apply to or have any effect on the liability or the alleged liability of any director of the Corporation with respect to any act or failure to act of such director occurring prior to such amendment or repeal. TENTH: The Corporation reserves the right to amend, alter, change or ----- repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Amended and Restated Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. -4- IN WITNESS WHEREOF, the undersigned, being the duly elected and acting President of Lightbridge, Inc., does hereby declare that this Amended and Restated Certificate of Incorporation has been duly adopted by the Board of Directors and the stockholders of this Corporation in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware. The undersigned does hereby affirm, under the penalties of perjury, that this instrument is the act and deed of the Corporation and the facts herein set forth are true and correct. I have accordingly hereunto set my hand this day of , 1996. LIGHTBRIDGE, INC. By: ------------------------ Its President -5- EX-3.3 4 BY-LAWS OF THE COMPANY BY-LAWS OF CREDIT TECHNOLOGIES, INC. TABLE OF CONTENTS Section 1. CERTIFICATE OF INCORPORATION AND BY-LAWS........................1 - --------- 1.1 By-Laws Subject to Certificate of Incorporation........................1 Section 2. OFFICES.........................................................1 - --------- 2.1 Registered Office......................................................1 2.2 Other Offices..........................................................1 Section 3. STOCKHOLDERS....................................................1 - --------- 3.1 Location of Meetings...................................................1 3.2 Annual Meeting.........................................................1 3.3 Notice of Annual Meeting...............................................1 3.4 Special Meetings.......................................................2 3.5 Notice of Special Meetings.............................................2 3.6 Stockholder List.......................................................2 3.7 Quorum of Stockholders.................................................2 3.8 Adjournment............................................................3 3.9 Proxy Representation...................................................3 3.10 Inspectors.............................................................3 3.11 Action by Vote.........................................................3 3.12 Action Without Meetings................................................4 Section 4. DIRECTORS.......................................................4 - --------- 4.1 Number.................................................................4 4.2 Qualification..........................................................4 4.3 Tenure.................................................................4 4.4 Powers.................................................................5 4.5 Vacancies..............................................................5 4.6 Committees.............................................................5 4.7 Regular Meetings.......................................................6 4.8 Special Meetings.......................................................6 4.9 Notice.................................................................6 4.10 Quorum.................................................................6 4.11 Action by Vote.........................................................6 4.12 Action Without a Meeting...............................................6 4.13 Participation in Meetings by Conference Telephone......................7 4.14 Compensation...........................................................7 4.15 Interested Directors and Officers......................................7
4.16 Resignation or Removal of Directors....................................8 Section 5. NOTICES.........................................................8 - --------- 5.1 Form of Notice.........................................................8 5.2 Waiver of Notice.......................................................8 Section 6. OFFICERS AND AGENTS.............................................9 - --------- 6.1 Enumeration; Qualification.............................................9 6.2 Powers.................................................................9 6.3 Election...............................................................9 6.4 Tenure.................................................................9 6.5 Chairman of the Board, President and Vice President....................9 6.6 Treasurer and Assistant Treasurers....................................10 6.7 Secretary and Assistant Secretaries...................................10 6.8 Resignation and Removal...............................................10 6.9 Vacancies.............................................................11 6.10 Compensation..........................................................11 6.11 Registered Agent......................................................11 Section 7. CAPITAL STOCK..................................................11 - --------- 7.1 Stock Certificates....................................................11 7.2 Lost Certificates.....................................................11 Section 8. TRANSFER OF SHARES OF STOCK....................................12 - --------- 8.1 Transfer on Books.....................................................12 Section 9. GENERAL PROVISIONS.............................................12 - --------- 9.1 Record Date...........................................................12 9.2 Dividends.............................................................13 9.3 Payment of Dividends..................................................13 9.4 Checks................................................................13 9.5 Fiscal Year...........................................................14 9.6 Seal..................................................................14 9.7 Voting of Securities..................................................14 9.8 Severability..........................................................14 Section 10. INDEMNIFICATION...............................................14 - ---------- 10.1 Indemnification.......................................................14 10.2 Not Exclusive.........................................................14 10.3 Continuation of Benefits; Successors..................................14
Section 11. AMENDMENTS....................................................14 - ---------- 11.1 By Stockholders.......................................................14 11.2 By Directors..........................................................15 11.3 No Limitation on Power of Stockholders................................15
BY-LAWS OF CREDIT TECHNOLOGIES, INC. Section 1. CERTIFICATE OF INCORPORATION AND BY-LAWS 1.1 By-Laws Subject to Certificate of Incorporation. These by-laws are ----------------------------------------------- subject to the certificate of incorporation of the corporation. In the event of any inconsistency between the certificate of incorporation and these by-laws, the certificate of incorporation shall be controlling. In these by-laws, references to the certificate of incorporation and by-laws mean the provisions of the certificate of incorporation and the by-laws as are from time to time in effect. Section 2. OFFICES 2.1 Registered Office. The registered office of the corporation shall be ----------------- in the City of Dover, County of Kent, State of Delaware. 2.2 Other Offices. The corporation may also have offices at such other ------------- places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. Section 3. STOCKHOLDERS 3.1 Location of Meetings. Meetings of the stockholders shall be held at -------------------- such place either within or without the State of Delaware as shall be designated from time to time by the board of directors or the president of the corporation; provided, however, that special meetings upon one or more stockholders' application shall be held in the same county as the principal executive offices of the corporation unless some other place specified in the application shall be approved by the directors. Any adjourned session of any meeting shall be held at the place designated in the vote of adjournment. 3.2 Annual Meeting. The annual meeting of stockholders shall be held at -------------- such time on such date as shall be designated by the board of directors. At the annual meeting of stockholders the stockholders shall elect a board of directors and transact such other business as may be required by law or these by-laws or as may properly come before the meeting. 3.3 Notice of Annual Meeting. Written notice of the annual meeting ------------------------ stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Such notice may specify the business to be transacted and actions to be taken at such meeting. No action shall be taken at such meeting unless such notice is given, or unless waiver of such notice is given by the holders of outstanding stock having not less than the minimum number of votes necessary to take such action at a meeting at which all shares entitled to vote thereon were voted. Prompt notice of all action taken in connection with such waiver of notice shall be given to all stockholders not present or represented at such meeting. 3.4 Special Meetings. Special meetings of the stockholders, for any ---------------- purpose or purposes, unless otherwise prescribed by law or by the certificate of incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of the holders of at least twenty percent in voting interest of all capital stock of the corporation issued and outstanding and entitled to vote at such meeting. Such request shall state the purpose or purposes of the proposed meeting. Business to be transacted at any such special meeting of the stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. 3.5 Notice of Special Meetings. Written notice of a special meeting -------------------------- stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. No action shall be taken at such meeting unless such notice is given, or unless waiver of such notice is given by the holders of outstanding stock having not less than the minimum number of votes necessary to take such action at a meeting at which all shares entitled to vote thereon were voted. Prompt notice of all action taken in connection with such waiver of notice shall be given to all stockholders not present or represented at such meeting. 3.6 Stockholder List. The officer who has charge of the stock ledger of ---------------- the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 3.7 Quorum of Stockholders. The holders of a majority of the stock issued ---------------------- and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise required by law, by the certificate of incorporation or by these by-laws. Except as otherwise provided by law, no stockholder present at a meeting may withhold his shares from the quorum count by declaring his shares absent from the meeting. -2- 3.8 Adjournment. Any meeting of stockholders may be adjourned from time ----------- to time to any other time and to any other place at which a meeting of stockholders may be held under these by-laws, which time and place shall be announced at the meeting, by a majority of votes cast upon the question, whether or not a quorum is present. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if, after the adjournment, a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 3.9 Proxy Representation. Every stockholder may authorize another person -------------------- or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, objecting to or voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. Except as provided by law, a revocable proxy shall be deemed revoked if the stockholder is present at the meeting for which the proxy was given. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. The authorization of a proxy may be, but need not be, limited to specified action, provided, however, that if a proxy limits its authorization to a meeting or meetings of stockholders, unless otherwise specifically provided such proxy shall entitle the holder thereof to vote at any adjourned session but shall not be valid after the final adjournment thereof. A proxy purporting to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise. 3.10 Inspectors. The directors or the person presiding at the meeting may, ---------- but need not, appoint one or more inspectors of election and any substitute inspectors to act at the meeting or any adjournment thereof. Each inspector, before entering upon this discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, and the existence of a quorum and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. 3.11 Action by Vote. When a quorum is present at any meeting, whether the -------------- same be an original or an adjourned session, a plurality of the votes properly cast for election of a -3- director shall elect such director and a majority of the votes properly cast upon any question other than an election of a director shall decide the question, except when a larger vote is required by law, by the certificate of incorporation or by these by-laws. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. 3.12 Action Without Meetings. Unless otherwise provided in the certificate ----------------------- of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by law and by these by-laws to the corporation, written consents signed by a sufficient number of holders to take action are delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Section 4. DIRECTORS 4.1 Number. The number of directors which shall constitute the whole ------ board shall not be less than one. The first board shall consist of such number of directors as may be named in the certificate of incorporation or as may be fixed by the incorporator or incorporators of the corporation. Thereafter, the number of directors may be increased or decreased at any time or from time to time by the stockholders or by the directors by vote of a majority of directors then in office, except that any such decrease by vote of the directors shall only be made to eliminate vacancies existing by reason of the death, resignation or removal of one or more directors. The directors shall be elected at the annual meeting of the stockholders, except as otherwise provided in these by- laws. 4.2 Qualification. Directors need not be stockholders. ------------- 4.3 Tenure. Except as otherwise provided by law, by the certificate of ------ incorporation or by these by-laws, each director shall hold office until his successor is elected and -4- qualified, or until he sooner dies, resigns, is removed or becomes disqualified. 4.4 Powers. The business and affairs of the corporation shall be managed ------ by or under the direction of the board of directors which shall have and may exercise all the powers of the corporation and do all such lawful acts and things, including, without limitation, issuing unissued capital stock from time to time authorized under the certificate of incorporation, as are not by law, the certificate of incorporation or these by-laws directed or required to be exercised or done by the stockholders. 4.5 Vacancies. Vacancies and any newly created directorships resulting --------- from any increase in the number of directors elected by all of the stockholders having the right to vote as a single class may be filled by vote of the stockholders at a meeting called for that purpose, or by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Whenever the holders of any class or classes of stock or series thereof are entitled by the certificate of incorporation to elect one or more directors, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office, and a director chosen to fill a newly created directorship resulting from an increase in the number of directors shall hold office until his successor is elected and qualified, or until he sooner dies, resigns, is removed or becomes disqualified. When one or more directors shall resign from the board, effective at a future date, a majority of the directors then in office, including those who have resigned, shall have power to fill such vacancy or vacancies, the vote or action by writing thereon to take effect when such resignation or resignations shall become effective. The directors shall have and may exercise all their powers notwithstanding the existence of one or more vacancies in their number, subject to any requirements of law or of the certificate of incorporation or of these by-laws as to the number of directors required for a quorum or for any vote or other actions. 4.6 Committees. The board of directors may, by vote of a majority of the ---------- whole board, (a) designate, change the membership of or terminate the existence of any committee or committees, each committee to consist of one or more of the directors, (b) designate one or more directors as alternate members of any such committee who may replace any absent or disqualified member at any meeting of such committee, and (c) determine the extent to which each such committee shall have and may exercise the powers and authority of the board of directors in the management of the business and affairs of the corporation, including the power to authorize the seal of the corporation to be affixed to all papers which may require it, the power and authority to declare dividends or to authorize the issuance of stock, and the power and authority to adopt a certificate of ownership and merger pursuant to Section 253 of Title 8 of the General Corporation Law of the State of Delaware; excepting, however, such powers which by law, by the certificate of incorporation or by these by-laws they are prohibited from so delegating. In the absence or disqualification of any member of any such committee and his alternate, if any, the member or members thereof present at any -5- meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Except as the board of directors may otherwise determine any committee may make rules for the conduct of its business, but unless otherwise provided by the board of directors or by such rules, its business shall be conducted in as nearly the same manner as is provided by these by-laws for the conduct of business by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors upon request. 4.7 Regular Meetings. Regular meetings of the board of directors may be ---------------- held without call or notice at such place within or without the State of Delaware and at such times as the board may from time to time determine, provided that any director who is absent when such a determination is made shall be given notice of such determination. A regular meeting of the directors may be held without call or notice immediately after and at the same place as the annual meeting of the stockholders. 4.8 Special Meetings. Special meetings of the board of directors may be ---------------- held at any time and at any place within or without the State of Delaware designated in the notice of the meeting, when called by the president, or by one-third or more in number of the directors, reasonable notice thereof being given to each director by the secretary or by the president or by any one of the directors calling the meeting. 4.9 Notice. It shall be reasonable and sufficient notice to a director to ------ send notice by mail at least seventy-two hours or by telegram or telefax at least twenty-four hours before the meeting, addressed to him at his usual or last known business or residence address, or to give notice to him in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. 4.10 Quorum. Except as may be otherwise provided by law, by the ------ certificate of incorporation or by these by-laws, at any meeting of the directors a majority of the directors then in office shall constitute a quorum; but a quorum shall not in any case be less than one-third of the total number of directors constituting the whole board. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. 4.11 Action by Vote. Except as may be otherwise provided by law, by the -------------- certificate of incorporation or by these by-laws, when a quorum is present at any meeting the vote of a majority of the directors present shall be the act of the board of directors. 4.12 Action Without a Meeting. Unless otherwise restricted by the ------------------------ certificate of -6- incorporation or these by-laws any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if all the members of the board of directors or of such committee, as the case may be, consent thereto in writing, and such writing is filed with the records of the meetings of the board of directors or of such committee. Such consent shall be treated for all purposes as the act of the board of directors or of such committee, as the case may be. 4.13 Participation in Meetings by Conference Telephone. Unless otherwise ------------------------------------------------- restricted by the certificate of incorporation or these by-laws, members of the board of directors or of any committee thereof may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person at such meeting. 4.14 Compensation. Unless otherwise restricted by the certificate of ------------ incorporation or these by-laws, the board of directors shall have the authority to fix from time to time the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and the performance of their responsibilities as directors and may be paid a fixed sum for attendance at each meeting of the board of directors and/or a stated salary as director. No such payment shall preclude any director from serving the corporation or its parent or subsidiary corporations in any other capacity and receiving compensation therefor. The board of directors may also allow compensation for members of special or standing committees for service on such committees. 4.15 Interested Directors and Officers. --------------------------------- (a) No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of the corporation's directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or -7- (3) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified by the board of directors, a committee thereof, or the stockholders. (b) Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction. 4.16 Resignation or Removal of Directors. Unless otherwise restricted by ----------------------------------- the certificate of incorporation, by law, or by these by-laws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the stock issued and outstanding and entitled to vote at an election of directors; provided, however, that whenever the holders of any class or series of stock are entitled by the certificate of incorporation to elect one or more directors, such director or directors may be removed only by the holders of a majority of stock of such class or series issued and outstanding and entitled to vote at an election of such director or directors. Any director may resign at any time by delivering his resignation in writing to the president or the secretary or to a meeting of the board of directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time; and without in either case the necessity of its being accepted unless the resignation shall so state. No director resigning and (except where a right to receive compensation shall be expressly provided in a duly authorized written agreement with the corporation) no director removed shall have any right to receive compensation as such director for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise; unless in the case of a resignation, the directors, or in the case of removal, the body acting on the removal, shall in their or its discretion provide for compensation. Section 5. NOTICES 5.1 Form of Notice. Whenever, under the provisions of law or of the ------------- certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, such notice may be given by mail, addressed to such director or stockholder at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Unless written notice by mail is required by law, written notice may also be given by telegram, cable, telefax, commercial delivery service, telex or similar means, addressed to such director or stockholder at his address as it appears on the records of the corporation, in which case such notice shall be deemed to be given when delivered into the control of the persons charged with effecting such transmission, the transmission charge to be paid by the corporation or the person sending such notice and not by the addressee. Oral notice or other in- hand delivery (in person or by telephone) shall be deemed given at the time it is actually given. 5.2 Waiver of Notice. Whenever notice is required to be given under the ---------------- provisions -8- of law, the certificate of incorporation or these by-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the stockholders, directors or members of a committee of the directors need be specified in any written waiver of notice. Section 6. OFFICERS AND AGENTS 6.1 Enumeration; Qualification. The officers of the corporation shall be -------------------------- a president, a treasurer, a secretary and such other officers, if any, as the board of directors from time to time may in its discretion elect or appoint, including without limitation a chairman of the board of directors and one or more vice presidents. Any officer may be, but none need be, a director or stockholder. Any two or more offices may be held by the same person. Any officer may be required by the board of directors to secure the faithful performance of his duties to the corporation by giving bond in such amount and with sureties or otherwise as the board of directors may determine. 6.2 Powers. Subject to law, to the certificate of incorporation and to ------ the other provisions of these by-laws, each officer shall have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to his office and such additional duties and powers as the board of directors may from time to time designate. 6.3 Election. The board of directors at its first meeting after each -------- annual meeting of stockholders shall elect a president, a secretary and a treasurer. Other officers may be appointed by the board of directors at such meeting, at any other meeting or by written consent. At any time or from time to time, the directors may delegate to any officer their power to elect or appoint any officer, other than the president, treasurer or secretary, or any agents. 6.4 Tenure. Each officer shall hold office until his successor is elected ------ and qualified unless a shorter period shall have been specified in terms of his election or appointment, or in each case until he sooner dies, resigns, is removed or becomes disqualified. Each agent of the corporation shall retain his authority at the pleasure of the directors, of the officer by whom he was appointed or by the officer who then holds agent appointive power. 6.5 Chairman of the Board, President and Vice President. --------------------------------------------------- The chairman of the board, if any, shall have such duties and powers as shall be designated from time to time by the board of directors. The chairman of the board shall preside at all meetings of stockholders and directors at which he is present, except as otherwise voted by the board of directors. -9- The president shall be the chief executive officer of the corporation, shall have direct and active charge of all business operations of the corporation and shall have general supervision of the entire business of the corporation, subject to the control of the board of directors. In the absence of the chairman of the board, or if there is no chairman of the board, the president shall preside at all meetings of the stockholders and of the board of directors at which he is present, except as otherwise voted by the board of directors. The board of directors shall appoint another person to preside at any such meeting in the absence of the chairman of the board and the president. The president or treasurer shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. Any vice presidents shall have such duties and powers as shall be designated from time to time by the board of directors or by the president. 6.6 Treasurer and Assistant Treasurers. The treasurer shall be the chief ---------------------------------- financial officer of the corporation, shall be in charge of its funds and valuable papers, and shall have such other duties and powers as may be assigned to him from time to time by the board of directors or by the president. Any assistant treasurers shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the treasurer. 6.7 Secretary and Assistant Secretaries. The secretary shall record all ----------------------------------- proceedings of the stockholders, of the board of directors and of committees of the board of directors in a book or series of books to be kept therefor and shall file therein all writings of, or related to, action by stockholder or director consent. In the absence of the secretary from any meeting, an assistant secretary, or if there is none or he is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. Unless a transfer agent has been appointed, the secretary shall keep or cause to be kept the stock and transfer records of the corporation, which shall contain the names and record addresses of all stockholders and the number of shares registered in the name of each stockholder. The secretary shall have such other duties and powers as may from time to time be designated by the board of directors or the president. Any assistant secretaries shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the secretary. 6.8 Resignation and Removal. Any officer may resign at any time by ----------------------- delivering his resignation in writing to the president or the secretary or to a meeting of the board of directors. Such resignation shall be effective upon receipt unless specified to be effective at -10- some other time, and without in any case the necessity of its being accepted unless the resignation shall so state. The board of directors may at any time remove any officer either with or without cause. The board of directors may at any time terminate or modify the authority of any agent. No officer resigning and (except where a right to receive compensation shall be expressly provided in a duly authorized written agreement with the corporation) no officer removed shall have any right to any compensation as such officer for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise; unless in the case of a resignation, the directors, or in the case of removal, the body acting on the removal, shall in their or its discretion provide for compensation. 6.9 Vacancies. If the office of the president or the treasurer or the --------- secretary becomes vacant, the directors may elect a successor by vote of a majority of the directors then in office. If the office of any other officer becomes vacant, any person or body empowered to elect or appoint that office may choose a successor. Each such successor shall hold office for the unexpired term of his predecessor, and, in the case of the president, the treasurer and the secretary, until his successor is chosen and qualified, or in each case until he sooner dies, resigns, is removed or becomes disqualified. 6.10 Compensation. Unless otherwise restricted by the certificate of ------------ incorporation or by these by-laws, the board of directors shall have the authority to fix from time to time the compensation of officers. 6.11 Registered Agent. The corporation shall have and maintain in ---------------- Delaware a registered agent, which agent may be either an individual resident in Delaware whose business office is identical with the corporation's registered office, or a Delaware corporation (which may be the corporation), or a foreign corporation authorized to transact business in Delaware and having a business office identical with the registered office of the corporation. Section 7. CAPITAL STOCK 7.1 Stock Certificates. Each stockholder shall be entitled to a ------------------ certificate stating the number and the class and the designation of the series, if any, of the shares held by him, in such form as shall, in conformity to law, the certificate of incorporation and these by-laws, be prescribed from time to time by the board of directors. Such certificate shall be signed by (i) the chairman of the board of directors or (ii) the president or a vice-president and by (iii) the treasurer or an assistant treasurer or (iv) the secretary or an assistant secretary. Any of or all the signatures on the certificate may be a facsimile. In case an officer, transfer agent, or registrar who has signed, or whose facsimile signature has been placed on, such certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the time of its issue. 7.2 Lost Certificates. The board of directors may direct a new ----------------- certificate or -11- certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as the board of directors shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 8. TRANSFER OF SHARES OF STOCK 8.1 Transfer on Books. Subject to any restrictions with respect to the ----------------- transfer of shares of stock, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the board of directors or the transfer agent of the corporation may reasonably require. Except as may be otherwise required by law, by the certificate of incorporation or by these by-laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to receive notice and to vote or to give any consent with respect thereto and to be held liable for such calls and assessments, if any, as may lawfully be made thereof, regardless of any transfer, pledge or other disposition of such stock until the shares have been properly transferred on the books of the corporation. It shall be the duty of each stockholder to notify the corporation of his post office address. Section 9. GENERAL PROVISIONS 9.1 Record Date. ----------- (a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If the record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the date next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; providing, however, that the board of directors may fix a new record date for the adjourned meeting. -12- (b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by this chapter, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by this chapter, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. (c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. 9.2 Dividends. Dividends upon the capital stock of the corporation may be --------- declared by the board of directors at any regular or special meeting or by written consent, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock of the corporation, subject to the provisions of the certificate of incorporation. 9.3 Payment of Dividends. Before payment of any dividend, there may be -------------------- set aside out of any of funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. 9.4 Checks. All checks or demands for money and notes of the corporation ------ shall be signed by such officer or officers or such other person or persons as the board of directors -13- may from time to time designate. 9.5 Fiscal Year. The fiscal year of the corporation shall begin on the ----------- first of October in each year and shall end on the last day of September next following, unless otherwise determined by the board of directors. 9.6 Seal. The board of directors may, by resolution, adopt a corporate ---- seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the word "Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. The seal may be altered from time to time by the board of directors. 9.7 Voting of Securities. Except as the directors may otherwise -------------------- designate, the president or treasurer may waive notice of, act at, and appoint any person or persons to act as proxy or attorney-in-fact for this corporation (with or without power of substitution) at, any meeting of stockholders or shareholders of any other corporation or organization, the securities of which may be held by this corporation. 9.8 Severability. Any determination that any provision of these by-laws ------------ is for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other provision of these by-laws. Section 10. INDEMNIFICATION 10.1 Indemnification. It being the intent of the corporation to provide -------------- the maximum protection available under the law to its officers and directors, the corporation shall indemnify and advance expenses to its officers and directors to the full extent the corporation is permitted or required to do so by the General Corporation Law of Delaware, as the same may be amended from time to time. 10.2 Not Exclusive. The indemnification and advancement of expenses ------------- provided by this Section 10 shall not be deemed exclusive of any other rights to which any person seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors, or otherwise, whether with respect to action in such person's official capacity or action in another capacity while holding such office. 10.3 Continuation of Benefits; Successors. The indemnification and ------------------------------------ advancement of expenses provided by this Section 10 shall continue as to a person who has ceased to be a director or officer of the corporation and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 11. AMENDMENTS 11.1 By Stockholders. These by-laws may be altered, amended or repealed, --------------- or new -14- by-laws may be adopted by the stockholders, at any regular or special meeting of the stockholders. 11.2 By Directors. When such power is conferred upon the board of ------------ directors by the certificate of incorporation, these by-laws may be altered, amended or repealed, or new by-laws may be adopted by the board of directors, at any regular or special meeting of the board of directors. 11.3 No Limitation on Power of Stockholders. If the power to adopt, amend -------------------------------------- or repeal by-laws is conferred by the certificate of incorporation upon the board of directors, it shall not divest or limit the power of the stockholders to adopt, amend or repeal by-laws. -15- EX-3.4 5 PROPOSED FORM OF AMENDED AND RESTATED BY-LAWS ADOPTED __/__/96 AMENDED AND RESTATED BY-LAWS OF LIGHTBRIDGE, INC. Section 1. CERTIFICATE OF INCORPORATION AND BY-LAWS 1.1 These by-laws are subject to the certificate of incorporation of the corporation. In these by-laws, references to the certificate of incorporation and by-laws mean the provisions of the certificate of incorporation and the by- laws as are from time to time in effect. Section 2. OFFICES 2.1 Registered Office. The registered office shall be in the City of ----------------- Dover, County of Kent, State of Delaware. 2.2 Other Offices. The corporation may also have offices at such other ------------- places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. Section 3. STOCKHOLDERS 3.1 Location of Meetings. All meetings of the stockholders shall be held -------------------- at such place either within or without the State of Delaware as shall be designated from time to time by the board of directors. Any adjourned session of any meeting shall be held at the place designated in the vote of adjournment. 3.2 Annual Meeting. The annual meeting of stockholders shall be held at -------------- 10:00 a.m. on the fourth [Wednesday] in [May] in each year (unless that day be a legal holiday at the place where the meeting is to be held, in which case the meeting shall be held at the same hour on the next succeeding day not a legal holiday) (the "Specified Date"), or at such other date and time as shall be designated from time to time by the board of directors, at which the stockholders shall elect a board of directors and transact such other business as may be required by law or these by-laws or as may properly come before the meeting. 3.3 Special Meeting in Place of Annual Meeting. If the election for ------------------------------------------ directors shall not be held on the day designated by these by-laws, the directors shall cause the election to be held as soon thereafter as convenient, and to that end, if the annual meeting is omitted on the day herein provided therefor or if the election of directors shall not be held thereat, a special meeting of the stockholders may be held in place of such omitted meeting or election, and any business transacted or election held at such special meeting shall have the same effect as if transacted or held at the annual meeting, and in such case all references in these by-laws to the annual meeting of the stockholders, or to the annual election of directors, shall be deemed to refer to or include such special meeting. Any such special meeting shall be called and the purposes thereof shall be specified in the call, as provided in Section 3.4. 3.4 Notice of Annual Meeting. Written notice of the annual meeting ------------------------ stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Such notice may specify the business to be transacted and actions to be taken at such meeting. No action shall be taken at such meeting unless such notice is given, or unless waiver of such notice is given by the holders of outstanding stock having not less than the minimum number of votes necessary to take such action at a meeting at which all shares entitled to vote thereon were voted. Prompt notice of all action taken in connection with such waiver of notice shall be given to all stockholders not present or represented at such meeting. 3.5 Other Special Meetings. Special meetings of the stockholders, for any ---------------------- purpose or purposes, unless otherwise prescribed by law or by the certificate of incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors. Such request shall state the purpose or purposes of the proposed meeting and business to be transacted at any special meeting of the stockholders. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. 3.6 Notice of Special Meeting. Written notice of a special meeting ------------------------- stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting, to each stockholder entitled to vote at such meeting. No action shall be taken at such meeting unless such notice is given, or unless waiver of such notice is given by the holders of outstanding stock having not less than the minimum number of votes necessary to take such action at a meeting at which all shares entitled to vote thereon were voted. Prompt notice of all action taken in connection with such waiver of notice shall be given to all stockholders not present or represented at such meeting. 3.7 Notice of Stockholder Business at Annual Meeting. The following ------------------------------------------------ provisions of this Section 3.7 shall apply to the conduct of business at any annual meeting of the stockholders. (As used in this Section 3.7, the term annual meeting shall include a special meeting in lieu of an annual meeting.) (a) At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) pursuant to the corporation's notice of meeting, (ii) by or at the direction of the board of directors or (iii) by any stockholder of the corporation who is a stockholder of record at the time of giving of the notice provided for in Section 3.7(b), who is entitled to vote at such meeting and who has complied with the notice procedures set forth in Section 3.7(b). (b) For business to be properly brought before any annual meeting of the stockholders by a stockholder pursuant to clause (iii) of 3.7(a), the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive -2- offices of the corporation not less than sixty (60) days prior to the date for such annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that if the annual meeting of stockholders is to be held on a date prior to the Specified Date, and if less than seventy (70) days' notice or prior public disclosure of the date of such annual or special meeting is given or made, notice by the stockholder to be timely must be so delivered or received not later than the close of business on the tenth (10th) day following the earlier of the date on which notice of the date of such meeting was mailed or the day on which public disclosure was made of the date of such meeting. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, the name and address of the beneficial owner, if any, on whose behalf the proposal is made, and the name and address of any other stockholders or beneficial owners known by such stockholder to be supporting such proposal, (iii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder of record, by the beneficial owner, if any, on whose behalf the proposal is made and by any other stockholders or beneficial owners known by such stockholder to be supporting such proposal, and (iv) any material interest of such stockholder of record and/or of the beneficial owner, if any, on whose behalf the proposal is made, in such proposed business and any material interest of any other stockholders or beneficial owners known by such stockholder to be supporting such proposal in such proposed business, to the extent known by such stockholder. (c) Notwithstanding anything in these by-laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 3.7. The person presiding at the annual meeting shall, if the facts warrant, determine that business was not properly brought before the meeting and in accordance with the procedures prescribed by these by- laws, and if he should so determine, he shall so declare at the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 3.7, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended (or any successor provision), and the rules and regulations thereunder with respect to the matters set forth in this Section 3.7. (d) This provision shall not prevent the consideration and approval or disapproval at an annual meeting of reports of officers, directors and committees of the board of directors, but, in connection with such reports, no new business shall be acted upon at such meeting unless properly brought before the meeting as herein provided. 3.8 Stockholder List. The officer who has charge of the stock ledger of ---------------- the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to -3- be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 3.9 Quorum of Stockholders. The holders of a majority of the stock issued ---------------------- and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise required by law, or by the certificate of incorporation or by these by-laws. Except as otherwise provided by law, no stockholder present at a meeting may withhold his shares from the quorum count by declaring his shares absent from the meeting. 3.10 Adjournment. Any meeting of stockholders may be adjourned from time ----------- to time to any other time and to any other place at which a meeting of stockholders may be held under these by-laws, which time and place shall be announced at the meeting, by a majority of votes cast upon the question, whether or not a quorum is present. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 3.11 Proxy Representation. Every stockholder may authorize another person -------------------- or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, objecting to or voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. Except as provided by law, a revocable proxy shall be deemed revoked if the stockholder is present at the meeting for which the proxy was given. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. The authorization of a proxy may but need not be limited to specified action, provided, however, that if a proxy limits its authorization to a meeting or meetings of stockholders, unless otherwise specifically provided such proxy shall entitle the holder thereof to vote at any adjourned session but shall not be valid after the final adjournment thereof. 3.12 Inspectors. The directors or the person presiding at the meeting ---------- may, but need not, appoint one or more inspectors of election and any substitute inspectors to act at the meeting or any adjournment thereof. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all -4- challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. 3.13 Action by Vote. When a quorum is present at any meeting, whether the -------------- same be an original or an adjourned session, a plurality of the votes properly cast for election to any office shall elect to such office and a majority of the votes properly cast upon any question other than an election to an office shall decide the question, except when a larger vote is required by law, by the certificate of incorporation or by these by-laws. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. 3.14 No Action by Consent. Any action required or permitted to be taken -------------------- by the stockholders of the corporation must be effected at a duly constituted annual or special meeting of such stockholders and may not be effected by any consent in writing by such stockholders. Section 4. DIRECTORS 4.1 Number. The number of directors which shall constitute the whole ------ board shall not be less than two nor more than nine, except that whenever there shall be only one stockholder, such number shall be not less than one. Within the foregoing limits, the number of directors shall be determined by resolution of the board of directors and may be increased or decreased at any time or from time to time by the directors by vote of a majority of directors then in office, except that any such decrease by vote of the directors shall only be made to eliminate vacancies existing by reason of the death, resignation or removal of one or more directors. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 4.7 of these by-laws. Directors need not be stockholders. 4.2 Tenure. Except as otherwise provided by law, by the certificate of ------ incorporation or by these by-laws, each director shall hold office until the next annual meeting and until his successor is elected and qualified, or until he sooner dies, resigns, is removed or becomes disqualified. 4.3 Classes of Directors. The board of directors shall be and is divided -------------------- into three classes: Class I, Class II and Class III, each having as nearly as possible the same number of directors. If a fraction is contained in the quotient arrived at by dividing the designated number of directors by three, then, if such fraction is one-third, the extra director shall be a member of Class III, and if such fraction is two-thirds, one of the extra directors shall be a member of Class II and the other shall be a member of Class III, unless otherwise provided from time to time by resolution adopted by the board of directors. 4.4 Terms of Office. Each director shall serve for a term ending on the --------------- date of the third annual meeting following the annual meeting at which such director was elected; -5- provided, that each initial director in Class I shall serve for a term ending on the date of the annual meeting in 1997; each initial director in Class II shall serve for a term ending on the date of the annual meeting in 1998; and each initial director in Class III shall serve for a term ending on the date of the annual meeting in 1999; and provided further, that the term of each director shall be subject to the election and qualification of his successor and to his earlier death, resignation or removal. 4.5 Allocation of Directors Among Classes in the Event of Increases or ------------------------------------------------------------------ Decreases in the Number of Directors. In the event of any increase or decrease - ------------------------------------ in the authorized number of directors, (a) each director then serving as such shall nevertheless continue as a director of the class of which he is a member and (b) the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the board of directors among the three classes of directors so as to ensure that the classes have as nearly as possible the same number of directors. To the extent possible, consistent with the foregoing rule, any newly created directorships shall be added to those classes whose terms of office are to expire at the latest dates following such allocation, and any newly eliminated directorships shall be subtracted from those classes whose terms of offices are to expire at the earliest dates following such allocation, unless otherwise provided from time to time by resolution adopted by the board of directors. 4.6 Powers. The business of the corporation shall be managed by or under ------ the direction of the board of directors which shall have and may exercise all the powers of the corporation and do all such lawful acts and things as are not by law, the certificate of incorporation or these by-laws directed or required to be exercised or done by the stockholders. 4.7 Vacancies. Any vacancy in the board of directors, however occurring, --------- including a vacancy resulting from an enlargement of the board, shall be filled by the vote of a majority of the directors then in office, although less than a quorum, or by the sole remaining director. When one or more directors shall resign from the board, effective at a future date, a majority of the directors then in office, including those who have resigned, shall have power to fill such vacancy or vacancies, the vote or action by writing thereon to take effect when such resignation or resignations shall become effective. A director elected to fill a vacancy shall hold office until the next election of the class for which such director has been chosen, subject to the election and qualification of his successor and to his earlier death, resignation or removal. The directors shall have and may exercise all their powers notwithstanding the existence of one or more vacancies in their number, subject to any requirements of law or of the certificate of incorporation or of these by-laws as to the number of directors required for a quorum or for any vote or other actions. 4.8 Nomination of Directors. The following provisions of this Section 4.8 ----------------------- shall apply to the nomination of persons for election to the board of directors at any annual meeting or special meeting of stockholders. (a) Nominations of persons for election to the board of directors of the corporation at any annual meeting or special meeting of stockholders may be made (i) by or at the direction of the board of directors or (ii) by any stockholder of the corporation who is -6- a stockholder of record at the time of giving of notice provided for in Section 4.8(b), who is entitled to vote for the election of directors at the meeting and who has complied with the notice procedures set forth in Section 4.8(b). (b) Nominations by stockholders shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation, not less than sixty (60) days prior to the date for the annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that if the annual meeting of stockholders or a special meeting in lieu thereof is to be held on a date prior to the Specified Date, and if less than seventy (70) days' notice or prior public disclosure of the date of such annual or special meeting is given or made, notice by the stockholder to be timely must be so delivered or received not later than the close of business on the tenth (10th) day following the earlier of the day on which notice of the date of such annual or special meeting was mailed or the day on which public disclosure was made of the date of such annual or special meeting. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, or pursuant to any other then existing statute, rule or regulation applicable thereto (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to the stockholder giving the notice (A) the name and address, as they appear on the corporation's books, of such stockholder and (B) the class and number of shares of the corporation which are beneficially owned by such stockholder and also which are owned of record by such stockholder; and (iii) as to the beneficial owner, if any, on whose behalf the nomination is made, (A) the name and address of such person and (B) the class and number of shares of the corporation which are beneficially owned by such person. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee as a director. At the request of the board of directors, any person nominated by the board of directors for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. (c) No person shall be eligible for election as a director of the corporation at any annual meeting or special meeting of stockholders unless nominated in accordance with the procedures set forth in this Section 4.8. The person presiding at the meeting shall, if the facts warrant, determine that a nomination was not made in accordance with the procedures prescribed by these by-laws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 4.8, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended (or any successor provision), and the rules and regulations thereunder with respect to the matters set forth in this by-law. -7- 4.9 Committees. The board of directors may, by vote of a majority of the ---------- whole board, (a) designate, change the membership of or terminate the existence of any committee or committees, each committee to consist of one or more of the directors; (b) designate one or more directors as alternate members of any such committee who may replace any absent or disqualified member at any meeting of the committee; and (c) determine the extent to which each such committee shall have and may exercise the powers and authority of the board of directors in the management of the business and affairs of the corporation, including the power to authorize the seal of the corporation to be affixed to all papers which require it and the power and authority to declare dividends or to authorize the issuance of stock; excepting, however, such powers which by law, by the certificate of incorporation or by these by-laws they are prohibited from so delegating. In the absence or disqualification of any member of such committee and his alternate, if any, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Except as the board of directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the board or such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these by-laws for the conduct of business by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors upon request. 4.10 Regular Meeting. Regular meetings of the board of directors may be --------------- held without call or notice at such place within or without the State of Delaware and at such times as the board may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent directors. A regular meeting of the directors may be held without call or notice immediately after and at the same place as the annual meeting of the stockholders. 4.11 Special Meetings. Special meetings of the board of directors may be ---------------- held at any time and at any place within or without the State of Delaware designated in the notice of the meeting, when called by the president, or by one-third or more in number of the directors, reasonable notice thereof being given to each director by the secretary or by the president or by any one of the directors calling the meeting. 4.12 Notice. It shall be reasonable and sufficient notice to a director ------ to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before the meeting, addressed to him at his usual or last known business or residence address or to give notice to him in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. 4.13 Quorum. Except as may be otherwise provided by law, by the ------ certificate of incorporation or by these by-laws, at any meeting of the directors a majority of the directors then in office shall constitute a quorum. In the event one or more of the directors shall be -8- disqualified to vote at any meeting, then the required quorum shall be reduced by one for each director so disqualified, provided that a quorum shall not in any case be less than one-third of the total number of directors constituting the whole board. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. 4.14 Action by Vote. Except as may be otherwise provided by law, by the -------------- certificate of incorporation or by these by-laws, when a quorum is present at any meeting the vote of a majority of the directors present shall be the act of the board of directors. 4.15 Action Without a Meeting. Unless otherwise restricted by the ------------------------ certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if all the members of the board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the records of the meetings of the board or of such committee. Such consent shall be treated for all purposes as the act of the board or of such committee, as the case may be. 4.16 Participation in Meetings by Conference Telephone. Unless otherwise ------------------------------------------------- restricted by the certificate of incorporation or these by-laws, members of the board of directors or of any committee thereof may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person at such meeting. 4.17 Compensation. Unless otherwise restricted by the certificate of ------------ incorporation or these by-laws, the board of directors shall have the authority to fix from time to time the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and the performance of their responsibilities as directors and may be paid a fixed sum for attendance at each meeting of the board of directors and/or a stated salary as director. No such payment shall preclude any director from serving the corporation or its parent or subsidiary corporations in any other capacity and receiving compensation therefor. The board of directors may also allow compensation for members of special or standing committees for service on such committees. 4.18 Interested Directors and Officers. --------------------------------- (a) No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of the corporation's directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, -9- and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the stockholders. (b) Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction. 4.19 Resignation or Removal of Directors. Directors of the corporation ----------------------------------- may be removed only for cause by the affirmative vote of the holders of at least two-thirds of the shares of the capital stock of the corporation issued and outstanding and entitled to vote at an election of directors. Any director may resign at any time by delivering his resignation in writing to the president or the secretary or to a meeting of the board of directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time; and without in either case the necessity of its being accepted unless the resignation shall so state. No director resigning and (except where a right to receive compensation shall be expressly provided in a duly authorized written agreement with the corporation) no director removed shall have any right to receive compensation as such director for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise; unless in the case of a resignation, the directors, or in the case of removal, the body acting on the removal, shall in their or its discretion provide for compensation. Section 5. NOTICES 5.1 Form of Notice. Whenever, under the provisions of law, or of the -------------- certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, such notice may be given by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Unless written notice by mail is required by law, written notice may also be given by telegram, cable, telecopy, commercial delivery service, telex or similar means, addressed to such director or stockholder at his address as it appears on the records of the corporation, in which case such notice shall be deemed to be given when delivered into the control of the persons charged with effecting such transmission, the transmission charge to be paid by the corporation or the person sending such notice and not by the addressee. Oral notice or other in-hand delivery (in person or by telephone) shall be deemed given at the time it is actually given. -10- 5.2 Waiver of Notice. Whenever notice is required to be given under the ---------------- provisions of law, the certificate of incorporation or these by-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the stockholders, directors or members of a committee of the directors need be specified in any written waiver of notice. Section 6. OFFICERS AND AGENTS 6.1 Enumeration; Qualification. The officers of the corporation shall be -------------------------- a president, a treasurer, a secretary and such other officers, if any, as the board of directors from time to time may in its discretion elect or appoint including without limitation one or more vice presidents. Any officer may be, but none need be, a director or stockholder. Any two or more offices may be held by the same person. Any officer may be required by the board of directors to secure the faithful performance of his duties to the corporation by giving bond in such amount and with sureties or otherwise as the board of directors may determine. 6.2 Powers. Subject to law, to the certificate of incorporation and to ------ the other provisions of these by-laws, each officer shall have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to his office and such additional duties and powers as the board of directors may from time to time designate. 6.3 Election. The board of directors at its first meeting after each -------- annual meeting of stockholders shall choose a president, a secretary and a treasurer. Other officers may be appointed by the board of directors at such meeting, at any other meeting or by written consent. At any time or from time to time, the directors may delegate to any officer their power to elect or appoint any other officer or any agents. 6.4 Tenure. Each officer shall hold office until the first meeting of the ------ board of directors following the next annual meeting of the stockholders and until his successor is elected and qualified unless a shorter period shall have been specified in terms of his election or appointment, or in each case until he sooner dies, resigns, is removed or becomes disqualified. Each agent of the corporation shall retain his authority at the pleasure of the directors, or the officer by whom he was appointed or by the officer who then holds agent appointive power. 6.5 President and Vice Presidents. The president shall be the chief ----------------------------- executive officer and shall have direct and active charge of all business operations of the corporation and shall have general supervision of the entire business of the corporation, subject to the control of the board of directors. He shall preside at all meetings of the stockholders and of the board of directors at which he is present, except as otherwise voted by the board of directors. -11- The president or treasurer shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. Any vice presidents shall have such duties and powers as shall be designated from time to time by the board of directors or by the president. 6.6 Treasurer and Assistant Treasurers. The treasurer shall be the chief ---------------------------------- financial officer of the corporation and shall be in charge of its funds and valuable papers, and shall have such other duties and powers as may be assigned to him from time to time by the board of directors or by the president. Any assistant treasurers shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the treasurer. 6.7 Secretary and Assistant Secretaries. The secretary shall record all ----------------------------------- proceedings of the stockholders, of the board of directors and of committees of the board of directors in a book or series of books to be kept therefor and shall file therein all writings of, or related to, action by stockholder or director consent. In the absence of the secretary from any meeting, an assistant secretary, or if there is none or he is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. Unless a transfer agent has been appointed, the secretary shall keep or cause to be kept the stock and transfer records of the corporation, which shall contain the names and record addresses of all stockholders and the number of shares registered in the name of each stockholder. The secretary shall have such other duties and powers as may from time to time be designated by the board of directors or the president. Any assistant secretaries shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the secretary. 6.8 Resignation and Removal. Any officer may resign at any time by ----------------------- delivering his resignation in writing to the president or the secretary or to a meeting of the board of directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time, and without in any case the necessity of its being accepted unless the resignation shall so state. The board of directors may at any time remove any officer either with or without cause. The board of directors may at any time terminate or modify the authority of any agent. No officer resigning and (except where a right to receive compensation shall be expressly provided in a duly authorized written agreement with the corporation) no officer removed shall have any right to any compensation as such officer for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise; unless in the case of a resignation, the directors, or in the case of removal, the body acting on the removal, shall in their or its discretion provide for compensation. -12- 6.9 Vacancies. If the office of the president or the treasurer or the --------- secretary becomes vacant, the directors may elect a successor by vote of a majority of the directors then in office. If the office of any other officer becomes vacant, any person or body empowered to elect or appoint that office may choose a successor. Each such successor shall hold office for the unexpired term of his predecessor, and in the case of the president, the treasurer and the secretary until his successor is chosen and qualified, or in each case until he sooner dies, resigns, is removed or becomes disqualified. Section 7. CAPITAL STOCK 7.1 Stock Certificates. Each stockholder shall be entitled to a ------------------ certificate stating the number and the class and the designation of the series, if any, of the shares held by him, in such form as shall, in conformity to law, the certificate of incorporation and the by-laws, be prescribed from time to time by the board of directors. Such certificate shall be signed by the president or a vice-president and (i) the treasurer or an assistant treasurer or (ii) the secretary or an assistant secretary. Any of or all the signatures on the certificate may be a facsimile. In case an officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the time of its issue. 7.2 Lost Certificates. The board of directors may direct a new ----------------- certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 8. TRANSFER OF SHARES OF STOCK 8.1 Transfer on Books. Subject to any restrictions with respect to the ----------------- transfer of shares of stock, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the board of directors or the transfer agent of the corporation may reasonably require. Except as may be otherwise required by law, by the certificate of incorporation or by these by-laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to receive notice and to vote or to give any consent with respect thereto and to be held liable for such calls and assessments, if any, as may lawfully be made thereon, regardless of any transfer, pledge or other disposition of such stock until the shares have been properly transferred on the books of the corporation. -13- It shall be the duty of each stockholder to notify the corporation of his post office address. Section 9. GENERAL PROVISIONS 9.1 Record Date. In order that the corporation may determine the ----------- stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action to which such record date relates. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. If no record date is fixed, (a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (b) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed; and (c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating to such purpose. 9.2 Dividends. Dividends upon the capital stock of the corporation may be --------- declared by the board of directors at any regular or special meeting or by written consent, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. 9.3 Payment of Dividends. Before payment of any dividend, there may be -------------------- set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. 9.4 Checks. All checks or demands for money and notes of the corporation ------ shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. -14- 9.5 Fiscal Year. The fiscal year of the corporation shall begin on the ----------- first day of January in each year and shall end on the last day of December next following, unless otherwise determined by the board of directors. 9.6 Seal. The board of directors may, by resolution, adopt a corporate ---- seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the word "Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. The seal may be altered from time to time by the board of directors. Section 10. INDEMNIFICATION 10.1 It being the intent of the corporation to provide maximum protection available under the law to its officers and directors, the corporation shall indemnify its officers and directors to the full extent the corporation is permitted or required to do so by the General Corporation Law of Delaware. Section 11. AMENDMENTS 11.1 By the Board of Directors. These by-laws may be altered, amended or ------------------------- repealed or new by-laws may be adopted by the affirmative vote of a majority of the directors present at any regular or special meeting of the board of directors at which a quorum is present. 11.2 By the Stockholders. Notwithstanding any other provision of these ------------------- by-laws, and notwithstanding the fact that a lesser percentage may be specified by law, these by-laws may be altered, amended or repealed or new by-laws may be adopted by the affirmative vote of the holders of at least seventy-five percent (75%) of the shares of the capital stock of the corporation issued and outstanding and entitled to vote at any regular or special meeting of stockholders, provided notice of such alteration, amendment, repeal or adoption of new by-laws shall have been stated in the notice of such regular or special meeting. -15- EX-10.9 6 OFFICE LEASE DATED SEPTEMBER 21, 1993 DATE OF LEASE EXECUTION: September 21, 1993 (To be completed by Landlord) ARTICLE I REFERENCE DATA 1.1 SUBJECTS REFERRED TO: Each reference in this lease to any of the following subjects shall be construed to incorporate the date stated for that subject in this Section 1.1: LANDLORD: L&E Investment of Massachusetts One, Inc., a Delaware corporation MANAGING AGENT: R.M. Bradley & Co., Inc. LANDLORD'S & MANAGING AGENT'S ADDRESS: Somerset Court 281 Winter Street Waltham, Massachusetts 02154 Attention: Carol MacLeod TENANT: Credit Technologies Inc., a Delaware corporation TENANT'S ADDRESS (FOR NOTICE AND 281 Winter Street BILLING): Waltham, Massachusetts 02154 Attention: Accounts Payable BUILDING ADDRESS: 281 Winter Street Waltham, Massachusetts 02154 TENANT'S SPACE: Portion of the first floor and second floor as shown on Exhibit A-1 and Exhibit A-2 attached hereto, as the same may be increased from time to time pursuant to the terms hereof. -1- RENTABLE FLOOR AREA OF TENANT'S SPACE: 17,580 square feet (12,882 of which are on the first floor and 4,698 of which are on the second floor), as the same may be increased pursuant to the terms hereof. TENANT'S PROPORTIONATE SHARE: 25.93% (17,580) square feet divided by 67,800 square feet), as the same may be increased upon addition to Tenant's Space. TOTAL RENTABLE FLOOR AREA OF THE BUILDING: 67,800 square feet. PARKING SPACES ALLOCATED TO TENANT: Approximately 70 parking spaces (calculated at 4.0 unassigned parking spaces per 1,000 square feet). COMMENCEMENT DATE: The earlier to occur of (i) November 1, 1993 or (ii) the substantial completion of Leasehold Improvements to be undertaken by Landlord on the portion of Tenant's Space located on the second floor of the Building. TERM EXPIRATION DATE: The last day of the month in which the seventh anniversary of the Commencement Date occurs. APPROXIMATE TERM: Seven (7) years. BASE OPERATING COSTS: Landlord's Operating Costs for the year ending December 31, 1994. BASE TAX COSTS: Real estate taxes for the Tax Year 1994. ANNUAL RENT: $21.50 per rentable square foot/year, plus $0.75 per rentable square foot for electricity charges for all of Tenant's Space except for 2,337 rentable square feet separately metered and paid for by Tenant. -2- FIRST FISCAL YEAR FOR TENANT'S PAYING OPERATING COST ESCALATION: Year ending December 31, 1995. FIRST YEAR FOR TENANT'S PAYING TAX Tax Year 1995. ESCALATION: PERMITTED USES: General office use. PUBLIC LIABILITY INSURANCE: BODILY INJURY: $2,000,000.00 per person/$2,000,000.00 per accident. PROPERTY DAMAGE: $1,000,000.00 SPECIAL PROVISIONS: Tenant's option to lease additional space; Tenant's option to expand; mandatory expansion. FISCAL YEAR: January 1, through December 31. TAX YEAR: July 1 through June 30 (as the same may be modified from time to time by the appropriate municipality or state); Tax Year 1994 is the Tax Year beginning July 1, 1993 and all other Tax Years shall be similarly determined. 1.2 EXHIBITS. The exhibits listed below in this Section 1.2 are incorporated in this Lease by reference and are to be construed as part of this Lease: EXHIBIT A-1 Plan showing Tenant's Space on first floor. EXHIBIT A-2 Plan showing Tenant's Space on second floor. EXHIBIT B Specifications of Leasehold Improvements. EXHIBIT C Building Standards. -3- EXHIBIT D Landlord's Services. EXHIBIT E Rules and Regulations. EXHIBIT F Mandatory Expansion Space. 1.3 TABLE OF CONTENTS. ARTICLE II - PREMISES AND TERM................................................ Section 2.1 Premises.................................................. Section 2.2 Term...................................................... Section 2.3 Extended Terms............................................ Section 2.4 Mandatory Expansion....................................... Section 2.5 Optional Expansion........................................ ARTICLE III - Construction.................................................... Section 3.1 Acceptance of the Premises................................ Section 3.2 General Provisions Applicable to Construction............. Section 3.3 Representatives........................................... ARTICLE IV - Rent............................................................. Section 4.1 Rent...................................................... Section 4.2 Operating Costs; Taxes; Escalation........................ Section 4.3 Estimated Escalation Payments............................. Section 4.4 Change of Fiscal Year..................................... Section 4.5 Payments.................................................. ARTICLE V - LANDLORD'S COVENANTS.............................................. Section 5.1 Landlord's Covenants During the Term...................... Section 5.1.1 Building Services......................... Section 5.1.2 Additional Building Services.............. Section 5.1.3 Repairs................................... Section 5.1.4 Quiet Enjoyment........................... Section 5.2 Interruptions.............................................
-4- ARTICLE VI - TENANT'S COVENANTS............................................... Section 6.1 TENANT'S COVENANTS DURING THE TERM........................ Section 6.1.1 Tenant's Payments......................... Section 6.1.2 Repairs and Yielding Up................... Section 6.1.3 Occupancy and Use......................... Section 6.1.4 Rules and Regulations..................... Section 6.1.5 Safety Appliances......................... Section 6.1.6 Assignment and Subletting................. Section 6.1.7 Indemnity................................. Section 6.1.8 Tenant's Liability Insurance.............. Section 6.1.9 Tenant's Worker's Compensation............ Insurance................................. Section 6.1.10 Landlord's Right of Entry................. Section 6.1.11 Loading................................... Section 6.1.12 Landlord's Costs.......................... Section 6.1.13 Tenant's Property......................... Section 6.1.14 Labor or Materialmen's Liens.............. Section 6.1.15 Changes or Additions...................... Section 6.1.16 Holdover.................................. Section 6.1.17 Right of Financial Review................. ARTICLE VII - CASUALTY AND TAKING............................................. Section 7.1 Casualty and Taking....................................... Section 7.2 Reservation of Award...................................... ARTICLE VIII - RIGHTS OF MORTGAGEE............................................ Section 8.1 Priority of Lease......................................... Section 8.2 Rights of Mortgage Holders; Limitation of Mortgagee's Liability................................................. Section 8.3 Mortgagee's Election...................................... Section 8.4 No Prepayment or Modification, Etc........................ Section 8.5 No Release or Termination................................. Section 8.6 Continuing Offer.......................................... Section 8.7 Mortgagee's Approval...................................... ARTICLE IX - DEFAULT.......................................................... Section 9.1 Events of Default......................................... Section 9.2 Tenant's Obligations After Termination....................
-5- ARTICLE X - MISCELLANEOUS..................................................... Section 10.1 Notice of Lease.......................................... Section 10.2 Intentionally Omitted.................................... Section 10.3 Notices From One Party to the Other...................... Section 10.4 Bind and Inure........................................... Section 10.5 No Surrender............................................. Section 10.6 No Waiver, Etc........................................... Section 10.7 No Accord and Satisfaction............................... Section 10.8 Cumulative Remedies...................................... Section 10.9 Landlord's Right to Cure................................. Section 10.10 Estoppel Certificate..................................... Section 10.11 Waiver of Subrogation.................................... Section 10.12 Acts of God.............................................. Section 10.13 Brokerage................................................ Section 10.14 Submission Not An Offer.................................. Section 10.15 Applicable Law And Construction..........................
-6- ARTICLE II PREMISES AND TERM 2.1 PREMISES. Subject to and with the benefit of the provisions of this Lease and any ground lease or land disposition agreement relating to the parcel on which the Building is located (the "Lot"), Landlord hereby leases to Tenant, and Tenant leases from Landlord, Tenant's Space in the Building, excluding exterior faces of exterior walls, the common facilities area and building service fixtures and equipment serving exclusively or in common other parts of the Building. Tenant's Space, with such exclusions, is hereinafter referred to as the "Premises". Tenant shall have, as appurtenant to the Premises, the right to use in common with others entitled thereto: (a) the common facilities included in the Building or on the Lot, including the parking facility, if any, to the extent and in the location from time to time designated by Landlord as set forth in Section 1.1 and (b) the building service fixtures and equipment serving the Premises. Landlord reserves the right from time to time, without unreasonable interference with Tenant's use, (a) to install, repair, replace, use, maintain and relocate for service to the Premises and to other parts of the Building or either, building service fixtures and equipment wherever located in the Building and (b) to alter or relocate any other common facilities, it being understood that if any parking facilities are provided, the same may be relocated on or off the Lot from time to time by Landlord, provided that in all events substitutions are substantially equivalent. 2.2 TERM. To have and to hold for a period (the "Term") commencing on the Commencement Date and continuing until the Term Expiration Date, unless sooner terminated as provided in Section 6.1.6, 7.1, or in ARTICLE IX. Landlord and Tenant agree to confirm, in writing, the exact Commencement Date upon request of either party and agree that "substantial completion of Leasehold Improvements to be undertaken by Landlord on the portion of Tenant's Space located on the second floor of the Building" shall mean the first to occur of (i) Tenant's occupancy of said space or (ii) the substantial completion of the Leasehold Improvements for said space (which may be conclusively determined by a certificate of completion by a licensed architect or registered engineer). -7- 2.3 EXTENDED TERMS. Tenant shall have the right and option to extend the Term for up to two (2) successive periods of three (3) years each, each such option to be exercisable by notice given to Landlord not less than nine months prior to the expiration of the then current term. If any such option is so exercised, all of the terms, covenants, conditions and provisions of this Lease shall apply during the Term as extended except that during each additional three year period, the Annual Rent shall be the higher of (a) $22.50 per rentable square foot per year or (b) the fair market rental value of the Premises. In the event that Tenant exercises its extension options hereunder, Landlord shall, pursuant to written notice to Tenant within thirty (30) days following receipt of the applicable Tenant's extension notice, propose the fair market rental value of the Premises (the "Landlord's Proposed Fair Market Rent"). The Landlord's Proposed Fair Market Rent shall constitute the fair market rental value of the Premises for purposes of this Section 2.3 unless Tenant notifies Landlord within twenty (20) days of Tenant's receipt of Landlord's Proposed Fair Market Rent proposal that such Landlord's Proposed Fair Market Rent is not satisfactory to Tenant and specifies in such notice the name and address of an appraiser designated by Tenant in accordance with sub-paragraph (b) below (the "Tenant's Appraisal Notice") in which event the fair market rental value of the Premises shall be determined by the following procedure: (a) Landlord shall, within ten (10) days after receipt of Tenant's Appraisal Notice, notify Tenant of the name and address of an appraiser designated by Landlord. Such two appraisers shall, within thirty (30) days after the designation of the second appraiser, make their determinations of the fair market rental value of the Premises in writing and give notice thereof to each other and to Landlord and Tenant. Such two (2) appraisers shall have fifteen (15) days after the receipt of notice of each other's determinations to confer with each other and to attempt to reach agreement as to the determination of the fair market rental value of the Premises. If such appraisers shall concur in such determination, they shall give notice thereof to Landlord and Tenant and such concurrence shall be final and binding upon Landlord and Tenant. If such appraisers shall fail to concur as to such determination within said fifteen (15) day period, they shall immediately designate a third appraiser and shall submit in writing to such third appraiser their respective determinations of the fair market rental value of the Premises. If the two appraisers shall fail to agree upon the designation of such third appraiser within ten (10) days after said fifteen (15) day period, then they or either of them shall give notice of such failure to -8- agree to Landlord and Tenant and, if Landlord and Tenant fail to agree upon the selection of such third appraiser within ten (10) days after the appraiser(s) appointed by the parties give notice as aforesaid, then either party on behalf of both may apply to the president of the local chapter of the American Institute of Real Estate Appraisers (provided he or she is not an officer or employee of an entity actively engaged as an agent working on behalf of Landlord or Tenant) or on its failure, refusal or inability to act within 10 days of the application to that person to act, to a court of competent jurisdiction, for the designation of such third appraiser. (b) All individuals who shall be designated or selected as appraisers hereunder shall be real estate professionals who shall have had at least ten (10) years continuous experience in the business of leasing similar space in the greater Boston area. (c) The third appraiser shall conduct such hearings and investigations as he or she may deem appropriate and shall, within thirty (30) days after the date of his or her designation, select either the determination of Landlord's appraiser or that of Tenant's appraiser, whichever he or she deems more reasonable given his or her independent determination of the fair market rental value of the Premises. (d) The determination of the appraisers, as provided above, shall be conclusive upon the parties and shall have the same force and effect as a judgment made in a court of competent jurisdiction and either party shall be entitled to have a judgment entered thereon in any court of competent jurisdiction. Landlord shall pay the fees and expenses of the appraiser chosen by Landlord, Tenant shall pay the fees and expenses of the appraiser chosen by Tenant, and the fees and expenses of the third appraiser shall be paid in equal proportions by Landlord and Tenant. (e) If for any reason the fair market rental value shall not have been determined prior to the commencement of any additional three year period, Tenant shall pay Annual Rent hereunder at the Annual Rent proposed by Landlord's appraiser, or the Annual Rent during the next preceding period, whichever is greater, until the fair market rental value has been determined. The parties shall thereafter retroactively adjust such Annual Rent within ten (10) days from the determination of the fair market rental value of the Premises. Unless the context clearly requires otherwise, the word "Term" as used in this Lease shall mean and include the period set forth in Section 2.2 above and any period as to which the aforesaid option shall have been exercised. -9- 2.4 MANDATORY EXPANSION. On December 1, 1994 (or if not available on such date the date on which Landlord is able to provide the Mandatory Expansion Space (as hereinafter defined)) approximately 6,400 square feet of rentable floor area on the second floor of the Building as shown on Exhibit F attached hereto and incorporated herein (the "Mandatory Expansion Space") shall be added to the Tenant's Space. Landlord shall provide a Tenant Allowance of up to $18.00 per rentable square foot of such space for Leasehold Improvements of the Mandatory Expansion Space on the terms and conditions of the First Floor Tenant Allowance. In all other respects, the Mandatory Expansion Space shall be subject to the same terms and conditions as this lease (including, without limitation, obligations for Annual Rent and additional rent), provided that the Term for such space shall be coterminous with this lease. 2.5 OPTIONAL EXPANSION. Prior to leasing any space on the first floor of the building not occupied by Tenant, and not subject to a previous right of first offer, refusal or expansion, Landlord shall offer such space to Tenant at the same Annual Rent, additional rent, electrical charges and subject to the same covenants and obligations of Tenant, provided that the Term thereof shall be coterminous with this lease. Tenant shall have the right to accept such offer within five (5) days after the Landlord's written notice of availability of such space. If Tenant does not accept such space prior to the expiration of such five (5) day period, Landlord shall be free to lease the same to a third party on such terms and conditions as Landlord shall determine in its sole discretion. ARTICLE III CONSTRUCTION 3.1 ACCEPTANCE OF THE PREMISES. Tenant hereby agrees to accept the Premises "AS IS" and "AS SHOWN" as of the Commencement Date, subject only to the provisions of this Lease. Tenant further acknowledges that neither Landlord nor any agent of Landlord has made any representation, express or implied, written, verbal or otherwise as to the condition of the Premises or the suitability of the Premises for Tenant's intended use. -10- All of Tenant's construction, installation of furnishings and later changes or additions shall be coordinated with any work being performed by Landlord in such manner as to maintain harmonious labor relations and not to damage the Building or Lot or to interfere with Building operations. Except for installation of furnishings and the installation of telephone outlets which must be performed by the local telephone company at Tenant's direction and expense, the Leasehold Improvements shall be performed by Managing Agent. Landlord agrees to use reasonable efforts to complete the work described in Exhibit B (the "Leasehold Improvements") on or before November 1, 1993. Costs incurred by Tenant in connection with the space planning, architectural design and engineering of the Leasehold Improvements shall be paid by Landlord. Landlord shall pay for the Leasehold Improvements; provided, however, that to the extent that the cost of the Leasehold Improvements (including without limitation the cost of the data center referenced below) exceeds the sum of (i) the First Floor Tenant Allowance and (ii) the Second Floor Tenant Allowance, Tenant shall promptly reimburse Landlord for one hundred percent (100%) of such excess. The First Floor Tenant Allowance shall be $15.00 per rentable square foot of Tenant's Space on the first floor of the Building. The Second Floor Tenant Allowance shall be $18.00 per rentable square foot of Tenant's Space on the second floor of the Building. The parties hereby agree that a reasonable portion of the First Floor Tenant Allowance and/or the Second Floor Tenant Allowance may be used by Tenant to purchase the data center currently located within the Premises, subject to the receipt and reasonable approval by Landlord of satisfactory evidence detailing such purchase. Landlord will not approve any construction, alterations, or additions requiring unusual expense to readapt the Premises to normal office use on lease termination (including, without limitation, construction of an internal stairway between the first and second floor of the Premises) or increasing the cost of construction, insurance or taxes on the Building or of Landlord's Services called for by Section 5.1 unless Tenant first gives assurances acceptable to Landlord that such readaptation will be made prior to such termination without expense to Landlord and makes provisions acceptable to Landlord for payment of such increased cost. Landlord will also disapprove any alterations or additions requested by Tenant which will delay completion of the Premises or the Building. All changes and additions shall be part of the Building except such items as by writing at the time of approval the parties agree either shall be removed by Tenant on -11- termination of this Lease, or shall be removed or left at Tenant's election. 3.2 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION. All construction work required or permitted by this Lease, whether by Landlord or by Tenant, shall be done in a good and workmanlike manner and in compliance with all applicable laws and all lawful ordinances, regulations and orders of governmental authority and insurers of the Building. Either party may inspect the work of the other at reasonable times and promptly shall give notice of observed defects. 3.3 REPRESENTATIVES. Each party authorizes the other to rely in connection with their respective rights and obligations under this Article III upon approval and other actions on the party's behalf by a representative to be named by each party upon execution hereof or by any person designated in substitution or addition by notice to the party relying. ARTICLE IV RENT 4.1 RENT. Tenant agrees to pay rent to Landlord, without any offset or reduction whatever (except as made in accordance with the express provisions of this Lease), equal to 1/12th of the Annual Rent in equal installments in advance on the first day of each calendar month included in the Term together with any additional rent or other charges payable pursuant to this Lease (the sum of Annual Rent plus any additional rent or other charges is hereinafter referred to as the "Rent"). (a) If the Commencement Date occurs on a day other than the first day of a calendar month, Tenant shall pay to Landlord on the first day of the succeeding calendar month a pro rata payment of Rent for the partial month from the Rent Commencement Date to the first day of the succeeding calendar month. Such payment shall constitute payment for the partial month, if any, immediately following the Rent Commencement Date. (b) Rent for any partial month shall be paid by Tenant to Landlord at such rate on a pro rata basis. Other charges -12- payable by Tenant on a monthly basis, as hereinafter provided, shall likewise be prorated. (c) Rent and any other sums due hereunder not paid within five (5) days of the date due shall bear interest at the rate of one and one-half percent (1 1/2%) per month or fraction thereof (or at any lesser maximum legally permissible rate) from the due date until paid. Other charges payable by Tenant on a monthly basis, as hereinafter provided, shall likewise be prorated, and the first payment on account thereof shall be determined in similar fashion. 4.2 OPERATING COSTS; TAXES; ESCALATION. (a) Commencing with the First Fiscal Year for Tenant's Paying Operating Costs Escalation, the Annual Rent payable by Tenant shall be adjusted for increases in operating costs, adjusted to reflect full occupancy for twelve months ("LandLord's Operating Costs"). The amounts of such adjustments shall be determined by: (i) Comparing the Base Operating Costs with Landlord's Operating Costs for the Fiscal Year; and (ii) Computing Tenant's share on the basis of Tenant's Proportionate Share of the difference between Base Operating Costs and Landlord's operating Costs, such proportionate share being equal to a fraction, the numerator of which is the Rentable Floor Area of Tenant's Space, and the denominator of which is the Total Floor Area of the Building ("Tenant's Proportionate Share"). (b) If Landlord's Operating Costs for any Fiscal Year exceed the Base Operating Costs or if Landlord's Operating Costs for any partial Fiscal Year exceed the corresponding fraction of Base Operating Costs, Tenant shall pay, as additional rent, Tenant's Proportionate Share of such excess (such excess being referred to hereinafter as "Operating Cost Excess"). Such amount shall be due and payable after the close of the first Fiscal Year in which an Operating Cost Excess occurs, on or before the thirtieth (30th) day following receipt by Tenant of Landlord's Statement (as defined below). As soon as practicable after the end of each Fiscal Year ending during the Term and after Lease termination, Landlord shall render a statement ("Landlord's Statement") in reasonable detail and according to usual accounting practices certified by Landlord and showing for the preceding Fiscal Year or fraction thereof, as the case may be, Landlord's Operating Costs. -13- (c) For purposes of this Article "Landlord's Operating Costs" shall include: (i) premiums for insurance except premiums for loss of rent if such premiums are calculated independently of and not included as part of the provisions for other insurance carried by Landlord; (ii) compensation and all fringe benefits, worker's compensation insurance premiums and payroll taxes paid by Landlord to, for or with respect to all persons engaged in operating, maintaining, or cleaning the Building and Lot (or if any of said persons are engaged in operating, maintaining or cleaning other buildings or lots, a pro rata share thereof as reasonably determined by Landlord based upon the percentage of time said persons spend at the Building or Lot); (iii) all utility charges not billed directly to tenants by Landlord or the utility company, but not including the cost to Landlord of electricity furnished for lighting, electrical facilities, equipment, machinery, fixtures and appliances used by tenants in their respective space (other than Building heating, ventilating, and air conditioning equipment) as set forth in Paragraph VII of Exhibit D; (iv) payments to independent contractors under service contracts for cleaning, operating, managing, maintaining and repairing the Building and Lot (which payments may be to affiliates of Landlord provided the same are at reasonable and competitive rates consistent with the type of occupancy and the services rendered); (v) rent paid by the managing agent or imputed costs equal to the loss of rent by Landlord for making available to the managing agent space for a Building office on the ground floor or above (which space shall not exceed 100 square feet of rentable floor area); and (vi) all other reasonable and necessary expenses paid in connection with cleaning, operating, managing, maintaining and repairing the Building and Lot, or either, and properly chargeable against income, it -14- being agreed that the cost of all repairs and replacements shall be limited to such repair and replacement that is properly expensed under the Internal Revenue Code, and it being further agreed that if Landlord installs a new or replacement capital item for the purpose of reducing Landlord's Operating Costs, the cost thereof as reasonably amortized by Landlord, with interest at the average prime commercial rate in effect from time to time at the then three largest national banks in Boston, Massachusetts or the amortized amount, shall be included in Landlord's Operating Costs. Landlord's Operating Costs shall be computed on an accrual basis and shall be determined in accordance with generally accepted accounting principles consistently applied. Such costs may be incurred directly or by way of reimbursement, and shall include taxes applicable thereto. The following shall be excluded from Landlord's Operating Costs: (i) depreciation; (ii) expenses relating to tenants' alterations; (iii) expenses for which Landlord, by the terms of this Lease or any other lease, makes a separate charge; (iv) the cost of any services or systems for that portion of the Building occupied by the Landlord or affiliates of Landlord (exclusive of space occupied by Landlord or affiliates of Landlord in connection with the operation of the Building) and which are not provided generally to other tenants in the Building; (v) the cost of constructing additional parking spaces, which costs shall be treated as a capital cost by Landlord; and (vi) leasing fees or commissions. In case of special services which are not rendered to all areas on a comparable basis, the proportion allocable to the Premises shall be the same proportion which the Rentable Floor Area of Tenant's Space bears to the total rentable floor area to which such service is so rendered (such latter area to be determined in the same manner as the Total Rentable Floor Area of the Building). -15- (d) Commencing with the First Year for Tenant's Paying Tax Escalation, the Annual Rent payable by Tenant shall be adjusted for increases in real estate taxes, adjusted to reflect full occupancy for twelve months ("Landlord's Tax Costs"). The amounts of such adjustments shall be determined by: (i) Comparing the Base Tax Costs with Landlord's Tax Costs for the Tax Year; and (ii) Computing Tenant's share on the basis of Tenant's Proportionate Share of the difference between Base Tax Costs and Landlord's Tax Costs. (e) If Landlord's Tax Costs for any Tax Year exceed the Base Tax Costs or if Landlord's Tax Costs for any partial Tax Year exceed the corresponding fraction of Base Tax Costs, Tenant shall pay, as additional rent, Tenant's Proportionate Share of such excess (such excess being referred to hereinafter as "Tax Excess"). Such amount shall be due and payable after the close of the first Tax Year in which a Tax Excess occurs, on or before the thirtieth (30th) day following receipt by Tenant of Landlord's Tax Statement (as defined below). As soon as practicable after the end of each Tax Year ending during the Term and after Lease termination, Landlord shall render a statement ("Landlord's Tax Statement") in reasonable detail and according to usual accounting practices certified by Landlord and showing for the preceding Tax Year or fraction thereof, as the case may be, Landlord's Tax Costs. (e) For purposes of this Article "Landlord's Tax Costs" shall include: (i) real estate taxes on the Building and Lot, installments and interest on assessments for public betterments or public improvements; and (ii) reasonable expenses of any proceedings for abatement of taxes and assessments with respect to any Tax Year or fraction of a Tax Year; The term "real estate taxes" as used above shall mean all taxes of every kind and nature assessed by any governmental authority on the Lot, the Building and improvements, or both, which Landlord shall become obligated to pay because of or in connection with the ownership, leasing and operation of the Lot, the Building and improvements, or both, subject to the following: There shall be excluded from such taxes all income taxes, excess profits taxes, excise taxes, franchise taxes, and estate, succession, inheritance and transfer taxes, provided, however, -16- that if at any time during the Term the present system of ad valorem taxation of real property shall be changed so that in lieu of the whole or any part of the ad valorem tax on real property, there shall be assessed on Landlord a capital levy or other tax on the gross rents received with respect to the Lot, Building and improvements, or both, or a federal, state, county, municipal, or other local income, franchise, excise or similar tax, assessment, levy or charge (distinct from any now in effect) measured by or based, in whole or in part, upon any such gross rents, then any and all of such taxes, assessments, levies or charges, to the extent so measured or based, shall be deemed to be included within the term "real estate taxes." If Landlord shall receive any tax refund or reimbursement of taxes or sum in lieu thereof with respect to any Tax Year then out of any balance remaining thereof after deducting Landlord's expenses reasonably incurred in obtaining such refund, Landlord shall credit against Tenant's next payment of Tax Excess, provided there does not then exist a default of Tenant, an amount equal to Tenant's Proportionate Share of such refund or reimbursement provided, that in no event shall Tenant be entitled to a credit in excess of the amount of any payments made by Tenant on account of real estate tax increases for such Tax Year pursuant to this Section 4.2. Notwithstanding any other provision of Section 4.2 hereof, if the Term expires or is terminated as of a date other than the last day of a Fiscal Year or Tax Year as applicable, then for such fraction of a Fiscal Year or Tax Year at the end of the Term, Tenant's last payment to Landlord under Section 4.2 shall be made on the basis of Landlord's best estimate of the items otherwise includable in Landlord's Statement or Landlord's Tax Statement and shall be made on or before the later of (a) ten (10) days after Landlord delivers such estimate to Tenant or (b) the last day of the Term, with an appropriate payment or refund upon submission of Landlord's Statement or Landlord's Tax Statement as applicable which statement shall represent Landlord's actual costs. Tenant shall have the right, upon reasonable prior written notice to Landlord, to examine Landlord's books and records with respect to the items in the aforementioned Landlord's Statement or Landlord's Tax Statement during normal business hours, provided that Landlord receive such notice within thirty (30) days following the delivery to Tenant of Landlord's Statement. 4.3 ESTIMATED ESCALATION PAYMENTS. If, with respect to any fiscal year or tax year (as appropriate) or fraction thereof during the Term, Landlord estimates that Tenant shall be obligated to pay Operating Cost Escalation or Tax Escalation. Then Tenant shall pay, as additional rent, on the first day of each month of such fiscal year or tax year (as appropriate) and each ensuing fiscal -17- year thereafter, Estimated Monthly Escalation Payments equal to 1/12th of the estimated Operating Cost Escalation for the respective fiscal year plus 1/12 of the estimated Tax Escalation for the respective Tax Year, with an appropriate additional payment or refund to be made within thirty (30) days after Landlord's Statement or Landlord's Tax Statement as applicable is delivered to Tenant. Landlord may adjust such Estimated Monthly Escalation Payment from time to time and at any time during a fiscal year, and Tenant shall pay, as additional rent, on the first day of each month following receipt of Landlord's notice thereof, the adjusted Estimated Monthly Escalation Payment. 4.4 CHANGE OF FISCAL YEAR. Landlord shall have the right from time to time to change the periods of accounting under Section 4.2 to any annual period other than a fiscal year, and upon any such change all items referred to in this Section 4.4 shall be appropriately apportioned. In all Landlord's Statements rendered under this Section 4.4, amounts for periods partially within and partially without the accounting periods shall be appropriately apportioned, and any items which are not determinable at the time of a Landlord's Statement shall be included therein on the basis of Landlord's estimate, and with respect thereto Landlord shall render promptly after determination a supplemental Landlord's Statement, and appropriate adjustment shall be made according thereto. All Landlord's Statements shall be prepared on an accrual basis of accounting. 4.5 PAYMENTS. All payments of Annual Rent and additional rent shall be made to Managing Agent, or to such other person as Landlord may from time to time designate. If any installment of Annual Rent or additional rent or on account of leasehold improvements is paid more than five (5) days after the due date thereof, it shall, at Landlord's election, bear interest at a rate equal to the average prime commercial rate from time to time established by the three largest national banks in Boston, Massachusetts plus 4% per annum from such due date, which interest shall be immediately due and payable as further additional rent. -18- ARTICLE V LANDLORD'S COVENANTS 5.1 LANDLORD'S COVENANTS DURING THE TERM. Landlord covenants during the Term: 5.1.1 Building Services - To furnish, through Landlord's employees or independent contractors, the services listed in Exhibit D; 5.1.2 Additional Building Services - To furnish, through Landlord's employees or independent contractors, reasonable additional Building operation services upon reasonable advance request of Tenant at equitable rates from time to time established by Landlord to be paid by Tenant; 5.1.3 Repairs - Except as otherwise provided in ARTICLE VII of this Lease, to make such repairs to the roof, exterior walls, floor slabs, other structural components and common facilities of the Building as may be necessary to keep them in serviceable condition; and 5.1.4 Quiet Enjoyment - That Landlord has the right to make this Lease and that Tenant on paying the rent and performing its obligations hereunder shall peacefully and quietly have, hold and enjoy the Premises throughout the Term without any manner of hindrance or molestation from Landlord or anyone claiming under Landlord, subject however to all the terms and provisions hereof. 5.2 INTERRUPTIONS. Landlord shall not be liable to Tenant for any compensation or reduction of rent by reason of inconvenience or annoyance or for loss of business arising from power losses or shortages or from the necessity of Landlord's entering the Premises for any of the purposes authorized in this Lease or for repairing the Premises or any portion of the Building or Lot. In case Landlord is prevented or delayed from making any repairs, alterations or improvements, or furnishing any service or performing any other covenant or duty to be performed on Landlord's part, by reason of any cause beyond Landlord's reasonable control, Landlord shall not be liable to Tenant therefor, nor, except as expressly otherwise provided in ARTICLE VII, shall Tenant be entitled to any abatement or reduction of rent by reason thereof, nor shall the same give rise to a claim in Tenant's favor that such failure constitutes actual or constructive, total or partial, eviction from the Premises. -19- Landlord reserves the right to stop any service or utility system when necessary by reason of accident or emergency or until necessary repairs have been completed. Except in case of emergency repairs, Landlord will give Tenant reasonable advance notice of any contemplated stoppage and will use reasonable efforts to avoid unnecessary inconvenience to Tenant by reason thereof. Landlord also reserves the right to institute such policies, programs and measures as may be necessary, required or expedient for the conservation or preservation of energy or energy services or as may be necessary or required to comply with applicable codes, rules, regulations or standards. ARTICLE VI TENANT'S COVENANTS 6.1 TENANT'S COVENANTS DURING THE TERM. Tenant covenants during the Term and such further time as Tenant occupies any part of the Premises: 6.1.1 Tenant's Payments - To pay when due (a) all Annual Rent and additional rent, (b) all taxes which may be imposed on Tenant's personal property in the Premises (including, without limitation, Tenant's fixtures and equipment) regardless to whomever assessed, (c) all charges by public utilities for telephone and other utility services (including service inspections therefor) rendered to the Premises not otherwise required hereunder to be furnished by Landlord without charge and not consumed in connection with any services required to be furnished by Landlord without charge and (d) as additional rent, all charges of Landlord for services rendered pursuant to Section 5.1.2 hereof; 6.1.2 Repairs and Yielding Up - Except as otherwise provided in ARTICLE VII and Section 5.1.3, to keep the Premises in good order, repair and condition, reasonable wear only excepted; and at the expiration or termination of this Lease peaceably to yield up the Premises and all changes and additions therein in such order, repair and condition, first removing all goods and effects of Tenant and any items, the removal of which is required by agreement or specified herein to be removed at Tenant's election and which Tenant elects to remove, and repairing all damage caused by such removal and restoring the Premises and leaving them clean and neat; -20- 6.1.3 Occupancy and Use - To use and occupy the Premises only for the Permitted Uses; not to injure or deface the Premises, Building, or Lot; and not to permit in the Premises any use thereof which is improper, offensive, contrary to law or ordinance, or liable to create a nuisance or to invalidate or increase the premiums for any insurance on the Building or its contents or liable to render necessary any alteration or addition to the Building; 6.1.4 Rules and Regulations - To comply with the Rules and Regulations set forth in Exhibit E and all other reasonable Rules and Regulations hereafter made by Landlord, of which Tenant has been given notice, for the care and use of the Building and Lot and their facilities and approaches, it being understood that Landlord shall not be liable to Tenant for the failure of other tenants of the Building to conform to such Rules and Regulations; 6.1.5 Safety Appliances - To keep the Premises equipped with all safety appliances required by law or ordinance or any other regulation of any public authority because of any use made by Tenant and to procure all licenses and permits so required because of such use and, if requested by Landlord, to do any work so required because of such use, it being understood that the foregoing provisions shall not be construed to broaden in any way Tenant's Permitted Uses; 6.1.6 Assignment and Subletting - Not without the prior written consent of Landlord to assign this Lease, to make any sublease, or to permit occupancy of the Premises or any part thereof by anyone other than Tenant, voluntarily or by operation of law (it being understood that in no event shall Landlord consent to any such assignment, sublease or occupancy if the same is on terms more favorable to the successor occupant than to the then occupant); as additional rent, to reimburse Landlord promptly for reasonable legal and other expenses incurred by Landlord in connection with any request by Tenant for consent to assignment or subletting; no assignment or subletting shall affect the continuing primary liability of Tenant (which, following assignment, shall be joint and several with the assignee); no consent to any of the foregoing in a specific instance shall operate as a waiver in any subsequent instance. Landlord's consent to assignment or subletting by Tenant shall not be unreasonably withheld, provided that such assignee or subtenant pays therefor the greater of the Annual Rent and additional rent then payable hereunder, or the then fair market rent for the Premises as reasonably determined by Landlord; and provided further that Landlord shall not be deemed unreasonable for withholding its consent to any assignment or subletting the arrangements for which are to be made through any broker other than Landlord or its affiliates. In the event that -21- any assignee or subtenant pays to Tenant any amounts in excess of the Annual Rent and additional rent then payable hereunder, or pro rata portion thereof on a square footage basis for any portion of the Premises, Tenant shall promptly pay said excess to Landlord as and when received by Tenant. If Tenant requests Landlord's consent to assign this Lease or sublet more than twenty-five percent (25%) of the Premises, Landlord shall have the option, exercisable by written notice to Tenant given within ten (10) days after receipt of such request, to terminate this Lease as of a date specified in such notice which shall not be less than thirty (30) or more than sixty (60) days after the date of such notice; 6.1.7 Indemnity - To defend, with counsel reasonably acceptable to Landlord, save harmless and indemnify Landlord from any liability for injury, loss, accident or damage to any person or property and from any claims, actions, proceedings and expenses and costs in connection therewith (including, without implied limitation, reasonable counsel fees): (i) arising from the omission, fault, willful act, negligence or other misconduct of Tenant or from any use made or thing done or occurring on the Premises not due to the gross negligence of Landlord or (ii) resulting from the failure of Tenant to perform and discharge its covenants and obligations under this Lease; 6.1.8 Tenant's Liability Insurance - To maintain public liability insurance on the Premises in amounts which shall, at the beginning of the Term, be at least equal to the limits set forth in Section 1.1 of this Lease, and from time to time during the Term, shall be for such higher limits, if any, as are customarily carried in the area in which the Premises are located on property similar to the Premises and used for similar purposes and to furnish Landlord with certificates thereof; 6.1.9 Tenant's Worker's Compensation Insurance - To keep all of Tenant's employees working in the Premises covered by worker's compensation insurance in statutory amounts and to furnish Landlord with certificates thereof; 6.1.10 Landlord's Right of Entry - To permit Landlord and Landlord's agents entry: to examine the Premises at reasonable times and, if Landlord shall so elect, to make repairs or replacements; to remove, at Tenant's expense, any changes, additions, signs, curtains, blinds, shades, awnings, aerials, flagpoles or the like to which Landlord has not consented in writing; and to show the Premises to prospective tenants during the twelve (12) months preceding expiration of the Term and to prospective purchasers and mortgagees at all reasonable times; -22- 6.1.11 Loading - Not to place a load upon the Premises exceeding an average rate of fifty (50) pounds of live load per square foot or floor area, and not to move any safe, vault or other heavy equipment in, about or out of the Premises except in such manner and at such times as Landlord shall in each instance approve; Tenant's business machines and mechanical equipment which cause vibration or noise that may be transmitted to the Building structure or to any other leased space in the Building shall be placed and maintained by Tenant in settings of cork, rubber, spring or other types of vibration eliminators sufficient to eliminate such vibration or noise; 6.1.12 Landlord's Costs - In case Landlord shall be made party to any litigation commenced by or against Tenant or by or against any parties in possession of the Premises or any part thereof claiming under Tenant, to pay, as additional rent, all costs including, without implied limitation, reasonable counsel fees incurred by or imposed upon Landlord in connection with such litigation and, as additional rent, also to pay all such costs and fees incurred by Landlord in connection with the successful enforcement by Landlord of any obligations of Tenant under this Lease; 6.1.13 Tenant's Property - All the furnishings, fixtures, equipment, effects and property of every kind, nature and description of Tenant and of all persons claiming by, through or under Tenant which, during the continuance of this Lease or any occupancy of the Premises by Tenant or anyone claiming under Tenant, may be on the Premises or elsewhere in the Building or on the Lot shall be at the sole risk and hazard of Tenant and, if the whole or any part thereof shall be destroyed or damaged by fire, water or otherwise, or by the leakage or bursting of water pipes, steam pipes or other pipes, by theft, or from any other cause, no part of said loss or damage is to be charged to or to be borne by Landlord unless due to the gross negligence of Landlord; 6.1.14 Labor or Materialmen's Liens - To pay promptly when due the entire cost of any work done on the Premises by Tenant, its agents, employees or independent contractors; not to cause or permit any liens for labor or materials performed or furnished in connection therewith to attach to the Premises; and immediately to discharge any such liens which may so attach; 6.1.15 Changes or Additions - Not to make any changes or additions to the Premises without Landlord's prior written consent, provided that Tenant shall reimburse Landlord, as additional rent, for all costs incurred by Landlord in reviewing Tenant's proposed changes or additions, and provided further that, in order -23- to protect the functional integrity of the Building, all such changes and additions shall be performed by Managing Agent; and 6.1.16 Holdover - To pay to Landlord one and one-half times the then fair market rent as conclusively determined by Landlord or twice the total of the Annual Rent and additional rent then applicable for each month or portion thereof Tenant shall retain possession of the Premises or any part thereof after the termination of this Lease, whether by lapse of time or otherwise, and also to pay all damages sustained by Landlord on account thereof; the provisions of this subsection shall not operate as a waiver by Landlord of the right of re- entry provided in this Lease; at the option of Landlord exercised by a written notice given to Tenant while such holding over continues, such holding over shall constitute an extension of this Lease for a period of one year. 6.1.17 Right of Financial Review - To allow Landlord and any holder of a mortgage on the Premises to examine Tenant's books, including, without limitation, its financial statements, operating statements and balance sheets upon reasonable advance notice from Landlord to Tenant. Such review shall be conducted no more frequently than once in any six (6) month period. ARTICLE VII CASUALTY AND TAKING 7.1 CASUALTY AND TAKING. In case during the Term all or any substantial part of the Premises, Building or Lot, or any one or more of them, are damaged materially by fire or any other cause or by action of public or other authority in consequence thereof or are taken by eminent domain or Landlord receives compensable damage by reason of anything lawfully done in pursuance of public or other authority, this Lease shall terminate at Landlord's election, which may be made, notwithstanding Landlord's entire interest may have been divested, by notice to Tenant within thirty (30) days after the occurrence of the event giving rise to the election to terminate, which notice shall specify the effective date of termination which shall be not less than thirty (30) nor more than sixty (60) days after the date of notice of such termination. If in any such case the Premises are rendered unfit for use and occupation and the Lease is not so terminated, Landlord shall use due diligence to put the Premises, or, in case of a taking, what may remain thereof (excluding any items installed or paid for by Tenant which Tenant may be required or permitted to remove) into proper condition for use and occupation to the extent permitted by the net award of -24- insurance or damages available to Landlord, and a just proportion of the Annual Rent and additional rent according to the nature and extent of the injury shall be abated until the Premises or such remainder shall have been put by Landlord in such condition; and in case of a taking which permanently reduces the area of the Premises, a just proportion of the Annual Rent and additional rent shall be abated for the remainder of the Term and an appropriate adjustment shall be made to the Annual Estimated Operating Expenses. 7.2 RESERVATION OF AWARD. Landlord reserves to itself any and all rights to receive awards made for damages to the Premises, Building or Lot and the leasehold hereby created, or any one or more of them, accruing by reason of exercise of eminent domain or by reason of anything lawfully done in pursuance of public or other authority. Tenant hereby releases and assigns to Landlord all Tenant's rights to such awards and covenants to deliver such further assignments and assurances thereof as Landlord may from time to time request and hereby irrevocably designates and appoints Landlord as its attorney-in-fact to execute and deliver to Tenant's name and behalf all such further assignments thereof. It is agreed and understood, however, that Landlord does not reserve to itself, and Tenant does not assign to Landlord, any damages payable for (i) movable trade fixtures installed by Tenant, or anybody claiming under Tenant, at its own expense or (ii) relocation expenses recoverable by Tenant from such authority in a separate action. ARTICLE VIII RIGHTS OF MORTGAGEE 8.1 PRIORITY OF LEASE. This Lease is and shall continue to be subject and subordinate to any presently existing mortgage or deed of trust of record covering the Lot or Building or both (the "mortgaged premises"). The holder of such presently existing mortgage or deed of trust shall have the election to subordinate the same to the rights and interests of Tenant under this Lease exercisable by filing with the appropriate recording office a notice of such election, whereupon the Tenant's rights and interests hereunder shall have priority over such mortgage or deed of trust. Unless the option provided for in the next following sentence shall be exercised, this Lease shall be superior to and shall not be subordinate to, any mortgage, deed of trust or other voluntary -25- lien hereafter placed on the mortgaged premises. The holder of any such mortgage, deed of trust or other voluntary lien shall have the option to subordinate this Lease to the same, provided that such holder enters into an agreement with Tenant by the terms of which the holder will agree to recognize the rights of Tenant under this Lease and to accept Tenant as tenant of the Premises under the terms and conditions of this Lease in the event of acquisition of title by such holder through foreclosure proceedings or otherwise and Tenant will agree to recognize the holder of such mortgage as Landlord in such event, which agreement shall be made to expressly bind and inure to the benefit of the successors and assigns of Tenant and of the holder and upon anyone purchasing the mortgaged premises at any foreclosure sale. Any such mortgage to which this Lease shall be subordinated may contain such terms, provisions and conditions as the holder deems usual or customary. 8.2 RIGHTS OF MORTGAGE HOLDERS; LIMITATION OF MORTGAGEE'S LIABILITY. The word "mortgage" as used herein includes mortgages, deeds of trust or other similar instruments evidencing other voluntary liens or encumbrances and modifications, consolidations, extensions, renewals, replacements and substitutes thereof. The word "holder" shall mean a mortgagee and any subsequent holder or holders of a mortgage. Until the holder of a mortgage shall enter and take possession of the Premises for the purpose of foreclosure, such holder shall have only such rights of Landlord as are necessary to preserve the integrity of this Lease as security. Upon entry and taking possession of the Premises for the purpose of foreclosure, such holder shall have all the rights of Landlord. Notwithstanding any other provision of this Lease to the contrary, including without limitation Section 10.4, no such holder of a mortgage shall be liable, either as mortgagee or as assignee, to perform, or be liable in damages for failure to perform, any of the obligations of Landlord unless and until such holder shall enter and take possession of the Premises for the purpose of foreclosure, and such holder shall not in any event be liable to perform or liable in damages for failure to perform the obligations of Landlord under Section 3.1. Upon entry for the purpose of foreclosure, such holder shall be liable to perform all of the obligations of Landlord (except for the obligations under Section 3.1), subject to and with the benefit of the provisions of Section 10.4, provided that a discontinuance of any foreclosure proceeding shall be deemed a conveyance under said provisions to the owner of the equity of the Premises. -26- 8.3 MORTGAGEE'S ELECTION. Notwithstanding any other provision to the contrary contained in this Lease, if prior to substantial completion of Landlord's obligations under Article III, any holder of a first mortgage on the mortgaged premises enters and takes possession thereof for the purpose of foreclosing the mortgage, such holder may elect, by written notice given to Tenant and Landlord at any time within ninety (90) days after such entry and taking of possession, not to perform Landlord's obligations under Article III, and in such event such holder and all persons claiming under it shall be relieved of all obligations to perform, and all liability for failure to perform, said Landlord's obligations under Article III, and Tenant may terminate this Lease and all its obligations hereunder by written notice to Landlord and such holder given within thirty (30) days after the day on which such holder shall have given its notice as aforesaid. 8.4 NO PREPAYMENT OR MODIFICATION, ETC. Tenant shall not pay Annual Rent, additional rent or any other charge more than ten (10) days prior to the due dates thereof. No prepayment of Annual Rent, additional rent or other charge, no assignment of this Lease and no agreement to modify so as to reduce the rent, change the Term or otherwise materially change the rights of Landlord under this Lease, or to relieve Tenant of any obligations or liability under this Lease, shall be valid unless consented to in writing by Landlord's mortgagees of record, if any. 8.5 NO RELEASE OR TERMINATION. No act or failure to act on the part of Landlord which would entitle Tenant under the terms of this Lease, or by law, to be relieved of Tenant's obligations hereunder or to terminate this Lease, shall result in a release or termination of such obligations or a termination of this Lease unless (i) Tenant shall have first given written notice of Landlord's act or failure to act to Landlord's mortgagees of record, if any, specifying the act or failure to act on the part of Landlord which could or would give basis to Tenant's rights and (ii) such mortgagees, after receipt of such notice, have failed or refused to correct or cure the condition complained of within a reasonable time thereafter, but nothing contained in this Section 8.5 shall be deemed to impose any obligation on any such mortgagee to correct or cure any such condition. "Reasonable time" as used above means and includes a reasonable time to obtain possession of the mortgaged premises, if the mortgagee elects to do so, and a reasonable time to correct or cure the condition if such condition is determined to exist. -27- 8.6 CONTINUING OFFER. The covenants and agreements contained in this Lease with respect to the rights, powers and benefits of a mortgagee (particularly, without limitation thereby, the covenants and agreements contained in this Article VIII) constitute a continuing offer to any person, corporation or other entity, which by accepting or requiring an assignment of this Lease or by entry or foreclosure assumes the obligations herein set forth with respect to such mortgagee; such mortgagee is hereby constituted a party to this Lease as an obligee hereunder to the same extent as though its name were written herein as such; and such mortgagee shall be entitled to enforce such provisions in its own name. Tenant agrees on request of Landlord to execute and deliver from time to time any agreement which may reasonably be deemed necessary to implement the provisions of this Article VIII. 8.7 MORTGAGEE'S APPROVAL. Landlord's obligation to perform its covenants and agreements hereunder is subject to the condition precedent that this Lease be approved by the holder of any mortgage of which the Premises are a part and by the issuer of any commitment to make a mortgage loan which is in effect on the date hereof. Unless Landlord gives Tenant written notice within thirty (30) business days after the date hereof that such holder or issuer, or both, disapprove this Lease, then this condition shall be deemed to have been satisfied or waived and the provisions of this Section 8.6 shall be of no further force or effect. ARTICLE IX DEFAULT 9.1 EVENTS OF DEFAULT. If any default by Tenant continues after notice, in case of Annual Rent, additional rent, or any other monetary obligation to Landlord for more than ten (10) days or, in any other case, for more than thirty (30) days and such additional time, if any, as is reasonably necessary to cure the default if the default is of such a nature that it cannot reasonably be cured in thirty (30) days and Tenant diligently endeavors to cure such default; or if Tenant becomes insolvent, fails to pay its debts as they fall due, files a petition under any chapter of the U.S. Bankruptcy Code, 11 U.S.C. 101 et seq., as it may be amended (or any similar petition -28- under any insolvency law of any jurisdiction), or if such petition is filed against Tenant; or if Tenant proposes any dissolution, liquidation, composition, financial reorganization or recapitalization with creditors, makes an assignment or trust mortgage for the benefit of creditors, or if a receiver, trustee, custodian or similar agent is appointed or takes possession with respect to any property of Tenant; or if the leasehold hereby created is taken on execution or other process of law in any action against Tenant; then, and in any such case, Landlord and the agents and servants of Landlord may, in addition to and not in derogation of any remedies for any preceding breach of covenant, immediately or at any time thereafter while such default continues and without further notice, at Landlord's election, do any one or more of the following: (1) give Tenant written notice stating that the Lease is terminated, effective upon the giving of such notice or upon a date stated in such notice, as Landlord may elect, in which event the Lease shall be irrevocably extinguished and terminated as stated in such notice without any further action, or (2) with or without process of law, in a lawful manner, enter and repossess the Premises as of Landlord's former estate, and expel Tenant and those claiming through or under Tenant, and remove its and their effects, without being guilty of trespass, in which event the Lease shall be irrevocably extinguished and terminated at the time of such entry, or (3) pursue any other rights or remedies permitted by law. Any such termination of the Lease shall be without prejudice to any remedies which might otherwise be used for arrears of rent or prior breach of covenant, and in the event of such termination Tenant shall remain liable under this Lease as hereinafter provided. Tenant hereby waives all statutory rights (including, without limitation, rights of redemption, if any) to the extent such rights may be lawfully waived, and Landlord, without notice to Tenant, may store Tenant's effects and those of any person claiming through or under Tenant at the expense and risk of Tenant and, if Landlord so elects, may sell such effects at public auction or private sale and apply the net proceeds to the payment of all sums due to Landlord from Tenant, if any, and pay over the balance, if any, to Tenant. 9.2 TENANT'S OBLIGATIONS AFTER TERMINATION. In the event that this Lease is terminated under any of the provisions contained in Section 9.1 or shall be otherwise termi nated for breach of any obligation of Tenant, Tenant covenants to pay forthwith to Landlord, as compensation, (a) a sum equal to the tenant allowances paid by Landlord as set forth in Article II and Article III and (b) the excess of the total rent reserved for the residue of the Term over the rental value of the Premises for said residue of the Term. In calculating the rent reserved, there shall be included, in addition to the Annual Rent and all additional rent, the value of all other consideration agreed to be -29- paid or performed by Tenant for said residue. Tenant further covenants as an additional and cumulative obligation after any such ending to pay punctually to Landlord all the sums and perform all the obligations which Tenant covenants in this Lease to pay and to perform in the same manner and to the same extent and at the same time as if this Lease had not been terminated. In calculating the amounts to be paid by Tenant under the next foregoing covenant, Tenant shall be credited with any amount paid to Landlord as compensation as provided in the first sentence of this Section 9.2 and also with the net proceeds of any rents obtained by Landlord by reletting the Premises, after deducting all Landlord's expenses in connection wit such reletting, including, without implied limitation, all repossession costs, brokerage commissions, fees for legal services and expenses of preparing the Premises for such reletting, it being agreed by Tenant that Landlord may (i) relet the Premises or any part or parts thereof for a term or terms which may at Landlord's option be equal to or less than or exceed the period which would otherwise have constituted the balance of the Term and may grant such concessions and free rent as Landlord in its sole judgment considers advisable or necessary to relet the same and (ii) make such alterations, repairs and decorations in the Premises as Landlord in its sole judgment considers advisable or necessary to relet the same, and no action of Landlord in accordance with the foregoing or failure to relet or to collect rent under reletting shall operate or be construed to release or reduce Tenant's liability as aforesaid. So long as at least twelve (12) months of the Term remain unexpired at the time of such termination, in lieu of any other damages or indemnity and in lieu of full recovery by Landlord of all sums payable under all the foregoing provisions of this Section 9.2, Landlord may by written notice to Tenant, at any time after this Lease is terminated under any of the provisions contained in Section 9.l, or is otherwise terminated for breach of any obligation of Tenant and before such full recovery, elect to recover, and Tenant shall thereupon pay, as liquidated damages, an amount equal to the aggregate of the Annual Rent and additional rent accrued under Article IV in the twelve (12) months ended next prior to such termination plus the amount of Annual Rent and additional rent of any kind accrued and unpaid at the time of termination and less the amount of any recovery by Landlord under the foregoing provisions of this Section 9.2 up to the time of payment of such liquidated damages. Nothing contained in this Lease shall, however, limit or prejudice the right of Landlord to prove and obtain in proceedings for bankruptcy or insolvency by reason of the termination of this Lease, an amount equal to the maximum allowed by any statute or -30- rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater, equal to, or less than the amount of the loss or damages referred to above. ARTICLE X MISCELLANEOUS 10.1 NOTICE OF LEASE. Upon request of either party, both parties shall execute and deliver, after the Term begins, a short form of this Lease in form appropriate for recording or registration, and if this Lease is terminated before the Term expires, an instrument in such form acknowledging the date of termination. 10.2 INTENTIONALLY OMITTED. 10.3 NOTICES FROM ONE PARTY TO THE OTHER. All notices required or permitted hereunder shall be in writing and addressed, if to the Tenant, at Tenant's Address or such other address as Tenant shall have last designated by notice in writing to Landlord and, if to Landlord, at Landlord's Address or such other address as Landlord shall have last designated by notice in writing to Tenant. Any notice shall be deemed duly given when mailed to such address postage prepaid, registered or certified mail, return receipt requested, or when delivered to such address by hand. 10.4 BIND AND INURE. The obligations of this Lease shall run with the land and this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Landlord named herein and each successive owner of the Premises shall be liable only for the obligations accruing during the period of its ownership. The obligations of Landlord shall be binding upon the assets of Landlord which comprise the Premises but not upon other assets of Landlord. No individual partner, trustee, stockholder, officer, director, employee or beneficiary of Landlord shall be personally liable under this Lease and Tenant shall look solely to Landlord's interest in the Premises in pursuit of its remedies upon an event of default hereunder, and the general assets of the individual partners, trustees, stockholders, officers, employees or beneficiaries of Landlord -31- shall not be subject to levy, execution or other enforcement procedure for the satisfaction of the remedies of Tenant. 10.5 NO SURRENDER. The delivery of keys to any employee of Landlord or to Landlord's agent or any employee thereof shall not operate as a termination of this Lease or a surrender of the Premises. 10.6 NO WAIVER, ETC. The failure of Landlord or of Tenant to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease or, with respect to such failure of Landlord, any of the Rules and Regulations referred to in Section 6.1.4, whether heretofore or hereafter adopted by Landlord, shall not be deemed a waiver of such violation nor prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation, nor shall the failure of Landlord to enforce any of said Rules and Regulations against any other tenant in the Building be deemed a waiver of any such Rules or Regulations. The receipt by Landlord of Annual Rent or additional rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach by Landlord, unless such waiver be in writing and signed by Landlord. No consent or waiver, express or implied, by Landlord or Tenant to or of any breach of any agreement or duty shall be construed as a waiver or consent to or of any other breach of the same or any other agreement or duty. 10.7 NO ACCORD AND SATISFACTION. No acceptance by Landlord of a lesser sum than the Annual Rent and additional rent then due shall be deemed to be other than on account of the earliest installment of such rent due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed as accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or pursue any other remedy in this Lease provided. 10.8 CUMULATIVE REMEDIES. The specific remedies to which Landlord may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which it may be lawfully entitled in case of any breach or threatened breach by Tenant of any provisions of this Lease. In addition to the other remedies provided in this Lease, Landlord shall be -32- entitled to the restraint by injunction of the violation or attempted or threatened violation of any of the covenants, conditions or provisions of this Lease or to a decree compelling specific performance of any such covenants, conditions or provisions. 10.9 LANDLORD'S RIGHT TO CURE. If Tenant shall at any time default in the performance of any obligation under this Lease, Landlord shall have the right, but shall not be obligated, to enter upon the Premises and to perform such obligation, notwithstanding the fact that no specific provision for such substituted performance by Landlord is made in this Lease with respect to such default. In performing such obligation, Landlord may make any payment of money or perform any other act. All sums so paid by Landlord (together with interest at the rate of 4% per annum in excess of the then average prime commercial rate of interest being charged by the three largest national banks in Boston, Massachusetts), and all necessary incidental costs and expenses in connection with the performance of any such act by Landlord, shall be deemed to be additional rent under this Lease and shall be payable to Landlord immediately on demand. Landlord may exercise the foregoing rights without waiving any other of its rights or releasing Tenant from any of its obligations under this Lease. 10.10 ESTOPPEL CERTIFICATE. Tenant agrees, from time to time, upon not less than fifteen (15) days' prior written request by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect; that Tenant has no defenses, offsets or counterclaims against its obligations to pay the Annual Rent and additional rent and to perform its other covenants under this lease; that there are no uncured defaults of Landlord or Tenant under this Lease (or, if there have been modifications, that this Lease is in full force and effect as modified and stating the modifications and, if there are any defenses, offsets, counterclaims, or defaults, setting them forth in reasonable detail); and the dates to which the Annual Rent, additional rent and other charges have been paid. Any such statement delivered pursuant to this Section 10.10 shall be in a form reasonably acceptable to and may be relied upon by any prospective purchaser or mortgagee of premises which include the Premises or any prospective assignee of any such mortgagee. -33- 10.11 WAIVER OF SUBROGATION. Any insurance carried by either party with respect to the Premises and property therein or occurrences thereon shall include a clause or endorsement denying to the insurer rights of subrogation against the other party to the extent rights have been waived by the insured prior to occurrences of injury or loss. Each party, notwithstanding any provisions of this Lease to the contrary, hereby waives any rights of recovery against the other for injury or loss due to hazards covered by insurance containing such clause or endorsement to the extent of the indemnification received thereunder. 10.12 ACTS OF GOD. In any case where either party hereto is required to do any act (other than the payment of rent), delays caused by or resulting from Acts of God, war, civil commotion, fire, flood or other casualty, labor difficulties, shortages of labor, materials or equipment, government regulations, unusually severe weather or other causes beyond such party's reasonable control shall not be counted in determining the time during which work shall be completed, whether such time be designated by a fixed date, a fixed time or a "reasonable time," and such time shall be deemed to be extended by the period of such delay. 10.13 BROKERAGE. Tenant represents and warrants that it has dealt with no broker in connection with this transaction other than Meredith & Grew, Incorporated and agrees to defend, with counsel approved by Landlord, indemnify and save Landlord harmless from and against any and all cost, expense or liability for any compensation, commissions or charges claimed by a broker or agent, other than with Meredith & Grew, Incorporated, with respect to Tenant's dealings in connection with this Lease. 10.14 SUBMISSION NOT AN OFFER. The submission of a draft of this Lease or a summary of some or all of its provisions does not constitute an offer to lease or demise the Premises, it being understood and agreed that neither Landlord nor Tenant shall be legally bound with respect to the leasing of the Premises unless and until this Lease has been executed by both Landlord and Tenant and a fully executed copy has been delivered to each of them. -34- 10.15 APPLICABLE LAW AND CONSTRUCTION. This Lease shall be governed by and construed in accordance with the laws of the state in which the Premises are located. If any term, covenant, condition or provision of this Lease or the application thereof to any person or circumstances shall be declared invalid or unenforceable by the final ruling of a court of competent jurisdiction having final review, the remaining terms, covenants, conditions and provisions of this Lease and their application to persons or circumstances shall not be affected thereby and shall continue to be enforced and recognized as valid agreements of the parties, and in the place of such invalid or unenforceable provision, there shall be substituted a like, but valid and enforceable provision which comports to the findings of the aforesaid court and most nearly accomplishes the original intention of the parties. There are no oral agreements between Landlord and Tenant affecting this Lease. The only written agreements between Landlord and Tenant other than this Lease are (i) a letter agreement dated February 28, 1991 with respect to the granting by Landlord to Tenant of a license to occupy certain storage space in the Building (the "Letter Agreement"), (ii) a Lease dated February 28, 1991 and (iii) a Lease dated June 11, 1992 as amended by a First Amendment to Lease dated June 11, 1992 (the leases referred to in clauses (ii) and (iii) are hereinafter referred to as the "Previous Leases"). As of the Commencement Date, the Previous Leases, but not the Letter Agreement, shall be superseded by this Lease and shall be deemed to be null and void, and either party, upon request of the other party shall so certify. This Lease may be amended, and the provisions hereof may be waived and modified, only by instruments in writing executed by Landlord and Tenant. The titles of the several Articles and Sections contained herein are for convenience only and shall not be considered in construing this Lease. Unless repugnant to the context, the words "Landlord" and "Tenant" appearing in this Lease shall be construed to mean those named above and their respective heirs, executors, administrators, successors and assigns, and those claiming through or under them respectively. If there be more than one tenant, the obligations imposed by this Lease upon Tenant shall be joint and several. -35- EXECUTED as a sealed instrument on the day and year first above written. LANDLORD: L&E INVESTMENT OF MASSACHUSETTS ONE, INC. By: /s/ David C. Sherwood ----------------------------------- TENANT: CREDIT TECHNOLOGIES, INC. By: /s/ Pamela D.A. Reeve ----------------------------------- Pamela D.A. Reeve, Its President By: /s/ William G. Brown ----------------------------------- William G. Brown, Its Treasurer and Vice President of Finance -36- EXHIBIT A-1 ----------- [FLOOR PLAN APPEARS HERE] EXHIBIT A-2 ----------- [FLOOR PLAN APPEARS HERE] EXHIBIT B --------- [FLOOR PLAN APPEARS HERE] EXHIBIT C --------- Somerset Court 281 Winter Street Waltham, Massachusetts BUILDING STANDARDS ------------------ The Tenant will receive the following Tenant Improvements, which are included as part of the Fixed Rent Rate. 1. PARTITIONS: ----------- a) Demising partitions will be constructed of 3 5/8" metal studs with 5/8" gypsum wall board on each side. Demising partitions will extend from the finish floor to the underside of the floor deck above, subject to the requirements of the building and air conditioning system and the partition will be filled with 3" of fiberglass sound insulation. b) Interior partitions will be constructed of 3 5/8" metal studs with 5/8" gypsum board on each side. Partitions will extend from the floor to the underside of the acoustical tile ceiling. Tenant allowance shall be as shown on attached Exhibit A. 2. DOORS: ------ a) Each tenant will be allowed one entrance door of solid core oak, 3' x 8'-4", with a door closer, lever handle mortise lock-set. Door frame will be natural finish oak. b) Interior doors shall be 3' x 7' solid core oak in painted metal frames. Doors shall be finished natural with low sheen varnish and shall have 80% lever latchsets. Tenant allowance shall be as shown on attached Exhibit A. 3. PAINTING AND WALL COVERING: --------------------------- a) All tenant partitions will receive two coats of latex paint. Color selection will be made from building standard samples with not more than one color per room. All partitions will have a 4" vinyl base. C-1 b) Wall covering will be provided at Tenant's own expense and shall be subject to Landlord's approval prior to installation. 4. FLOORS: ------ Carpet shall be thirty (30) ounce commercial grade installed from building standard samples or from Landlord approved selection provided by Tenant. Vinyl tile may be substituted for carpet as required. 5. CEILING: ------- Ceilings will be 2' x 2' acoustic lay-in Armstrong Cortega Minaboard or equal tile. Ceiling height will be 8'-6". 6. ELECTRICAL: (as shown on attached PLAN A) ---------- Device Description ------ ----------- Lighting Fixtures 2' x 4' Parabolic Wall Switches Single Pole Electrical Outlets 120v Duplex Wall Mount 7. TELEPHONE: --------- Wall telephone outlets will be provided as shown on attached Exhibit A and will consist of a cut out in the drywall partition with a pull string inside the partition to above the ceiling. Installation of all telephone wiring, which shall meet the requirements of the Massachusetts Electrical Code and the local building and electrical inspectors, is the responsibility of Tenant. 8. SUN CONTROL BLINDS: ------------------ a) All windows will be 1" bronze insulated glass. b) All perimeter windows will be provided with operable vertical Louverdrape blinds in building standard color. 9. SPRINKLERS: ---------- General office space shall have flushed mounted sprinkler heads as required by local laws and ordinances. C-2 10. HEATING AND AIR CONDITIONING: ---------------------------- Cooling shall be provided from a central mechanical plant in the penthouse through a medium pressure manifold variable volume duct system. Heating shall be provided with constant volume fan coil units or induction units connected to the duct system and installed in the ceiling plenum. Space thermostats and separate zones will be provided for approximately each 50 lineal feet of building perimeter and approximately each 2,500 square feet of interior space. Supply air shall be provided through linear diffusers near the windows for the exterior zones and through slot diffusers for interior zones. 11. MISCELLANEOUS: -------------- a) Each floor will have a drinking fountain accessible to all tenants. b) Showers will be located in the second floor Men's and Women's toilet facilities. All improvements not stated above will be provided by Tenant at its own expense. Such improvements will be approved by Landlord prior to installation. C-3 EXHIBIT D --------- Somerset Court 281 Winter Street Waltham, Massachusetts LANDLORD'S SERVICES ------------------- I. CLEANING A. General 1. All cleaning work will be performed between 8 a.m. and 12 midnight, Monday through Friday, unless otherwise necessary for stripping, waxing, etc. 2. Abnormal waste removal (e.g., computer installation paper, bulk packaging, wood or cardboard crates, refuse from cafeteria operation, etc.) shall be Tenant's responsibility. B. Daily Operations (5 times per week) 1. Tenant Areas a. Empty and clean all waste receptacles; wash receptacles as necessary. b. Vacuum all rugs and carpeted areas. c. Empty, damp-wipe and dry all ashtrays. 2. Lavatories a. Sweep and wash floors with disinfectant. b. Wash both sides of toilet seats with disinfectant. c. Wash all mirrors, basins, bowls, urinals. d. Spot clean toilet partitions. e. Empty and disinfect sanitary napkin disposal receptacles. f. Refill toilet tissue, towel, soap, and sanitary napkin dispensers. 3. Public Areas a. Wipe down entrance doors and clean glass (interior and exterior). b. Vacuum elevator carpets and wipe down doors and walls. c. Clean water coolers. D-1 C. Operations as Needed (but not less than every other day) 1. Tenant and Public Areas a. Buff all resilient floor areas. D. Weekly Operations 1. Tenant Areas, Lavatories, Public Areas a. Hand-dust and wipe clean all horizontal surfaces with treated cloths to include furniture, office equipment, windowsills, door ledges, chair rails, baseboards, convector tops, etc., within normal reach. b. Remove finger marks from private entrance doors, light switches, and doorways. c. Sweep all stairways. E. Monthly Operations 1. Tenant and Public Areas a. Thoroughly vacuum seat cushions on chairs, sofas, etc. b. Vacuum and dust grillwork. 2. Lavatories a. Wash down interior walls and toilet partitions. F. As Required and Weather Permitting 1. Entire Building a. Clean inside of all windows. b. Clean outside of all windows. G. Yearly 1. Tenant and Public Areas a. Strip and wax all resilient tile floor areas. b. Shampoo carpet in common facilities as necessary in Landlord's sole discretion. D-2 II. HEATING, VENTILATING, AND AIR CONDITIONING 1. Heating, ventilating, and air conditioning as required to provide reasonably comfortable temperatures for normal business day occupancy (excepting holidays); Monday through Friday from 8:00 a.m. to 5:00 p.m. and Saturday from 8:00 a.m. to 1:00 p.m. 2. Maintenance of any additional or special air conditioning equipment and the associated operating cost will be at Tenant's expense. III. WATER Hot water for lavatory purposes and cold water for drinking, lavatory and toilet purposes. IV. ELEVATORS (if Building is Elevatored) Elevators for the use of all tenants and the general public for access to and from all floors of the Building. Programming of elevators (including, but not limited to, service elevators) shall be as Landlord from time to time determines best for the Building as a whole. V. RELAMPING OF LIGHT FIXTURES Tenant will reimburse Landlord for the cost of lamps, ballasts and starters and the cost of replacing same within the Premises. VI. CAFETERIA AND VENDING INSTALLATIONS 1. Any space to be used primarily for lunchroom or cafeteria operation shall be Tenant's responsibility to keep clean and sanitary, it being understood that Landlord's approval of such use must be first obtained in writing. 2. Vending machines or refreshment service installations by Tenant must be approved by Landlord in writing and shall be restricted in use to employees and business callers. All cleaning necessitated by such installations shall be at Tenant's expense. VII. Electricity A. Landlord, at Landlord's expense, shall furnish electrical energy required for lighting, electrical D-3 facilities, equipment, machinery, fixtures, and appliances used in or for the benefit of Tenant's Space, in accordance with the provisions of the Lease of which this Exhibit is part. B. Tenant shall not, without prior written notice to Landlord in each instance, connect to the Building electric distribution system any fixtures, appliances or equipment other than normal office machines such as desk-top calculators and typewriters, or any fixtures, appliances or equipment which Tenant on a regular basis operates beyond normal building operating hours. In the event of any such connection, Tenant agrees to an increase in the ANNUAL ESTIMATED ELECTRICAL COST TO TENANT'S SPACE and a corresponding increase in Annual Rent by an amount which will reflect the cost to Landlord of the additional electrical service to be furnished by Landlord, such increase to be effective as of the date of any such installation. If Landlord and cannot agree thereon, such amount shall be conclusively determined by a reputable independent electrical engineer or consulting firm to be selected by Landlord and paid equally by both parties, and the cost to Landlord will be included in Landlord's Operating Costs provided in Section 4.2 hereof. C. Tenant's use of electrical energy in Tenant's Space shall not at any time exceed the capacity of any of the electrical conductors or equipment in or otherwise serving Tenant's Space. In order to insure that such capacity is not exceeded and to avert possible adverse effect upon the Building electric service, Tenant shall not, without prior written notice to Landlord in each instance, connect to the Building electric distribution system any fixtures, appliances or equipment which operate on a voltage in excess of 120 volts nominal or make any alteration or addition to the electric system of Tenant's Space. Unless Landlord shall reasonably object to the connection of any such fixtures, appliances or equipment, all additional risers or other equipment required therefor shall be provided by Landlord, and the cost thereof shall be paid by Tenant upon Landlord's demand. In the event of any such connection, Tenant agrees to an increase in the ANNUAL ESTIMATED ELECTRICAL COST TO TENANT'S SPACE and a corresponding increase in Annual Rent by an amount which will reflect the cost to Landlord of the additional service to be furnished by Landlord, such increase to be effective as of the date of any such connection. If D-4 Landlord and Tenant cannot agree thereon, such amount shall be conclusively determined by a reputable independent electrical engineer or consulting firm to be selected by Landlord and paid equally by both parties, and the cost to Landlord will be included in Landlord's Operating Costs provided in Section 4.2 hereof. D. If at any time after the date of this Lease, the rates at which Landlord purchases electrical energy from the public utility supplying electric service to the Building, or any charges incurred or taxes payable by Landlord in connection therewith, shall be increased or decreased, the Annual Rent and ANNUAL ESTIMATED ELECTRICAL COST TO TENANT'S SPACE shall be increased or decreased, as the case may be, by an amount equal to the estimated increase or decrease, as the case may be, in Landlord's cost of furnishing the electricity referred to in Paragraph A above as a result of such increase or decrease in rates, charges, or taxes. If Landlord and Tenant cannot agree thereon, such amount shall be conclusively determined by a reputable independent electrical engineer or consulting firm to be selected by Landlord and paid equally by both parties, and the cost to Landlord will be included in Landlord's Operating Costs as provided in Section 4.2 hereof. Any such increase or decrease shall be effective as of the date of the increase or decrease in such rate, charges, or taxes. E. Landlord may, at any time, elect to discontinue the furnishing of electrical energy. In the event of any such election by Landlord: (1) Landlord agrees to give reasonable advance notice of any such discontinuance to Tenant; (2) Landlord agrees to permit Tenant to receive electrical service directly from the public utility supplying service to the Building and to permit the existing feeders, risers, wiring and other electrical facilities serving Tenant's Space to be used by Tenant and/or such public utility for such purpose to the extent they are suitable and safely capable; (3) Landlord agrees to pay such charges and costs, if any, as such public utility may impose in connection with the installation of Tenant's meters and to make or, at such public utility's election, to pay for such other installations as such public utility may require, as a condition of providing comparable electrical service to Tenant; (4) the Annual Rent shall be equitably decreased to reflect such discontinuance by an amount equal to the ANNUAL ESTIMATED ELECTRICAL COST TO TENANT'S SPACE then D-5 in effect; and (5) Tenant shall thereafter pay, directly to the utility furnishing the same, all charges for electrical services to the Premises. F. Whenever the Annual Rent is increased or decreased pursuant to any of the foregoing paragraphs of this Article, the parties agree, upon request of either, to execute and deliver each to the other an amendment to this Lease confirming such increase or decrease. D-6 EXHIBIT E --------- Somerset Court 281 Winter Street Waltham, Massachusetts RULES AND REGULATIONS --------------------- 1. The entrance, lobbies, passages, corridors, elevators and stairways shall not be encumbered or obstructed by Tenant, Tenant's agents, servants, employees, licensees or visitors or be used by them for any purpose other than for ingress and egress to and from the Premises. The moving in or out of all sales, freight, furniture or bulky matter of any description must take place during the hours which Landlord may determine from time to time. Landlord reserves the right to inspect all freight and bulky matter to be brought into the Building and to exclude from the Building all freight and bulky matter which violates any of these Rules and Regulations or the Lease of which these Rules and Regulations are a part. 2. No curtains, blinds, shades, screens or signs other than those furnished by Landlord shall be attached to, hung in or used in connection with any window or door of the Premises without the prior written consent of Landlord. Interior signs on doors shall be painted or affixed for Tenant by Landlord or by sign painters first approved by Landlord at the expense of Tenant and shall be of a size, color and style acceptable to Landlord. 3. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by Tenant, nor shall any changes be made in existing locks or the mechanism thereof without the prior written consent of Landlord. Tenant must, upon the termination of its tenancy, restore to Landlord all keys of stores, shops, booths, stands, offices and toilet rooms, either furnished to or otherwise procured by Tenant, and in the event of the loss of any keys so furnished, Tenant shall pay to Landlord the cost thereof. 4. Canvassing, soliciting and peddling in the Building are prohibited and Tenant shall cooperate to prevent the same. 5. Tenant may request heating and/or air conditioning during other periods in addition to normal working hours by submitting its request in writing to the Building Manager's office not later than 2 p.m. the preceding workday (Monday through Friday) on forms available from the Building Manager. E-1 The request shall clearly state the start and stop hours of the "off-hour" service. Tenant shall submit to the Building Manager a list of personnel who are authorized to make such requests. Charges are to be determined by the Building Manager on the additional hours of operations and shall be fair and reasonable and reflect the additional operating costs involved. 6. Tenant shall comply with all security measures from time to time established by Landlord for the Building. 7. Tenant shall be responsible for causing its visitors to park only in spaces or areas marked "Visitors Parking" and Tenant and its employees shall not park in spaces or areas marked "Visitor Parking" or "No Parking". Landlord reserves the right to tow any cars parked in "Visitor Parking" or "No Parking" areas in violation of these rules and regulations at the sole expense of the owner of the improperly parked car. Landlord reserves the right to designate reserved parking spaces for the Building's tenants. If any parking spaces are designated as reserved for Tenant, Tenant and its employees shall park only in those parking spaces which have been reserved for Tenant and in those unmarked parking spaces which Tenant has the right to use in common with other tenants. Tenant is responsible for policing any parking spaces reserved solely for its use and may tow any cars improperly parked in such reserved parking spaces. Such towing must be done by a company approved by Landlord. Tenant agrees, upon the request of Landlord, to provide Landlord with the license plate number and make and model of each of the cars which will be used by Tenant and its employees and shall specify which cars will be using the parking spaces reserved solely for Tenant's use. Landlord is entitled to rely on the information provided to it by Tenant and need not make any further inquiry into the ownership of the cars on the Lot. Violations of this Rule No. 7 shall be considered a default under the Tenant's lease and Landlord shall have all rights contained therein with respect to a default by Tenant. E-2 EXHIBIT F --------- MANDATORY EXPANSION SPACE ------------------------- F-1 [FLOOR PLAN APPEARS HERE] FIRST AMENDMENT TO LEASE This First Amendment to Lease is entered into as of the 31st day of May, 19-94 by and between L & E INVESTMENT OF MASSACHUSETTS ONE, INC., a Delaware corporation (the "Landlord"), and CREDIT TECHNOLOGIES, INC., a Delaware corporation (the "Tenant"). R E C I T A L S - - - - - - - - WHEREAS, Landlord and Tenant have entered into that certain Lease dated September 21, 1993, (the "Lease") with respect to certain premises located in the building ("Building") known and numbered as 281 Winter Street, Waltham, Massachusetts and more particularly described in said Lease (the "Premises"); WHEREAS, in accordance with Section 2.5 of the Lease Landlord has offered to lease to Tenant and Tenant has accepted from Landlord 1,089 square feet of space on the first floor of the Building, all as more fully set forth herein; and WHEREAS, Landlord and Tenant therefore wish to amend the Lease in order to reflect such expansion, subject to the terms and conditions set forth below; NOW, THEREFORE for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. All capitalized terms used herein and not otherwise defined shall have the meaning ascribed to such term in the Lease. 2. Effective as of August 1, 1994 the parties agree that 1,809 square feet of adjacent space on the first floor of the Building (the "Expansion Space") shall be added to the Premises and the definition of the term "TENANT'S SPACE" set forth in Section 1.1 of the Lease shall be and hereby is amended by deleting the first floor space plan attached as Exhibit A1 to the Lease and substituting therefore the first floor space plan attached as Exhibit A1 to the Lease and substituting therefore the first floor space plan attached as Exhibit A1 to this Amendment. Thereafter, all references to "Premises" or "Tenant's Space" contained in the Lease shall be read to refer to the original 17,580 square feet together with the Expansion Space being added by this Amendment and the terms and provisions of the Lease, as the same may be amended hereby, shall apply to said Expansion Space as fully as if it had been included in the Premises originally demised, including without limitation those terms relating to the payment of fixed and additional rent. 3. Effective as of August 1, 1994 the definition of the term "RENTABLE FLOOR OF TENANT'S SPACE: set forth in Section 1.1 of the Lease is hereby deleted and the following is substituted therefore; "RENTABLE FLOOR AREA OF TENANT'S SPACE: 19,389 square feet (14,691 of which are on the first floor and 4,698 of which are on the second floor), as the same may be increased pursuant to the terms hereof." 4. Effective as of August 1, 1994 the definition of the term "TENANT'S PROPORTIONATE SHARE" set forth in Section 1.1 of the Lease is hereby amended by deleting the phrase "25.93% (17,580 square feet divided by 67,800 square feet)" and substituting "28.60% (19,389 square feet divided by 67,800 square feet)" therefor. 5. Effective as of August 1, 1994 the definition of "PARKING SPACES ALLOCATED TO TENANT" set forTh in Section 1.1 of the Lease is hereby amended by deleting the phrase "Approximately 70 parking spaces" and substituting "Approximately 78 parking spaces" therefor. 6. Landlord hereby agrees that on or before August 1, 1994 it remove the existing demising wall separating the Expansion Space the original 17,580 square feet premises, and Landlord agrees to use diligent efforts to ensure that Tenant's use of the Premises is not unreasonably disrupted by such demolition. Landlord further agrees that it will patch and paint the walls of the Expansion Space in accordance with building standards. 7. Tenant represents and warrants that it has dealt with no broker in connection with this Amendment other than Meredith & Grew, incorporated and agrees to defend, with counsel approved by Landlord, indemnify and save Landlord harmless from and against any and all cost, expense or liability for any compensation, or charges claimed by a broker or agent, other than with Meredith & Grew, Incorporated, with respect to Tenant's dealings in connection with this Amendment. 8. The terms and provisions of the Lease, as modified by this Amendment, are hereby ratified and confirmed and the parties agree that said Lease, as so modified, remains in full force and effect. 2 EXECUTED under seal this as of the date first above written. LANDLORD: L & E INVESTMENT OF MASSACHUSETTS ONE, INC. By: /s/ David C. Sherwood -------------------------------- Name: DAVID C. SHERWOOD Its: CEO TENANT: CREDIT TECHNOLOGIES, INC. By: /s/ William G. Brown -------------------------------- Name: WILLIAM G. BROWN Its: VICE PRESIDENT - FINANCE 3 [FLOOR PLAN APPEARS HERE] EX-10.10 7 OFFICE LEASE DATED SEPTEMBER 30, 1994 EXHIBIT 10.10 HOBBS BROOK OFFICE PARK Waltham, Massachusetts LEASE dated September __, 1994 ARTICLE I REFERENCE DATA 1.1 SUBJECTS REFERRED TO -------------------- Each reference in this Lease to any of the following subjects shall be construed to incorporate the data stated for that subject in this Article. LANDLORD: Middlesex Mutual Building Trust LANDLORD'S ADDRESS: P.O. Box 9198 Waltham, Massachusetts 02254-9198 Attention: Real Estate Manager TENANT: Credit Technologies, Inc. TENANT'S ORIGINAL ADDRESS: ESTIMATED TERM COMMENCEMENT DATE: October 1, 1994 TERM COMMENCEMENT DATE: As defined in Section 2.4 TERM EXPIRATION DATE: Six years from the Term Commencement Date ANNUAL FIXED RENT: $555,714.00 BASE OPERATING EXPENSES PER SQUARE FOOT OF RENTABLE FLOOR AREA: Actual Operating Expenses per square foot of rentable floor area for calendar year 1995. BASE TAXES PER SQUARE FOOT OF RENTABLE FLOOR AREA: Actual Taxes per square foot of rentable floor area for calendar year 1994. LAND: The land upon which the building is situated including parking areas, garages, drives, walks, landscaped areas and other common areas serving the Building. BUILDING: The entire building known and numbered as 235 Wyman Street, Waltham, Massachusetts and all improvements on the Land but excluding any parking garage. TOTAL RENTABLE FLOOR AREA OF BUILDING: 27,108 square feet. PERMITTED USES: General Office PUBLIC LIABILITY INSURANCE: $1,000,000.00 BROKER: R.M. Bradley & Co., Inc. and Meredith & Grew TENANT'S AUTHORIZED REPRESENTATIVE: 1.2 EXHIBITS -------- The following is a list of Exhibits attached to this Lease. Exhibit A. Plan Premises. Exhibit B. Tenant Standard Build Out Specifications. Exhibit C. Landlord's Cleaning Specifications. ARTICLE II PREMISES; TERM; RENT; OPERATING EXPENSES; AND ELECTRICITY 2.1 PREMISES AND EXCLUSIONS ----------------------- Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises. The Premises exclude common areas and facilities of the Building, including without limitation exterior faces of exterior walls, the common stairways and stairwells, entranceways and any lobby and courtyard areas, elevators and elevator wells, fan rooms, electric and telephone closets, janitor closets, freight elevator vestibules, and pipes, ducts, conduits, wires and appurtenant fixtures serving other parts of the Building (exclusively or in common) and other common areas and facilities. If the Premises include less than the entire rentable area of any floor, then the Premises also exclude the common corridors, elevator lobby and toilets located on such floor. This Lease is subject to all easements, restrictions, agreements, and encumbrances of record to the extent in force and applicable. 2.1.1 RIGHT OF REFUSAL FOR SPACE IN BUILDING -------------------------------------- Subject to the rights of existing tenants, simultaneously with any offer to lease space in the Building to any third part, Landlord shall offer to lease such space to Tenant on the same terms and conditions as contained herein, except (a) Tenant shall lease the space in question for a time period coterminous with the term of this Lease, as it may be extended and (b) Fixed Annual Rent shall be equal to the then prevailing market rate for space in the building. Any offer by Landlord under this Section 2.1.1 may be accepted by Tenant by notice given within 10 days of receipt of -2- Landlord's offer. In the event that Tenant accepts any offer by Landlord under this section, the leasing of such additional space shall be documented by an Amendment to this Lease. Tenant's rights under this Section 2.1.1 shall be rendered void, at Landlord's election, if Tenant is in default (after expiration of any applicable notice and cure period) at the time Landlord offers any space to a third party or at the time Tenant's lease of any space under this Section 2.1.1 would otherwise commence. 2.2 APPURTENANT RIGHTS ------------------ Tenant shall have, as appurtenant to the Premises, rights to use in common (subject to reasonable rules of general applicability to tenants and other users of the Building from time to time made by Landlord of which Tenant is given notice): (a) the common lobbies, corridors, stairways, elevators and loading platform, and the pipes, ducts, conduits, wires and appurtenant meters and equipment serving the Premises in common with others; (b) common driveways and walkways necessary for access to the Building; (c) if the Premises include less than the entire rentable floor area of any floor, the common toilets, corridors and elevator lobby on such floor and serving the Premises; and (d) all other areas or facilities in the Building from time to time intended for general use by Tenant, other Building tenants, and Landlord. 2.3 RESERVATIONS ------------ Landlord reserves the right from time to time, without unreasonable interruption (except in emergency) of Tenant's use: (a) to install, use maintain, repair, replace and relocate for service to the Premises and other parts of the Building, or either, pipes, ducts, conduits, wires and appurtenant fixtures, wherever located in the premises or the Building; and (b) to alter or relocate any other common facility, including without limitation any lobby and courtyard areas. Installations, replacements and relocations referred to in clause (a) above shall be located as far as practicable in the central core area of the Building, above ceiling surfaces, below floor surfaces or within perimeter walls of the Premises. 2.4 TERM ---- The Term shall begin at 12:01 a.m. on the earlier to occur of the following (a) or (b), which date shall be the "Term Commencement Date," and shall end at 12:00 midnight on the Term Expiration Date set forth in Section 1.1. (a) The date Tenant enters into possession of all or any portion of the Premises for the conduct of its business. (The event described in the prior sentence shall not be deemed to occur by virtue of the installation or testing of computers or other equipment or the installation of other property of Tenant in the Premises.) -3- (b) The date the Premises are deemed ready for occupancy as defined in Section 3.2. 2.4.1 EXTENSION OPTION. Tenant shall have the option to extend the ---------------- Term for one additional four year extension term (the "Extension Term") by notice given to Landlord at least eight months before the Term Expiration Date. Tenant's election shall be exercised, and Annual Fixed Rent for the Extension Term determined, as set forth below. If Tenant fails timely to exercise its option for the Extension Term, Tenant shall have no further extension rights hereunder. Tenant's option so to extend the Term shall be void, at Landlord's election, if Tenant is in default (continuing beyond any applicable cure period) at the time Tenant elects to extend the Term or at the time the Term would expire but for such extension. Any extension of the Term shall be applicable to the entire Premises. During the Extension Term, if any, all provisions of this Lease shall apply except that Tenant shall have no further option to extend the Term. During the Extension Term, Tenant shall pay Annual Fixed Rent equal to the then prevailing market rate for a four year lease of office space in the greater Boston, Massachusetts "Metro-West" area comparable to the Premises in terms of location within a building, finish, age, building quality and amenities for a tenant of equal size and financial strength as Tenant. Landlord shall notify Tenant of its estimate of the prevailing market rate within ten (10) days after Tenant exercises the extension option. Tenant shall have the option to accept or reject by written notice Landlord's estimate, or to withdraw its exercise of the extension option. In the event Tenant rejects Landlord's estimate then the prevailing market rate shall be arbitrated in accordance with the following procedure. Each of Landlord and Tenant, within twenty (20) days after notice by Tenant disputing Landlord's estimate of the prevailing market rate, shall appoint as an arbitrator an MAI appraiser with at least ten years experience as an appraiser of Boston office buildings, including first class suburban office buildings, and shall give notice of such appointment to the other party. If either Landlord or Tenant shall fail timely to appoint an arbitrator, the other may apply to the Boston Office of the American Arbitration Association ("AAA") for appointment of such an arbitrator if the arbitrator has not been appointed within five business days after notice of such failure has been given to the delinquent party. The two arbitrators shall, within five business days after appointment of the second arbitrator, appoint a third arbitrator who shall be similarly qualified. If the two arbitrators are unable to agree timely on the selection of the third arbitrator, then both arbitrators together may request such appointment from the Boston office of the AAA. The arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the AAA insofar as such rules are not inconsistent with -4- the provisions of this Lease (in which case the provisions of this Lease shall govern), and the arbitrators shall be charged to reach a majority decision in accordance with the standards provided in this Lease. The prevailing market rent rate shall be in accordance with the arbitrators' decision. The cost of the arbitration (exclusive of each party's witness and attorneys fees, which shall be paid by such party) shall be borne equally by the parties. If the AAA shall cease to provide arbitration for commercial disputes in Boston, the second or third arbitrator, as the case may be, shall be appointed by any successor organization providing substantially the same services, and in the absence of such an organization, by a court of competent jurisdiction under the arbitration act of The Commonwealth of Massachusetts. For any portion of the Extension Term during which the prevailing market rent is in dispute hereunder, Tenant shall make payment on account of Annual Fixed Rent at the rate payable for the preceding lease year and the parties shall adjust for over or under payments within twenty days after the decision of the arbitrators is announced. Promptly after the Annual Fixed Rent is determined for the Extension Term, Landlord and Tenant shall enter into an amendment of this Lease confirming the extension of the Term and the new rate for Annual Fixed Rate.] 2.5 ANNUAL FIXED RENT ----------------- Tenant covenants and agrees to pay the Annual Fixed Rent in Section 1.1 to Landlord in advance in equal monthly installments on the first day of each calendar month during the Term. All payments shall be due without billing or demand and without deduction, setoff or counterclaim. In order to induce Tenant to enter into and perform this Lease, Landlord waives payment of Annual Fixed Rent for the first two full months of the term. Tenant shall make payment for any portion of a month at the beginning or end of the Term. All payments shall be payable to Landlord at its Address, both as specified in Section 1.1, or to such other entities at such other places as Landlord may from time to time designate. 2.6 ADDITIONAL CHARGES - OPERATING EXPENSES AND TAXES ------------------------------------------------- 2.6.1 ADDITIONAL CHARGES - GENERAL COVENANT. Tenant covenants and ------------------------------------- agrees to pay to Landlord, as additional charges, (i) an amount equal to the product of (a) the Rentable Floor Area of the Premises and (b) the excess (if any) of Landlord's Operating Expenses per square foot of Rentable Floor Area over Base Operating Expenses per Square Foot of Rentable Floor Area and (ii) an amount equal to the product of (a) the Rentable Floor Area of the Premises and (b) the excess (if any) of Landlord's Taxes per square foot of Rentable Floor Area over Base Taxes Per Square Foot of Rentable Floor Area, provided that if less than -5- the Total Rentable Floor Area of the Building is occupied at any time during such period, Landlord may reasonably extrapolate variable components of Landlord's Operating Expenses as though the Total Rentable Floor Area of the Building had been occupied at all times during such period. Appropriate adjustments (including adjustments in Base Operating Expenses Per Square Foot of Rentable Floor Area and Base Taxes Per Square Foot of Rentable Floor Area, which are quoted on an annual basis in Section 1.1) shall be made for any portion of a year at the beginning or end of the Term or for any year during which changes occur in the percentage of occupancy of the Building. 2.6.2 PAYMENT. Additional charges for Operating Expenses and Taxes ------- under this Section 2.6 shall be paid for any portion of a month at the beginning of the Term and thereafter in monthly installments on the first day of each calendar month in amounts reasonably estimated by Landlord for the then current calendar year. Landlord may from time to time revise such estimates based on available information relating to Landlord's Operating Expenses and Taxes or otherwise affecting the calculation hereunder. Within 90 days after the end of each calendar year, Landlord will provide Tenant with an accounting of Landlord's Operating Expenses and Taxes and other data necessary to calculate additional charges hereunder for such calendar year prepared in accordance herewith and otherwise in accordance with generally accepted accounting principles. Such statement shall be conclusive between the parties unless fraudulently prepared. Upon issuance thereof, there shall be an adjustment between Landlord and Tenant for the calendar year covered by such accounting to the end that Landlord shall have received the exact amount of additional charges due hereunder. Any overpayments by Tenant hereunder shall be credited against the next payments of additional charges due under this Section 2.6, provided there are no outstanding amounts due Landlord under this Lease at such time. Any underpayments by Tenant shall be due and payable within ten (10) days of delivery of Landlord's statement. All amounts due under this Section 2.6.2 shall be payable without any abatement, counterclaim, set-off or deduction, and the obligations of Tenant to pay the additional charges shall survive the expiration of the Term. With respect to the calendar year in which the Term ends, the adjustment shall be pro rated for the portion of the year included in the Term, but shall take place nevertheless at the times provided in the preceding sentences. 2.6.3 "LANDLORD'S OPERATING EXPENSES" - DEFINITION. "Landlord's --------------------------------------------- Operating Expenses" means all costs of Landlord in owning, servicing, operating, managing, maintaining, and repairing the Building, and providing services to tenants including, without limitation, the costs of the following: (i) supplies, materials and equipment purchased or rented, total wage and salary costs paid to, and all contract payments made on account of, all persons engaged in the operation, maintenance, -6- security, cleaning and repair of the Building and Land, including Social Security, old age and unemployment taxes and so-called "fringe benefits"; (ii) building services furnished to tenants of the Building at Landlord's expense (including the types of services provided to Tenant pursuant to Section 4.1 hereof) and maintenance and repair of and services provided to or on behalf of the Building performed by Landlord's employees or by other persons under contract with Landlord; (iii) utilities consumed and expenses incurred in the operation, maintenance and repair of the Building including, without limitation, oil, gas, electricity (other than electricity to tenants in their Premises if Tenant is directly responsible for payment under this Lease on account of electricity consumed by Tenant), water, sewer and snow removal; (iv) casualty, liability and other insurance, and unreimbursed costs incurred by Landlord which are subject to an insurance deductible; (v) costs of operating any cafeteria, other food services facility, or physical fitness facility for use of tenants generally; and (vi) management fees. If Landlord, in its sole discretion, installs a new or replaced capital item for the purpose of reducing or conserving the use of energy in the Building, complying with any building code or other law, regulation, or legal requirement, complying with requirements of any insurer, or otherwise relating to the operation of the Building, the cost of such item amortized over a reasonable period with interest shall be included in Landlord's Operating Expenses. Landlord's Operating Expenses shall not include any costs or expenses incurred by Landlord in the construction and development of the Building including construction for tenants; payments of principal, interest or other charges on mortgages; and salaries of executives or principals of Landlord (except as the same may be reflected in the management fee for the Building or attributable to actual Building operations). 2.6.4 "LANDLORD'S TAXES"-DEFINITION. "Landlord's Taxes" means all taxes, ------------------------------ assessments and similar charges assessed or imposed on the Land for the then current calendar year by any governmental authority attributable to the Building (and, in the case of 404 Wyman Street, the parking garage) (including personal property associated therewith). The amount of any special taxes, special assessments and agreed or governmentally imposed "in lieu of tax" or similar charges shall be included in Landlord's Taxes for any year but shall be limited to the amount of the installment (plus any interest, other than penalty interest, payable thereon) of such special tax, special assessment or such charge required to be paid during or with respect to the year in question. Landlord's Taxes include expenses, including fees of attorneys, appraisers and other consultants, incurred in connection with any efforts to obtain abatements or reduction or to assure maintenance of Landlord's Taxes for any year wholly or partially included in the Term, whether or not successful and whether or not such efforts involved filing of actual abatement applications or initiation of formal proceedings. Landlord's Taxes exclude income taxes of general application and all estate, succession, inheritance and transfer taxes. If at any time -7- during the Term there shall be assessed on Landlord, in addition to or lieu of the whole or any part of the ad valorem tax on real or personal property, a capital levy or other tax on the gross rents or other measures of building operations, or a governmental income, franchise, excise or similar tax, assessment, levy, charge or fee measured by or based, in whole or in part, upon Building valuation, gross rents or other measures of building operations or benefits of governmental services furnished to the Building, then any and all of such taxes, assessments, levies, charges and fees, to the extent so measured or based, shall be included within the term Landlord's Taxes, but only to the extent that the same would be payable if the Building and Land were the only property of Landlord. 2.7 ELECTRICITY ----------- Landlord shall furnish to Tenant throughout the Term electricity for the operation of lighting fixtures, and 120 volt current for the operation of normal office fixtures and equipment, but excluding any high energy consumption equipment. Tenant covenants and agrees to pay, as an additional charge, the cost of such electricity, which shall be separately metered and billed to Tenant monthly. ARTICLE III CONSTRUCTION OF PREMISES 3.1 COMPLETION DATE --------------- Subject to delay by causes beyond the reasonable control of Landlord or caused by action or inaction of Tenant, Landlord shall endeavor, in good faith, to have the Premises ready for Tenant's occupancy on the Estimated Term Commencement Date. Landlord's failure to have the Premises ready for Tenant's occupancy on the Estimated Term Commencement Date, for any reason, shall not give rise to any liability of Landlord hereunder, shall not constitute a Landlord's default, shall not affect the validity of this Lease, and shall have no effect on the beginning or end of the Term as otherwise determined hereunder or on Tenant's obligations associated therewith. 3.2 WHEN PREMISES DEEMED READY -------------------------- The Premises shall be conclusively deemed ready for Tenant's occupancy as soon as the obligations of Landlord as hereinafter specified have been substantially completed by Landlord insofar as is practicable in view of delays or defaults, if any, of Tenant or its contractors. The Premises shall be deemed to be ready for Tenant's occupancy if only minor or insubstantial details of construction, decoration or mechanical adjustments remain to be done in the Premises or any part thereof, or if the delay in the availability of the Premises for occupancy is (i) due to special work, changes, alterations or additions required -8- or made by Tenant in the layout or finish of the Premises or any part thereof, (ii) cause in whole or in part by Tenant through the delay of Tenant in submitting any plans and/or specifications, supplying information, approving plans, specifications or estimates, giving authorizations or otherwise or (iii) caused in whole or in part by delay and/or default on the part of Tenant or its contractors. If the Premises are deemed ready for Tenant's occupancy, Tenant shall not (except with Landlord's consent) be entitled to take possession of the Premises for the conduct of its business until the Premises are in fact actually ready for such occupancy, notwithstanding the fact, because the Premises shall have as above stated been deemed ready for such occupancy, that the Term hereof shall on that account have commenced. Landlord's architect's certificate of substantial completion, or of any other facts pertinent to this Section 3.2, shall be deemed conclusive of the statements therein contained and binding upon Tenant. Any of Landlord's work in the Premises not fully completed on the Commencement Date shall thereafter be so completed with reasonable diligence by Landlord. 3.3 PLANS AND SPECIFICATIONS ------------------------ Tenant shall be responsible to work with Landlord's architect in the preparation of architectural, mechanical and electrical construction drawing, plans and specifications (the "Plans") necessary to lay out the Premises for Tenant's occupancy. Tenant shall in a timely manner supply Landlord with all information necessary to enable Landlord's architects to prepare the Plans and shall promptly approve plans, specifications and estimates when so requested by Landlord. 3.4 CONSTRUCTION OF PREMISES ------------------------ Except as is otherwise herein provided or as may be otherwise approved by the Landlord, all work necessary to prepare the Premises for Tenant's occupancy, including work to be performed at Tenant's expense, shall be performed substantially in accordance with the Plans by contractors employed by Landlord. 3.5 QUALITY AND COST OF MATERIALS ----------------------------- Landlord shall bear all costs, not in excess of $15.00 per rentable square foot of the Premises, of materials and workmanship to be furnished and installed by Landlord in accordance with building standard as detailed and defined in Exhibit "B". Tenant shall bear all other costs of preparing the Premises for its occupancy and shall pay such costs to Landlord upon request as an additional charge hereunder. 3.6 TENANTS DELAY-ADDITIONAL COSTS ------------------------------ If Tenant fails or omits to make timely submission to Landlord of the information referred to in Section 3.3, or other pertinent information, or delays in submitting any other plans or -9- specifications, or in supplying information, or in approving plans, specifications or estimates, or in giving authorizations or otherwise, any additional costs to Landlord in connection with the completion of the Premises in accordance with the terms of this Lease shall be promptly paid by Tenant to Landlord as an additional charge, if such additional cost is the result of such failure, omission or delay of Tenant. For the purposes of the preceding sentence, the expression "additional cost to Landlord" shall mean the cost over and above such cost as would have been the aggregate cost to Landlord of completing the Premises in accordance with the terms of this Lease had there been no such failure, omission or delay. Nothing contained in this Section 3.6 shall limit or qualify or prejudice any other covenants, agreements, terms, provisions and conditions contained in this Lease, including, but not limited to Section 3.2. 3.7 ENTRY BY TENANT PRIOR TO TERM COMMENCEMENT DATE ----------------------------------------------- With Landlord's prior written consent, Tenant shall have the right to enter the Premises prior to the Term Commencement Date, without payment of rent, to perform such work or decoration as is to be performed by, or under the direction or control of, Tenant. Such right of entry shall be deemed a license from Landlord to Tenant, and entry thereunder shall be at the risk of Tenant. 3.8 CONCLUSIVENESS OF LANDLORD'S PERFORMANCE ---------------------------------------- By taking possession of the Premises, Tenant accepts the improvements in the condition in which they may then be, and waives any right or claim against Landlord arising out of the condition of the Premises, including the improvements thereon, the appurtenances thereto, and the equipment thereof, except defects in the workmanship and/or materials. Tenant shall be deemed to have waived any right or claim against Landlord arising out of a defect in workmanship and/or materials on the date 9 months following the date on which the Premises were ready for Tenant's occupancy if Tenant has not then given written notice of such defect to Landlord. ARTICLE IV LANDLORD'S COVENANTS 4.1 LANDLORD'S COVENANTS -------------------- 4.1.1 BUILDING SERVICES. Landlord shall furnish services, utilities, ----------------- facilities and supplies set forth in this Section 4.1.1 and in Exhibit C. Exhibit C is intended to add detail to the provisions of the main body of the Lease, and in case of conflict, the provisions of the main body of the Lease shall control. Tenant may obtain additional services, utilities, facilities and supplies from time to time upon reasonable advance request or Landlord may furnish the same without request if Landlord determines that Tenant's use or occupancy of the -10- Premises necessitates the same (for example where the condition of the Premises necessitates additional cleaning services), and, in either case, the cost of the same at reasonable rates from time to time established by Landlord shall constitute additional charges, payable upon billing. 4.1.1.1 WATER CHARGES. Landlord shall furnish hot and cold water for ------------- ordinary office cleaning, toilet, lavatory and drinking purposes. If Tenant requires, uses or consumes water for any other purpose, Landlord may assess on tenant reasonable charges for additional water. 4.1.1.2 ELEVATOR SERVICE. Landlord shall provide necessary elevator ---------------- facilities on Mondays through Fridays excepting legal holidays from 8:00 a.m. to 1:00 a.m. and on Saturdays from 8:00 a.m. to 11:00 p.m. (such hours on such days being referred to as "business days") and have at least one elevator serving the Premises in operation available for Tenant's non-exclusive use at all other times. 4.1.1.3 CLEANING. Landlord shall cause the common areas and the -------- office areas of the Premises to be kept reasonably clean provided the same are maintained and kept in good order by Tenant. Cleaning standards shall be in accordance with Exhibit C. 4.1.1.4 HEAT AND AIR-CONDITIONING. Landlord shall, through the ------------------------- Building heating and air-conditioning system, furnish to and distribute in the premises heat during the normal heating season on business days and air- conditioning on business days when air-conditioning may reasonably be required for the comfortable occupancy of the Premises by Tenant. Landlord shall not be required to furnish heat and air-conditioning in the Premises in excess of the capacity of the equipment presently installed in the Building. If Tenant requires additional air-conditioning for business machines, meeting rooms or other purposes, or because of occupancy or unusual electrical loads, any additional air-conditioning units, chillers, condensers, compressors, ducts, piping and other equipment and facilities will be installed and maintained by Landlord at Tenant's sole cost, but only to the extent that the same are compatible with the Building and its mechanical systems. 4.1.1.5 ENERGY CONSERVATION. Tenant agrees to cooperate with ------------------- Landlord and to abide by all Building regulations which Landlord may, from time to time, prescribe for the proper functioning and protection of the heating and air-conditioning systems and in order to maximize the effect thereof and to conserve heat and air-conditioning. Notwithstanding anything to the contrary in this Section 4.1.1 or otherwise in this Lease, Landlord may institute such policies, program and measures as may be in Landlord's judgment necessary, required or expedient for the conservation or preservation of energy services, or as may be necessary to comply with applicable codes, rules, regulations or -11- standards. 4.1.2 REPAIRS. Except as otherwise provided in this Lease, and ------- except for repairs to items referred to below necessitated by Tenant's act or neglect (which shall be Tenant's repair obligation under Section 5.1), Landlord shall make such repairs to the roofs, exterior walls, exterior windows, floor slabs, core walls, and common areas and facilities in the Building as may be necessary to keep them in good condition. 4.1.3 QUIET ENJOYMENT. Landlord covenants that Tenant, on paying the --------------- rent and performing the tenant obligations in this Lease, shall peacefully and quietly have, hold and enjoy the Premises, free from any claim by Landlord or persons claiming under Landlord, but subject to all of the terms and provisions hereof, provisions of law and rights of record to which this Lease is or may become subordinate. This covenant is in lieu of any other so-called quiet enjoyment covenant, either express or implied. 4.2 INTERRUPTION ------------ Exception for Landlord's negligence, Landlord shall not be liable to Tenant for any compensation or reduction of rent by reason of inconvenience or annoyance or for loss of business arising from the necessity of Landlord or its agents entering the Premises for any of the purposes authorized in this Lease or for repairing the Premises or from repairs by Landlord of any portion of the Building however the necessity may occur. If Landlord is prevented or delayed from performing any covenant by reason of any cause reasonably beyond Landlord's reasonable control, Landlord shall not be liable to Tenant therefor, nor, except as otherwise provided in Section 6.1, shall Tenant be entitled to any abatement or reduction of rent by reason thereof, nor shall the same give rise to a claim by Tenant that such failure constitutes eviction from the Premises. In no event shall Landlord be liable for direct or consequential damages arising out of any default by Landlord. Landlord reserves the right to stop any service or utility system, when necessary by reason of accident or emergency, or until necessary repairs have been completed; provided, however, that in each instance of stoppage, Landlord shall exercise reasonable diligence to eliminate the cause thereof. Except in case of emergency repairs, Landlord will give Tenant reasonable advance notice of any contemplated stoppage and will use reasonable efforts to avoid unnecessary interruption of Tenant's use of the Premises by reason thereof. ARTICLE V TENANT'S ADDITIONAL COVENANTS 5.1 MAINTENANCE AND REPAIR ---------------------- -12- Except for damage by fire or casualty and reasonable wear, Tenant shall at all times keep the Premises in good order and in as good repair, order and condition as the same are at the beginning of the Term or may be put in thereafter. The foregoing shall include without limitation Tenant's obligation to maintain floor coverings, to paint and repair walls and doors, to replace and repair ceiling tiles, lights and light fixtures, drains and the like, and clean the Premises to the extent such cleaning is not to be performed by Landlord under Exhibit C. 5.2 USE, WASTE AND NUISANCE ----------------------- Throughout the Term, Tenant shall use the Premises for the Permitted Uses only, and shall not use the Premises for any other purpose. Tenant shall not injure, overload, deface or commit waste in the Premises or any part of the improvement on the Land, nor permit the emission therefrom of any objectionable noise, light or odor, nor use or permit any use of the Premises which is improper, offensive, contrary to law or ordinance or which is liable to invalidate or increase the premium for any insurance on the Building or its contents or which is liable to render necessary any alterations or additions in the Building, nor obstruct in any manner any common portion of the Building. If Tenant's use of the Premises results in an increase in the premium for any insurance on the Building or the contents thereof, Landlord shall notify Tenant of such increase and Tenant shall pay same as additional charges. Tenant may not without Landlord's consent install in the Premises any pay telephones, vending machines, water fountains, refrigerators, sinks or cooking equipment provided that Landlord's consent will not be unreasonably withheld with respect to items designed for the convenience of Tenant's employees which are customary for office employees if Landlord determines that special venting or other special alterations are not required in connection therewith. Tenant shall not (either with or without negligence) cause or permit the escape, disposal or release of any biologically or chemically active or other hazardous substances, or materials except in compliance with law. Tenant shall not allow the storage or use of such substances or materials in any manner not sanctioned by law or by the highest standards prevailing in the industry for the storage and use of such substances or materials, nor allow to be brought into the Building any such materials or substances except to use in the ordinary course of Tenant's business, and then only after written notice is given to Landlord of the identity of such substances or materials. Without limitation, hazardous substances and materials shall include those described in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. (S)9601 et seq., the Resource Conservation and Recovery Act, as amended, 42 U.S.C. (S)6901 et seq., the Massachusetts Hazardous Waster Management Act, as amended, M.G.L. Chapter 21C, and the Massachusetts Oil and Hazardous Material Release Prevention Act, as amended, M.G.L. Chapter 21E, and the regulations adopted under -13- these acts. If any lender or governmental agency shall ever require testing to ascertain whether or not there has been any release of hazardous materials, then the reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand as additional charges if such requirement applies to the Premises, and if the requirement applies to the Building generally, then such costs shall be included in Landlord's Operating Expenses. In addition, Tenant shall execute affidavits, representations and the like from time to time at Landlord's request concerning Tenant's best knowledge and belief regarding the presence of hazardous substances or materials on the Premises. In all events, Tenant shall indemnify Landlord in the manner elsewhere provided from any release of hazardous materials on the premises occurring while Tenant is in possession, or elsewhere if caused by Tenant or persons acting under Tenant. 5.3 RULES AND REGULATIONS --------------------- Tenant shall conform to all reasonable non-discriminatory rules and regulations now or hereafter promulgated by Landlord for the care and use of the Premises and the Building. 5.4 SAFETY APPLIANCES ----------------- Tenant shall keep the Premises equipped with all safety appliances and permits which, as a result of Tenant's particular activities, are required by law or ordinance or any order or regulation of any public authority, shall keep the Premises equipped at all times with adequate fire extinguishers and other such equipment reasonably required by Landlord, and, subject to Section 5.10, shall make all repairs, alterations, replacements, or additions so required as a result of Tenant's particular activities. 5.5 INDEMNIFICATION --------------- Tenant shall indemnify, save harmless and defend Landlord, Landlord's employees, agents, independent contractors and invitees, and any mortgagee (collectively, "Indemnitees") from all liability, claim, or cost (including reasonable fees of legal counsel of the Indemnitee's choice against whom Tenant makes no reasonable objection) arising in whole or in part out of any injury, loss or damage to any person or property while on the Premises, or in transit thereto or therefrom, or out of any condition within the Premises if not due to negligence of Landlord, or out of any breach of any Lease covenant by or any act or omission of Tenant or Tenant's employees, agents, independent contractors or invitees, in each case paying the same to Landlord on demand as additional rent. The covenants of this Section shall survive the termination of the Term. In addition to the foregoing, Landlord may make all repairs and replacements to the Building resulting from acts or omissions of Tenant's employees, agents, independent contractors or invitees (including damage and breakage occurring when Tenant's property is being -14- moved into or out of the Building) and Landlord may recover all costs and expenses thereof from Tenant on demand as additional rent, to the extent not insured against. 5.6 INSURANCE --------- Tenant shall maintain throughout the Term (and such further time as Tenant or any person claiming through Tenant occupies any part of the Premises or has any liability for matters arising during the Term and such further time) in a responsible company or companies approved by Landlord, comprehensive public liability insurance against all claims for injury to persons or property in connection with Tenants use of the Premises or the Land or Building and in form satisfactory to Landlord, insuring Landlord and parties designated from time to time by Landlord as additional insureds in an amount not less than the amount specified in Section 1.1 (as such amount may, from time to time, be reasonably increased by Landlord to correspond to similar buildings in the Greater Boston area). Such insurance shall provide that it will not be subject to cancellation, termination, or change except after at least 30 days' prior written notice to Landlord and parties designated by Landlord. The policy or policies, or a duly executed certificate or certificates for the same, together with satisfactory evidence of the payment of the premium thereon, s hall be deposited with Landlord and additional insureds at the beginning of the Term and, upon renewals of such policies, not less than 30 days prior to the expiration of the term of such coverage. If Tenant fails to comply with any of the foregoing requirements, Landlord may obtain such insurance on behalf of Tenant and may keep the same in effect, and Tenant shall pay Landlord, as additional rent, the premium cost thereof upon demand. 5.7 TENANT'S PROPERTY ----------------- All furnishings, fixtures, equipment, effects and property of Tenant and all of persons claiming through Tenant which from time to time may be on the Premises or elsewhere in the Building or in transit thereto or therefrom shall be at the sole risk of Tenant and shall be kept insured by Tenant throughout the term at Tenant's expense and in prudent amounts, and if the whole or any part thereof shall be destroyed or damaged by fire, water or otherwise, or by the leakage or bursting of water pipes, steam pipes, or other pipes, by theft or from any other cause, no part of said loss or damage is to be charged to or be borne by Landlord. The parties acknowledged that damage or destruction may result from acts of cleaning personnel and employees of other independent contractors of Landlord working in and around the Premises and that Tenant shall bear the risk and cost thereof unless Landlord has been negligent in the selection of such persons. 5.8 ENTRY FOR REPAIRS AND INSPECTIONS --------------------------------- -15- Tenant shall permit Landlord and its agents to enter and examine the Premises at reasonable times and, if Landlord shall so elect, to make any repairs or replacements Landlord may deem necessary or desirable, to remove at Tenant's expense any alterations, additions, signs, curtains, blinds, shades, awnings, aerials, flagpoles, or the like not consented to in writing, and to show the Premises to prospective tenants during the eighteen months preceding expiration of the Term and to prospective purchasers and mortgagees at all times. In case of an emergency in the Premises or in the Building, Landlord or its representative may enter the Premises (forcibly, if necessary) at any time to take such measures as may be needed to deal with such emergency. Landlord shall give Tenant reasonable notice prior to any such entry (except in the case of an emergency) and shall use reasonable efforts to avoid interfering with Tenant's use of the Premises during the course of such entry, provided, however, that Landlord shall be under no obligation to conduct any such entry during overtime periods or incur other premium pay expense. 5.9 ASSIGNMENT, SUBLETTING ---------------------- Tenant shall not assign this Lease, or sublet or license the Premises or any portion thereof, or permit the occupancy of all or any portion of the Premises by anybody other than Tenant (all or any of the foregoing actions are referred to as "Subleases" and all or any of assignees, subtenants, licensees, and other such parties are referred to as "Subtenants") without obtaining, on each occasion, the prior consent of the Landlord, which consent shall not be unreasonably withheld. Unless Landlord's consent specifically provides otherwise with respect to a particular proposed Subtenant, Tenant shall not offer to make or enter into negotiations with respect to a Sublease to any of the following: (i) a tenant in the Hobbs Brook Office Park; (ii) any party with whom Landlord or any affiliate of Landlord is then negotiating with respect to space in the Hobbs Brook Office Park; (iii) any entity owned by, owning, or affiliated with, directly or indirectly, any tenant or party described in clauses (i) and (ii) hereof; or (iv) any party which would be of such type, character or condition as to be inappropriate, in Landlord's judgment, as a tenant for a first class office building. Tenant shall not, without Landlord's approval, offer to make or make a Sublease of all or any portion of the Premises unless the aggregate rent and other charges payable to Tenant under such Sublease equal or exceed the greater of (i) aggregate rent and other charges payable hereunder (pro-rated for a Sublease of less than all of the Premises), or (ii) the then prevailing rent rate being quoted for comparable space in Hobbs Brook Office Park. Tenant's request for consent to a Sublease shall include a copy of the proposed Sublease instrument, if available, or else a statement of the proposed Sublease in detail satisfactory to Landlord, together with reasonably detailed financial, business and other information about the proposed Subtenant. Landlord shall have the option (but not the obligation) to terminate the Lease with respect to the portion of the Premises which Tenant -16- proposes to Sublease effective upon the date of the proposed Sublease by giving Tenant notice of such termination within 60 days after Landlord's receipt of Tenant's request. If Tenant does make a Sublease hereunder, and if the aggregate rent and other charges payable to Tenant under and in connection with such Sublease (including without limitation any amounts paid for leasehold improvements or on account of Tenant's costs associated with such Sublease) exceed the rent and other charges paid hereunder with respect to the space in question, Tenant shall pay to Landlord, as an additional charge, the amount of such excess. Tenant shall pay to Landlord, as an additional charge, Landlord's reasonable legal fees and other expenses incurred in connection with any proposed Sublease, including fees for review of documents and investigations of proposed Subtenants. Notwithstanding any such Sublease, the original Tenant named herein shall remain directly and primarily obligated under this Lease. If Tenant enters into any Sublease with respect to the Premises (or any part thereof), Landlord may, at any time and from time to time, require that such Subtenant agree directly with Landlord to be liable, jointly and severally with Tenant, to the extent of the obligation undertaken by or attributable to such Subtenant, for the performance of Tenant's agreements under this Lease (including payment of rent and other charges under the Sublease), and every Sublease shall so provide. Landlord may collect rent and other charges from the Subtenant and apply the net amount collected to the rent and other charges hereunder, but no assignment or collection shall be deemed a waiver of the provisions of Section 5.9, or the acceptance of the Subtenant, as a tenant, or a release of Tenant from direct and primary liability for the further performance of Tenant's covenants hereunder. The consent by Landlord to a particular Sublease shall not relieve Tenant from the requirement of obtaining the consent of Landlord to any further Sublease. 5.10 ALTERATIONS ----------- Except as provided in ARTICLE III with respect to initial construction, Tenant shall make no alterations, additions or improvements to the Premises without the prior written consent of Landlord and only in accordance with complete construction documents approved in advance by Landlord. Tenant shall obtain all necessary permits before undertaking any such alterations, additions or improvements and shall carry such insurance and obtain such payment, performance and lien bonds as Landlord shall require. Any alterations, additions and improvements to the Premises, except movable furniture and trade fixtures, shall belong to Landlord. All alterations, additions and improvements to the Premises shall be at Tenant's sole cost. If any mechanic's lien (which term shall include all similar liens relating to the furnishing of labor and materials) is filed against the Building which is claimed to be attributable to -17- Tenant, its agents, employees or contractors, Tenant shall give immediate notice of such client of Landlord and shall discharge the same by payment or filing any necessary bond within 10 days after Tenant has notice (from any source) of such lien. Landlord's approval of the construction documents shall signify Landlord's consent to the work shown thereon only and Tenant shall be solely responsible for any errors or omissions contained therein. 5.11 SURRENDER --------- At the expiration of the Term or earlier termination of this Lease, without the requirement of any notice, Tenant shall peaceably surrender the Premises including all alterations and additions thereto and all replacements thereof, including carpeting, any water or electricity meters, and all fixtures and partitions, in any way bolted or otherwise attached to the Premises (which shall become the property of Landlord) except such alterations and additions as Landlord shall direct Tenant to remove, the Premises and improvements to be in the condition in which the same are required to be maintained under Section 5.1. Tenant shall, at the time of termination, remove the goods, effects and fixtures which Tenant is directed or permitted to remove in accordance with the provisions of this Section, making any repairs to the Premises and other areas necessitated by such removal and leaving the Premises clean and tenantable. Should Tenant fail to remove any of such goods, effects, and fixtures, Landlord may have them removed forcibly, if necessary, and store any of Tenant's property in a public warehouse at the risk of Tenant. If such items are not removed from storage within thirty (30) days, such items may be sold by any customary methods in order to pay storage costs and other expenses of Landlord. The expense of such removal, storage and reasonable repairs necessitated by such removal shall be borne by Tenant or reimbursed by Tenant to Landlord. 5.12 PERSONAL PROPERTY TAXES ----------------------- Tenant shall pay promptly when due all taxes (and charges in lieu thereof) imposed upon Tenant's personal property in the Premises, no matter to whom assessed (including, without limitation, fixtures and equipment). ARTICLE VI CASUALTY AND TAKING 6.1 DAMAGE BY FIRE OR CASUALTY -------------------------- If the Premises or any part thereof shall be damaged by fire or other insured casualty, then, subject to the last paragraph of this Section 6.1, Landlord shall proceed with diligence, subject to then applicable statutes, building codes, zoning ordinances and regulations of any governmental authority, and at the expense -18- of Landlord (but only to the extent of insurance proceeds made available to Landlord by any mortgagee of the Building) to repair or cause to be repaired such damage. All such repairs made necessary by any act or omission of Tenant shall be made at the Tenant's expense to the extent that the cost of such repairs are less than the deductible amount in Landlord's insurance policy. All repairs to and replacements of property which Tenant is entitled to remove shall be made by and at the expense of Tenant. If the Premises or any part thereof shall have been rendered unfit for use and occupation hereunder by reason of such damage the Fixed Rent or a just and proportionate part thereof, according to the nature and extent to which the Premises shall have been so rendered unfit, shall be abated until the Premises (except as to the property which is to be repaired by or at the expense of Tenant) shall have been restored as nearly as practicable to the condition in which they were immediately prior to such fire or other casualty, provided, however, that if Landlord or any mortgagee of the Building shall be unable to collect the insurance proceeds (including rent insurance proceeds) applicable to such damage because of some action or inaction on the part of Tenant, or the employees, licensees or invitees of Tenant, the cost of repairing such damage shall be paid by Tenant and there shall be no abatement of rent. Landlord shall not be liable for delays n the making of any such repairs which are due to government regulation, casualties and strikes, unavailability of labor and materials, delays in obtaining insurance proceeds, and other causes beyond the reasonable control of Landlord, nor shall Landlord be liable for any inconvenience or annoyance to Tenant or injury to the business of Tenant resulting from delays in repairing such damage. If (i) the Premises are so damaged by fire or other casualty (whether or not insured) at any time during the last thirty months of the Term that the cost to repair such damage is reasonably estimated to exceed one-third of the total Annual Fixed Rent payable hereunder for the period from the estimated completion date of repair until the end of the Term, (ii) at any time the Building (or any portion thereof, whether or not including any portion of the Premises) is so damaged by fire or other casualty (whether or not insured) that substantial alteration or reconstruction or demolition of the Building (or a portion thereof) shall in Landlord's judgment be required, or (iii) at any time damage to the Building occurs by fire or other insured casualty and any mortgagee shall refuse to permit insurance proceeds to be utilized for the repair or replacement of such property and Landlord determines not to repair such damage, then and in any of such events, this Lease and term hereof may be terminated at the election of Landlord by a notice from Landlord to Tenant within sixty (60) days, or such longer period as is required to complete arrangements with any mortgagee regarding such situation, following such fire or other casualty; the effective termination date pursuant to such notice shall be not less than thirty (30) days after the day on which such termination notice is received by Tenant. In the event f any -19- termination, the Term shall expire as though such effective termination date were the date originally stipulated in Section 1.1 for the end of the Term and the Fixed Rent and additional charges for Operating Expenses shall be apportioned as of such date. 6.2 CONDEMNATION - EMINENT DOMAIN ----------------------------- In case during the Term all or any substantial part of the Premises or the Building are taken by eminent domain or Landlord receives compensable damage by reason of any lawfully done in pursuance of public or other authority, the Lease shall terminate at Landlord's election, which may be made (notwithstanding that Landlord's entire interest may have been divested) by notice given to Tenant within 90 days after the election to terminate arises, specifying the effective date of termination. The effective day of termination specified by Landlord shall not be less than 15 nor more than 30 days after the date of notice f such termination. Unless terminated pursuant to the foregoing provisions, this Lease shall remain in full force and effect following any such taking, subject, however, to the following provisions. If in any such case the Premises are rendered unfit for use and occupation and this Lease is not terminated, Landlord shall use due diligence (following the expiration of the period in which Landlord may terminate this Lease pursuant to the foregoing provisions of this Section) to put the Premises, or what may remain thereof (excluding any items installed or paid for by Tenant which Tenant may be required to remove pursuant to Section 5.10), into proper condition for use and occupation and a just proportion of the Fixed Rent and additional charges for Operating Expenses according to the nature and extent of the injury shall be abated until the Premises or such remainder shall have been put by Landlord in such condition; and in case of a taking which permanently reduces the area of the Premises, a just proportion of the Fixed Rent and additional charges for Operating Expenses shall be abated for the remainder of the Term. 6.3 EMINENT DOMAIN AWARD -------------------- Landlord reserves to itself any and all rights to receive awards made for damages to the Premises, the Building or the leasehold hereby created, or any one or more of them (LESS THAN) accruing by reason of exercise of eminent domain or by reason of anything lawfully done in pursuance of public or other authority. Tenant hereby releases and assigns to Landlord all Tenant's rights to such awards, and covenants to deliver such further assignments and assurances thereof as Landlord may from time to time request, hereby irrevocably designating and appointing Landlord as its attorney-in-fact to execute and deliver in Tenant's name and behalf all such further assignments thereof. Nothing contained in this Section shall prevent Tenant from bringing a separate action or proceeding for compensation for any of Tenant's property taken and Tenant's moving expenses. -20- ARTICLE VII DEFAULT 7.1 TERMINATION FOR DEFAULT OR INSOLVENCY ------------------------------------- This Lease is upon the condition that (1) if Tenant shall fail to perform or observe any of Tenant's covenants, and if such failure shall continue, (a) in the case of rent or payment of additional charges or any sum due Landlord hereunder, for more than ten (10) days, or (b) in any other case, after notice, for more than thirty (30) days (provided that if correction of any such matter reasonably requires longer than 30 days and Tenant so notifies Landlord within 20 days after Landlord's notice is given together with an estimate of time required for such cure, Tenant shall be allowed such longer period, but only if cure is begun within such 30-day period and such delay does not cause increased risk of damage to person or property), or (2) if three or more notices under clause (1) hereof are given in any twelve month period (failure to pay rent or any other sum for more than 3 days after the particular due date shall have the same effect under this clause (2) as such a notice); (3) if the leasehold hereby created shall be taken on execution, or by other process of law, or if any assignment shall be made of Tenant's property or the property of any guarantor of Tenant's obligations hereunder ("Guarantor") for the benefit of creditors; or (4) if a receiver, guardian, conservator, trustee in bankruptcy or similar officer shall be appointed by a court of competent jurisdiction to take charge of all or any part f Tenant's or the Guarantor's property and such appointment is not discharged within 90 days thereafter or if a petition including, without limitation, a petition for reorganization or arrangement is filed by Tenant or the Guarantor under any bankruptcy law or is filed against Tenant or the Guarantor and, in the case of a filing against Tenant only, the same shall not be dismissed within 90 days from the date upon which it is filed, then, and in any of said cases, Landlord may, immediately or at any time thereafter, elect to terminate this Lease by notice of termination, by entry, or by any other means available under law and may recover possession of the Premises as provided herein. Upon termination by notice, by entry, or by any other means available under law, Landlord shall be entitled immediately, in the case of termination by notice or entry, and otherwise in accordance with the provisions of law to recover possession of the Premises from Tenant and those claiming through or under the Tenant. Such termination of this Lease and repossession of the Premises shall be without prejudice to any remedies which Landlord might otherwise have for arrears of rent or for a prior breach of the provisions of this Lease. Tenant waives any statutory notice to quit and equitable rights in the nature of further cure or redemption, and Tenant agrees that upon Landlord's termination of this Lease Landlord shall be entitled to re-entry and possession in accordance with the terms hereof. Landlord may, without notice, store Tenant's personal property (and those of any person claiming under Tenant) at the expense -21- and risk of Tenant or, if Landlord so elects, Landlord may sell such personal property at public auction or auctions or at private sale or sales after seven days notice to Tenant and apply the net proceeds to the earliest of installments of rent or other charges owing Landlord. Tenant agrees that a notice by Landlord alleging any default shall, at Landlord's option (the exercise of such option shall be indicated by the inclusion of the words "notice to quit" in such notice), constitute a statutory notice to quit. If Landlord exercises its option to designate a notice of default hereunder as a statutory notice to quit, any grace periods provided for herein shall run concurrently with any statutory notice periods. Landlord and Tenant waive trial by jury in any action to which they are parties. 7.2 REIMBURSEMENT OF LANDLORD'S EXPENSES ------------------------------------ In the case of termination of this Lease pursuant to Section 7.1, Tenant shall reimburse Landlord for all expenses arising out of such termination, including without limitation, all cost incurred in collecting amounts due from Tenant under this Lease (including attorneys' fees, costs of litigation and the like); all expenses incurred by Landlord in attempting to relet the Premises or parts thereof (including advertisements, brokerage commissions, Tenant's allowances, costs of preparing space, and the like); all of Landlord's then unamortized cost of special inducements provided to Tenant (including without limitation rent holidays, rent waivers, above building standard leasehold improvements, and the like) and all Landlord's other reasonable expenditures necessitated by the termination. The reimbursement from Tenant shall be due and payable immediately from time to time upon notice from Landlord that an expense has been incurred, without regard to whether the expense was incurred before or after the termination. 7.3 DAMAGES ------- Landlord may elect by written notice to Tenant within one year following such termination to be indemnified for loss of rent by a lump sum payment representing the then present value of the amount of rent and additional charges which would have been paid in accordance with this Lease for the remainder of the Term minus the then present value of the aggregate fair market rent and additional charges payable for the Premises for the remainder of the Term (if less than the rent and additional charges payable hereunder), estimated as of the date of the termination, and taking into account reasonable projections of vacancy and time required to re-lease the Premises. (For the purposes of calculating the rent which would have been paid hereunder for the lump sum payment calculation described herein, the last full year's additional charges under Section 2.6 is to be deemed constant for each year thereafter. The Federal Reserve discount rate (or equivalent) shall be used in calculating present values.) Should the parties be unable to agree on a fair market rent, the matter shall be submitted, upon the demand of -22- either party, to the Boston, Massachusetts office of the American Arbitration Association, with a request for arbitration in accordance with the rule of the Association by a single arbitrator who shall be an MAI appraiser with at least ten years experience as an appraiser of major office buildings in the Greater Boston area. The parties agree that a decision of the arbitrator shall be conclusive and binding upon them. If, at the end of the Term, the rent which Landlord has actually received from the Premises is less than the aggregate fair market rent estimated as aforesaid, Tenant shall thereupon pay Landlord the amount of such difference. Should Landlord fail to make the election provided for in this Section 7.3, Tenant shall indemnify Landlord for the loss of rent by a payment at the end of each month which would have been included in the Term, representing the difference between the rent which would have been paid in accordance with this Lease (Annual Fixed Rent under Section 2.5, and additional charges which would have been payable under Section 2.6 to be ascertained monthly) and the rent actually derived from the Premises by Landlord for such month (the amount of rent deemed derived shall be the actual amount less any portion thereof attributable to Landlord's reletting expenses described in Section 7.2 which have not been reimbursed by Tenant thereunder). 7.4 MITIGATION ---------- Any obligation imposed by law upon Landlord to relet the Premises shall be subject to the reasonable requirements of Landlord to lease to high quality tenants and to develop the Building in a harmonious manner with an appropriate mix of uses, tenants, floor areas and terms of tenancies, and the like. 7.5 CLAIMS IN BANKRUPTCY -------------------- Nothing herein shall limit or prejudice the right of Landlord to prove and obtain in a proceeding for bankruptcy, insolvency, arrangement or reorganization, by reason of the termination, an amount equal to the maximum allowed by a statute or law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount is greater to, equal to, or less than the amount of the loss or damage which Landlord has suffered. 7.6 INTEREST ON UNPAID AMOUNTS -------------------------- If any payment of Annual Fixed Rent, additional charges, or other payment due from Tenant to Landlord is not paid within ten (10) days of the due date, then without notice and in addition to all other remedies hereunder, Tenant shall pay to Landlord interest on such unpaid amount equal to 1.5% of the amount in question for each month and for each part thereof during which said delinquency continues; provided, however, in no event shall such interest exceed the maximum amount permitted to be charged by applicable law. -23- 7.7 VACANCY DURING LAST SIX MONTHS ------------------------------ If Tenant vacates substantially all of the Premises (or substantially all of any major portion of the Premises, including a floor thereof) at any time within the last 6 months of the Term, Landlord may enter the Premises (or such portion) and commence demolition work or construction of leasehold improvements for future tenants. The exercise of such right by Landlord will not affect Tenant's obligations to pay Annual Fixed Rent or additional charges with respect to the Premises (or such portion), which obligations shall continue without abatement until the end of the Term. ARTICLE VIII MISCELLANEOUS 8.1 HOLDOVER -------- If Tenant remains in the Premises after the termination of expiration of the Term, such holding over shall be an a tenant at will or tenant by the month (requiring 30 days notice of termination by either party to the other) at a monthly fixed rent equal to one and one-half times the Fixed Rent due hereunder for the last month of the Term, and otherwise subject to all the covenants and conditions (including obligations to pay additional charges under Section 2.6) of this Lease as though it had originally been a monthly tenancy. Notwithstanding the foregoing, if Landlord desire to regain possession of the Premises promptly after the termination or expiration hereof and prior to acceptance of rent for any period thereafter, Landlord may, at its option, forthwith re-enter and take possession of the Premises or any part thereof or by any legal process in force in The Commonwealth of Massachusetts. Notwithstanding the establishment of any holdover tenancy following the expiration or earlier termination of the Term, if Tenant fails promptly to vacate the Premises at the expiration or earlier termination of the Term, Tenant shall save Landlord harmless and indemnified against any claim, loss, cost or expense (including reasonable attorneys' fees) arising out of Tenant's failure promptly to vacate the Premises (or any portion thereof). 8.2 ESTOPPEL CERTIFICATES --------------------- At Landlord's request, from time to time, Tenant agrees to execute and deliver to Landlord, within ten (10) days after such request, a certificate which acknowledges the dates on which the Term begins and ends, tenancy and possession of the Premises and recites such other facts concerning any provision of the Lease or payments mae under the Lease which Landlord or a mortgagee or lender or a purchaser or prospective purchaser of the Building or any interest therein or any other party may from time to time reasonably request. -24- 8.3 NOTICE ------ Any notice, approval, consent and other like communication hereunder from Landlord to Tenant or from Tenant to Landlord shall be effective only if given in writing and shall be deemed duly served if and when hand delivered or if and when mailed prepaid certified mail (in either case, whether or not accepted for delivery). Communications to Tenant shall be addressed to Tenant's Authorized Representative at the Original Address of Tenant set forth in Section 1.1 prior to the Term Commencement Date and thereafter at the Premises. Communications to Landlord shall be addressed to the Address of Landlord set forth in Section 1.1. Either party may from time to time designate other addresses within the continental United States by notice to the other. 8.4 LANDLORD'S RIGHT TO CURE ------------------------ At any time and without notice, Landlord may, but need not, cure any failure by Tenant to perform its obligations under this Lease. Whenever Landlord chooses to do so, Tenant shall pay all costs and expenses incurred by Landlord in curing any such failure, including, without limitation, reasonable attorneys' fees and interest as provided in Section 7.6. 8.5 SUCCESSORS AND ASSIGNS ---------------------- This Lease and the covenants and conditions herein contained shall inure to the benefit of and be binding upon Landlord, its successors and assigns, and shall be binding upon Tenant, its successors and assigns, and shall inure to the benefit of Tenant and only such Subtenants of Tenant as are permitted hereunder. The term "Landlord" means the original Landlord named herein, its successors and assigns. The term "Tenant" means the original Tenant named herein and its permitted successors and assigns. 8.6 BROKERAGE --------- Tenant warrants that it has had no dealings with any broker or agent in connection with this Lease or any other space in the Hobbs Brook Office Park except for any broker designated in Section 1.1. Tenant covenants to pay, hold harmless and indemnify Landlord from and against any and all costs, expense, or liability for any compensation, commissions and charges claimed by any broker or agent other than any such broker designated in Section 1.1 with respect to this Lease or the negotiation thereof arising from a breach of the foregoing warranty. Landlord shall be responsible for payment of any brokerage commission to any broker designated in Section 1.1. 8.7 WAIVER ------ The failure of Landlord or of Tenant to seek redress for violation of, or to insist upon strict performance of, any -25- covenant or condition of this Lease, or, with respect to such failure of Landlord, any of the Rules and Regulations referred to in Section 5.3, whether heretofore or hereafter adopted by Landlord, shall not be deemed a waiver of such violation nor prevent a subsequent act, which would have originally constituted a violation, from having all the effect of an original violation, nor shall the failure of Landlord to enforce any of said Rules and Regulations against any other tenant of the Building be deemed a waiver of any such Rules or Regulations. The receipt by Landlord of Fixed Rent or additional charges with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. No provision of this Lease shall be deemed to have been waived by Landlord, or by Tenant, unless such waiver be in writing signed by the party to be charged. No consent or waiver, express or implied, by Landlord or Tenant to or of any breach of any agreement or duty shall be construed as a waiver or consent to or of any other breach of the same or any other agreement or duty. 8.8 ACCORD AND SATISFACTION ----------------------- No acceptance by Landlord of a lesser sum than the Fixed Rent and additional charges then due shall be deemed to be other than on account of the earliest installment of such rent and charges due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or pursue any other remedy provided in this Lease. The delivery of keys to Landlord shall not operate as a termination of this Lease or a surrender of the Premises. 8.9 REMEDIES CUMULATIVE ------------------- The specific remedies to which Landlord may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies to which it may be lawfully entitled in case of any breach or threatened breach by Tenant of any provisions of this Lease. In addition to the other remedies provided in this Lease, Landlord shall be entitled to the restraint by injunction of the violation or attempted or threatened violation of any of the covenants or conditions of this Lease or to a decree compelling specific performance of any such covenants or conditions. 8.10 PARTIAL INVALIDITY ------------------ If any term of this Lease, or the application thereof to any person or circumstance, shall to any extent by invalid or unenforceable, the remainder of this Lease, or the application of such term to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term of this Lease shall be valid and -26- enforceable to the fullest extent permitted by law. 8.11 WAIVERS OF SUBROGATION ---------------------- Any insurance carried by either party with respect to the premises or property therein or occurrences thereon shall, if it can be so written without additional premium or with an additional premium which the other party agrees to pay, include a clause or endorsement denying to the insurer rights of subrogation against the other party to the extent rights have been waived by the insured hereunder prior to occurrence of injury or loss. Each party, notwithstanding any provisions of this Lease to the contrary, hereby waives any rights of recovery against the other for injury or loss due to hazards covered by such insurance to the extent of the indemnification received thereunder. 8.12 ENTIRE AGREEMENT ---------------- This Lease contains all of the agreements between Landlord and Tenant with respect to the Premises and supersedes all prior writings and dealings between them with respect thereto. 8.13 NO AGREEMENT UNTIL SIGNED ------------------------- The submission of this Lease or a summary of some or all of its provisions for examination does not constitute a reservation of or option for the Premises or an offer to lease and no legal obligations shall arise with respect to the Premises or other matters herein until this Lease is executed and delivered by Landlord and Tenant. 8.14 TENANT'S AUTHORIZED REPRESENTATIVE ---------------------------------- Tenant designates the person named from time to time as Tenant's Authorized Representative to take all acts of Tenant hereunder. Landlord may rely on the acts of such Authorized Representative without further inquiry or evidence of authority. Tenant's Authorized Representative shall be the person so designated in Section 1.1 and such successors as may be named from time to time by the then current Tenant's Authorized Representative or by Tenant's president. 8.15 NOTICE OF LEASE --------------- Landlord and Tenant agree not to record this Lease. Both parties will, at the request of either, acknowledge and deliver a Notice of Lease and a Notice of Termination of Lease Term, each in recordable form. Such notices shall contain only the information required by law for recording and a description of Tenant's expansion and extension option. Tenant hereby irrevocably appoints Landlord as Tenant's attorney-in-fact (which appointment shall survive termination of the Term) with full power of substitution to execute, acknowledge and deliver a -27- notice of termination of lease on Tenant's name if Tenant fails to do so within 10 days after request therefor. 8.16 TENANT AS BUSINESS ENTITY ------------------------- If Tenant is a business entity, then the person or persons executing this Lease on behalf of Tenant jointly and severally warrant and represent in their corporate capacities that (a) Tenant is duly organized, validly existing and in good standing under the laws of the jurisdiction in which such entity was organized; (b) Tenant has the authority to own its property and to carry on its business as contemplated under this Lease; (c) Tenant is in compliance with all laws and orders of public authorities applicable to Tenant; (d) Tenant has duly executed and delivered this lease; (e) the execution, delivery and performance by Tenant of this Lease (i) are within the powers of Tenant, (ii) have been duly authorized by all requisite action, (iii) will not violate any provisions of law or any order of any court or agency of government, or any agreement or other instrument to which Tenant is a party or by which it or any of its property is bound, and (iv) will not result in the imposition of any lien or charge on any of Tenant's property, except by the provisions of this Lease; and (v) the Lease is a valid and binding obligation of Tenant in accordance with its terms. Tenant, if a business entity, agrees that breach of the foregoing warrant and representation shall at Landlord's election be a default under this Lease for which there shall be no cure. This warranty and representation shall survive the termination of the Term. 8.17 RELOCATION ---------- If the Premises contain 2,000 rentable square feet or less, Landlord reserves the right to relocate the Premises to comparable space within the Building by giving Tenant prior notice of such intention to relocate. If within one month after receipt of such notice Tenant has not agreed with Landlord on the space to which the Premises are to be relocated, the timing of such relocation and the terms of such relocation, then Landlord shall have the option either to withdraw its relocation notice or to terminate this Lease on a date which is at least 60 days after the date of the original notice (such date to take effect as though the Lease had then expired). If Landlord and Tenant do so agree on relocation, then, effective on the date of such relocation, this Lease shall be amended by deleting the description of the original Premises and the Rentable Floor Area of Premises set forth in Section 1.1 and substituting therefor information relating to such relocation space. Landlord agrees to pay the reasonable cost of moving Tenant to such other space and finishing such space to a condition comparable to the then condition of the Premises. 8.18 MISCELLANEOUS PROVISIONS ------------------------ -28- This Lease may be executed in counterparts and shall constitute the agreement of Landlord and Tenant whether or not their signatures appear in a single copy hereof. This Lease shall be construed as a sealed instrument and shall be governed exclusively by the provisions hereof and by the laws of The Commonwealth of Massachusetts as the same may from time to time exist. The titles are for convenience only and shall not be considered a part of the Lease. Where the phrases "persons acting under Tenant" or "persons claiming under Tenant" or similar phrases are sued, the persons including shall be all employees, agents, independent contractors and invitees of Tenant or of any Subtenant of Tenant. The enumeration of specific examples of or inclusions in a general provision shall not be construed as a limitation of the general provision. If Tenant is granted any extension option, expansion option or other right or option, the exercise of such right or option (and notice thereof) must be unconditional to be effective, time always being of the essence to the exercise of such right or option; and if Tenant purports to condition the exercise of any option or to vary its terms in any manner, then the option granted shall be void and the purported exercise shall be ineffective. Unless otherwise stated herein, any consent or approval required hereunder may be given or withheld in the sole absolute discretion of the party whose consent or approval is required. Nothing herein shall be construed as creating a relationship between Landlord and Tenant of principal and agent, or of partners or joint venturers or any relationship other than landlord and tenant. This Lease and all consents, notices, approvals and all other documents relating hereto may be reproduced by any party by photographic, microfilm, microfiche or other reproduction process and the originals thereof may be destroyed; and each party agrees that any reproductions shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not reproduction was made in the regular course of business) and that any further reproduction of such reproduction shall likewise be admissible in evidence. This Lease may be amended only by a writing signed by all of the parties hereto. ARTICLE IX LANDLORD'S LIABILITY AND ASSIGNMENT FOR FINANCING 9.1 LANDLORD'S LIABILITY -------------------- Tenant agrees from time to time to look only to Landlord's interest in the Land and Building for satisfaction of any claim against Landlord hereunder or under any other instrument related to the Lease (including any separate agreements among the parties and any notices or certificates delivered by Landlord) and not to any other property or assets of Landlord. If Landlord from time to time transfers its interest in the Land and Building (or part thereof which includes the Premises), then from and after each such transfer Tenant shall look solely to the interests in the -29- Land and Building of each of Landlord's transferees for the performance of all of the obligations of Landlord hereunder (or under any related instrument). The obligations of Landlord shall not be binding on any partners (or trustees or beneficiaries) of Landlord or of any successor, individually, but only upon Landlord's or such successor's interest described above. In no event shall Landlord ever be liable for any indirect or consequential damages. 9.2 ASSIGNMENT OF RENTS ------------------- If, at any time and from time to time, Landlord assigns this Lease or the rents payable hereunder to the holder of any mortgage on the Building, or to any other party for the purpose of securing financing (the holder of any such mortgage and any other such financing party are referred to herein as the "Financing Party"), whether such assignment is conditional in nature or otherwise, the following provisions shall apply: (i) Such assignment to the Financing Party shall not be deemed an assumption by the Financing Party of any obligations of Landlord hereunder unless such Financing Party shall, by written notice to Tenant, specifically otherwise elect; (ii) Except as provided in (i) above and (iii) below, the Financing Party shall be treated as having assumed Landlord's obligations hereunder (subject to Section 9.1) only upon foreclosure of its mortgage (or voluntary conveyance by deed in lieu thereof) and the taking of possession of the Premises from and after foreclosure and, with respect to obligations regarding return of the security deposit, only upon receipt of the funds constituting such security deposit; (iii) Subject to Section 9.1, the Financing Party shall be responsible for only such breaches under the Lease by Landlord which occur during the period of ownership by the Financing Party after such foreclosure (or voluntary conveyance by deed in lieu thereof) and taking of possession, as aforesaid; (iv) In the event Tenant alleges that Landlord is in default under any of Landlord's obligations under this Lease, Tenant agrees to give the holder of any mortgage, by registered mail, a copy of any notice of default which is served upon the Landlord, provided that prior to such notice, Tenant has been notified, in writing, (whether by way of notice of an assignment of lease, request to execute an estoppel letter, or otherwise) of the address of any such holder. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided by law or such additional time as may be provided in such notice to Landlord, such holder shall have sixty (60) days after the last date on which Landlord could have cured such default within which such holder will be permitted to cure such default. If such default cannot be cured within such sixty-day -30- period, then such holder shall have such additional time as may be necessary to cure such default, if within such sixty day period such holder has commenced and is diligently pursuing the remedies necessary to effect such cure (including, but not limited to, commencement of foreclosure proceedings, if necessary, to effect such cure), in which event Tenant shall have no right with respect to such default while such remedies are being diligently pursued by such holder. In all events, any liability of a Financing Party shall be limited to the interest of such Financing Party in the Land and Building, and in no event shall a Financing Party ever be liable for any indirect or consequential damages. Tenant hereby agrees to enter into such agreements or instruments as may, from time to time, be requested in confirmation of the foregoing. ARTICLE X SUBORDINATION AND NON-DISTURBANCE This Lease shall be subject and subordinate to any mortgages that may now or hereafter be placed upon the Building and/or the Land and to any and all advances to be made under such mortgages and to the interest thereon, and all renewals, extensions and consolidations thereof. Any mortgagee may elect to give this Lease priority to its mortgage, except that the Lease shall not have priority to (i) the prior rights to insurance proceeds and the disposition thereof under the mortgage; (ii) the prior rights to condemnation awards and the disposition thereof under the mortgage; and (iii) intervening liens. In the event of such election and upon notification by such mortgagee, this Lease shall be deemed prior in lien to the said mortgage. This Section shall be self- operative, but in confirmation thereof, Tenant shall execute and deliver whatever instruments may be required by the mortgagee (or mortgagees) to acknowledge such subordination or priority in recordable form, and if Tenant fails to do so within ten (10) days after demand, Tenant hereby irrevocably appoints Landlord as Tenant's attorney-in-fact, in its name, place and stead to do so. ARTICLE XI PARKING 11.1 GENERAL ------- Landlord agrees to provide free of charge an automobile parking area during the term of this Lease for the benefit and use of the customers and employees of Tenant, and other tenants and occupants of the Building. Wherever the words "automobile parking area" are used in this Lease, it is intended that the same shall include, whether in a surface parking area or a -31- parking structure, the automobile parking stalls, driveways, entrances, exits, sidewalks, landscaped areas, pedestrian passageways in conjunction therewith and other areas designated for parking. Landlord shall keep the automobile parking area neat, clean and in good repair, properly lighted and landscaped. Nothing contained herein shall be deemed to create liability upon Landlord for any damage to motor vehicles of customers or employees or from loss of property from within such motor vehicles, unless caused by the negligence of Landlord, its agents, servants and employees. Landlord shall have the right to establish and enforce against all users of the automobile parking area, such reasonable rules and regulations as may be deemed necessary and advisable for the proper and efficient operation and maintenance of the automobile parking area, including the hours during which the automobile parking area shall be open for use. Landlord may establish for the automobile parking area, a system or systems of charged validation or other operation including, but not limited to, a system of charges against nonvalidated parking checks of users. Tenant shall comply with such system, and all rules and regulations established by Landlord in conjunction with such system, and shall cause its customers and employees to comply therewith; provided, however, that such system and such rules and regulations shall apply equally and without discrimination to all persons entitled to the use of the automobile parking area. Landlord shall at all times during the term hereof have the sole and exclusive control of the automobile parking area, and may at any time during the term hereof exclude and restrain any person from use thereof; excepting, however, Tenant and its employees, bona fide customers, patrons and service suppliers of Tenant and other tenants of Landlord who make use of said area in accordance with any rules and regulations established by Landlord from time to time with respect thereto. Landlord shall also have the right to designate certain automobile parking areas as being for the exclusive use of one or more of the Tenants of Landlord. The rights of Tenant referred to in this Article shall at all times be subject to the rights of Landlord and the other tenants of Landlord to use the same in common with Tenant, and it shall be the duty of Tenant to keep all of said area free of any obstructions created or permitted by Tenant or resulting from Tenant's operations and to permit the use of any of said area only for normal parking and ingress and egress by said customers, patrons and service suppliers to and from the Building. Landlord shall at all times have the right and privilege of determining the nature and extent of the automobile parking area, whether the same shall be surface, underground or other structure, and of making such changes therein from time to time which in its opinion are deemed to be desirable and for the best interests of all persons using the automobile parking area. Landlord agrees that it will not reduce the size of the -32- automobile parking area during the Lease Term. 11.2 EMPLOYEE PARKING ---------------- It is understood and agreed that the employees of Tenant and the other tenants of Landlord within the Building shall not be permitted to park their automobiles in the portions of the automobile parking area which may from time to time be designated for patrons of the Building and that Landlord shall at all times have the right to establish rules and regulations for employee parking. 11.3 PATRON PARKING -------------- Landlord agrees to provide within the automobile parking area parking spaces for the patrons of Tenant and other tenants in the Building in sufficient number as from time to time Landlord shall deem appropriate. 11.4 OTHER PARKING USERS ------------------- Landlord may authorize persons other than those described above, including occupants of other buildings, to utilize said automobile parking area, provided that such use does not interfere with Tenant's needs. Executed to take effect as a sealed instrument. Middlesex Mutual Building Trust Landlord By:________________________________ Agent for the Trustees Credit Technologies, Inc. Tenant By:________________________________ -33- TENANT STANDARD BUILD OUT 404 WYMAN STREET Tenant Entries shall consist of 3'-0" x 7'-10" solid core oak veneer door in - -------------- solid oak frame with tempered glass sidelight 2'-2" x 7'-10". For tenants greater than 20,000 SF, Tenant Entries shall consist of one pair of 3'-0" x 7'- 10" solid core oak veneer doors in solid oak frames without sidelights. Hardware shall consist of mortise lever lockset, 2 pair butts, closer, silencers, floor stop, all satin stainless steel finish. Tenant Interior Doors shall be 3'-0" x 7'-10" solid core oak veneer. Door - --------------------- frames shall be hollow metal frames. Hardware shall consist of 1-1/2 pair butts, mortise lever handle hardware of which 20% locksets, 80% latchsets, silencers and floor stop. Provide one door and frame and hardware set per 25 linear feet of interior partitions. Tenant Interior Partitions (ceiling high) shall extend from floor slab to 6" - ----------------------------------------- above the ceiling, shall be braced to the structural slab above, and shall be constructed of 2 1/2 inch metal studs with one layer of 1/2 inch gypsum wallboard on each side. All partitions shall have 4 inch high resilient vinyl base on each side. Provide one linear foot of interior partition per 14 SF of usable area. Tenant Interior Partitions/Demising Walls (floor to structural deck above) shall - -------------------------------------------------------------------------- be constructed of 2 1/2 inch metal studs with two layers of 1/2 inch gypsum wallboard on one side, and one layer of 1/2 inch gypsum wallboard on the other side. All partitions shall have 4 inch high resilient vinyl base on each side. The vinyl base shall be selected from standard range of colors in the current Johnsonite catalog. Provide one linear foot of interior partition per 100 SF usable area. Suspended Acoustical Ceilings shall be "Celotex Celotone Mineral Fiber Natural - ----------------------------- Fissured Series Number MF-454, Product Code 42539", 24" x 24" x 3/4", with reveal edges, and white factory finish classified by U.L. Inc. for flame spread rating of 0-25 and labeled Class 25, Non-combustible, Fed. Spec. SS-S-118b, tested ASTM 84, 0.60.070 NRC. Panels shall be coded to clearly indicate direction of "mill-run". Suspension System shall be exposed grid "T" suspension system and suspension members shall be finished white. Ceiling height shall be 8'-6". Painting: All interior partitions shall receive two coats of semi-gloss latex - -------- paint. All doors and frames shall receive two coats of polyurethane. Carpet for all Tenant Areas: Carpet shall be Lees "Best Regards 11" installed - --------------------------- direct glue-down. Carpet shall be selected from -34- standard range of colors in the current catalog. Provide resilient base at both sides of interior partitions. Lighting: Provide one 2' x 4' parabolic fixture completely installed and - -------- connected for each 100 SF of tenant area. Single Pole Light Switches: Provide one for each 350 SF of tenant area. Cover - -------------------------- plates shall be stainless steel, No. 4 finish. Switches shall be white. Duplex Wall Receptacles: Provide one duplex wall receptacle for each 125 SF of - ----------------------- tenant area. Cover plates shall be stainless steel, No. 4 finish. Receptacles shall be white. Emergency Exit Lighting and Exit Signs: Provide exist lighting in tenant areas - -------------------------------------- as directed by Architect. Fire Alarm Equipment: Provide corridor smoke detectors and fire alarm speaker- - -------------------- lights as directed by architect. Sprinklers: Provide complete sprinkling of tenant areas in conformance with - ---------- code requirements, based on ordinary hazard occupancy. Sprinkler Heads: Fully concealed, white cover plate. Provide one head per 160 - --------------- SF of tenant area. Piping is sized to accommodate one head per 110 SF. Centering of heads in the ceiling tile shall be an additional expense. -35- HOBBS BROOK OFFICE PARK - CLEANING SPECIFICATIONS ------------------------------------------------- DAILY: - ----- 1. Sweep, dry mop, or vacuum all floor areas of resilient wood or carpet, remove any gum and tar matter which has adhered to the floor. 2. Clean all stairwells and stairs as required by type. 3. Damp mop all non-resilient floors such as concrete, terrazzo and ceramic tile. 4. Vacuum and spot clean all carpet areas. 5. Empty and damp wipe all ashtrays and waste baskets and remove all trash. Replace plastic liners as needed. 6. All glass entrance doors and interior glass doors and hardware are to be cleaned on both sides. 7. Dust all horizontal surfaces with treated dust cloth or feather duster, including furniture, files, equipment, blinds, oak trim, convector covers and louvers that can be reached without a ladder. 8. Brush all fabric covered chairs with a lint brush as needed. 9. Damp wipe all telephones, including dials and crevices as needed. 10. Spot wash to remove smudges, marks and fingerprints from such areas as walls, equipment, doors, partitions and light switches within reach. 11. Wash water fountains, chalkboards, cafeteria tables and chairs. 12. Clean and vacuum freight and passenger elevator cabs and landing doors including elevator door tracts. RESTROOMS: - --------- 13. Refill all soap, toilet, sanitary napkin and towel dispensers. Replace plastic liners and waxed bags in sanitary disposal units. 14. Damp mop floors and wash baseboards using detergent disinfectant. 15. Clean mirrors, soap dispensers, shelves, wash basins, exposed plumbing, dispenser and disposal container exteriors using detergent disinfectant and water. Damp wife all -1- ledges, toilet stalls and doors. Spot clean light switches, doors and walls. 16. Clean toilets and urinals with detergent disinfectant, beginning with seats and working down. Pour one ounce of bowl cleaner into urinal after cleaning and do not flush. ------------ WEEKLY: - ------ 1. Spot clean carpet stains. 2. Wash glass in display windows, building directory, entrance doors and frames and show windows, both sides. 3. Spot wash interior partition glass and door glass to remove smudge marks. MONTHLY: - ------- 1. Scrub and recondition resilient floor areas using buffable non-slip type floor finish (product to be approved by building management). 2. Dust all ceiling and wall air supply and exhaust diffusers or grills. 3. Wash all interior glass, both sides. QUARTERLY: - --------- 1. High dust all horizontal and vertical surfaces not reached in nightly cleaning such as: pipes, light fixtures, door frames, picture frames and other wall hangings. 2. Vacuum/dust all open book shelves. 3. Wash and polish vertical terrazzo or marble surfaces. 4. Damp wash diffusers, vents, grills and other such items, including surrounding wall or ceiling areas that are soiled. SEMI-ANNUALLY: - ------------- 1. Vacuum drapes, blinds, cornices and wall hangings. 2. Dust all storage areas, including shelves and contents such as: supply and stock closets and damp mop floor areas. 3. Strip and refinish all resilient floor areas using buffable non-slip floor finish (product will be approved by building management). -2- ANNUALLY: - -------- 1. Wash light fixtures, including reflectors, globes, diffusers and trim. 2. Wash walls in corridors, lounges, classrooms, demonstration areas, cafeterias and washrooms. 3. Clean all vertical surfaces not attended to in nightly, weekly, quarterly or semi-annual cleaning. -3- EX-11.1 8 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1 LIGHTBRIDGE, INC. COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
THREE MONTHS THREE MONTHS YEARS ENDED SEPTEMBER 30, ENDED DECEMBER 31, ENDED MARCH 31, ---------------------------------- ---------------------- ---------------------- 1993 1994 1995 1994 1995 1995 1996 --------- ---------- ----------- ---------- ---------- ---------- ---------- PRO-FORMA: Weighted Average Number of Common and Common Equivalent Shares Outstanding: Common Stock........... 6,515,474 6,514,896 6,516,264 6,514,863 6,588,392 Assumed Conversion of Preferred Stock....... 5,247,324 5,247,324 5,247,324 5,247,324 5,247,324 Common Equivalent Shares Resulting from stock options and warrants (treasury stock method)......... -- 480,753 499,313 -- 490,497 SAB 83 Shares (treasury stock method)......... 1,007,615 1,007,615 1,007,615 1,007,615 1,007,615 ----------- ---------- ---------- ---------- ---------- Total.................. 12,770,413 13,250,587 13,270,516 12,769,802 13,333,827 =========== ========== ========== ========== ========== Net Income Applicable to Common Stock....... $(2,432,914) $ 411,723 $ 72,205 $ (846,910) $ 22,891 =========== ========== ========== ========== ========== Pro-Forma Income per Common Share.......... $ (0.19) $ 0.03 $ 0.01 $ (0.07) $ 0.00 =========== ========== ========== ========== ========== PRIMARY: Weighted Average Number of Common and Common Equivalent Shares Outstanding: Common Stock........... 5,673,450 6,500,141 6,515,473 6,514,896 6,516,264 6,514,863 6,588,982 Common Equivalent Shares Resulting from stock options and warrants (treasury stock method)......... -- 397,081 -- 480,753 499,313 -- 490,497 SAB 83 Shares (treasury stock method)......... 1,007,615 1,007,615 1,007,615 1,007,615 1,007,615 1,007,615 1,007,615 --------- ---------- ----------- ---------- ---------- ---------- ---------- Total.................. 6,681,065 7,904,836 7,523,088 8,003,263 8,023,192 7,522,478 8,086,503 ========= ========== =========== ========== ========== ========== ========== Net Income (Loss)...... $(125,423) $ 950,272 $(2,432,914) $ 411,723 $ 72,205 $ (846,910) $ 22,891 Dividends Accreted on Preferred Stock....... (150,421) (182,544) (182,544) (45,635) (45,635) (45,635) (45,635) --------- ---------- ----------- ---------- ---------- ---------- ---------- Net Income (Loss) Applicable to Common Stock................. $(275,844) $ 767,728 $(2,615,458) $ 366,088 $ 26,570 $ (892,545) $ (22,744) ========= ========== =========== ========== ========== ========== ========== Primary Income per Com- mon Share............. $ (0.04) $ 0.10 $ (0.35) $ 0.05 $ 0.00 $ (0.12) $ (0.00) ========= ========== =========== ========== ========== ========== ========== FULLY DILUTED: Weighted Average Number of Common and Common Equivalent Shares Outstanding: Common Stock........... 5,673,450 6,500,141 6,515,473 6,514,896 6,516,264 6,514,863 6,588,392 Assumed Conversion of Preferred Stock....... 2,910,621 3,243,326 3,243,326 3,243,326 3,243,326 3,243,326 3,243,326 Common Equivalent Shares Resulting from stock options and warrants (treasury stock method)......... -- 464,201 -- 480,753 499,313 -- 490,497 SAB 83 Shares (treasury stock method)......... 1,007,615 1,007,615 1,007,615 1,007,615 1,007,615 1,007,615 1,007,615 --------- ---------- ----------- ---------- ---------- ---------- ---------- Total.................. 9,591,686 11,215,282 10,766,413 11,246,589 11,266,518 10,765,804 11,329,829 ========= ========== =========== ========== ========== ========== ========== Net Income Applicable to Common Stock....... $(125,423) $ 950,272 $(2,432,914) $ 411,723 $ 72,205 $ (846,910) $ 22,891 ========= ========== =========== ========== ========== ========== ========== Fully Diluted Income per Common Share...... $ (0.01) $ 0.08 $ (0.23) $ 0.04 $ 0.01 $ (0.08) $ 0.00 ========= ========== =========== ========== ========== ========== ==========
EX-23.1 9 CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The financial statements of Lightbridge, Inc. included elsewhere in this Registration Statement have been prepared to give effect to the completion of the two-for-one split of the Company's outstanding common stock (as described in Note 11) which is to take place on July 15, 1996. Subsequent to such date, we expect to be able to issue the following consent. "To the Board of Directors and Stockholders of Lightbridge, Inc.: We consent to the use in this Registration Statement of Lightbridge, Inc. on Form S-1 of our report dated April 22, 1996 (except for Note 11 as to which the date is July , 1996), appearing in this Prospectus, which is a part of this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. Boston, Massachusetts July , 1996" Deloitte & Touche llp Boston, Massachusetts June 21, 1996" EX-27 10 FINANCIAL DATA SCHEDULE
5 12-MOS 3-MOS 3-MOS SEP-30-1995 DEC-31-1995 DEC-31-1996 OCT-01-1994 OCT-01-1995 JAN-01-1996 SEP-30-1995 DEC-31-1995 MAR-31-1996 539,025 58,064 599,589 0 0 0 2,883,858 4,716,952 4,087,108 9,000 (2,000) (22,000) 0 0 0 3,572,454 4,917,310 4,990,437 9,739,723 9,949,028 10,284,432 4,419,891 (5,067,373) 5,768,868 10,214,283 11,041,481 10,611,359 6,851,967 6,884,705 6,934,079 0 0 0 3,130,983 3,176,618 3,222,253 0 0 0 65,078 65,822 65,827 (3,629,573) 3,600,927 (3,762,259) 10,214,283 11,041,481 10,611,359 19,350,467 6,512,050 6,314,336 19,350,467 6,512,050 6,314,336 12,607,879 3,484,175 3,634,509 20,957,507 6,124,475 6,031,950 0 7,923 0 0 20,000 0 863,568 307,111 255,886 (2,432,914) 74,602 32,349 0 2,397 9,458 (2,432,914) 0 0 0 0 0 0 0 0 0 0 0 (2,432,914) 72,205 22,891 (0.19) 0.01 0.00 (0.19) 0.01 0.00
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