-----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, LzXTX1OnOCnYtQbChOwUO/DBAW7z+yRgcRqRuKw/YAeTGN8gDuw/C7sNwAX0ceih blQTEUMU2WzzA1FLXp/1MQ== 0000927016-96-000946.txt : 19960828 0000927016-96-000946.hdr.sgml : 19960828 ACCESSION NUMBER: 0000927016-96-000946 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19960827 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIGHTBRIDGE INC CENTRAL INDEX KEY: 0001017172 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 043065140 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-06589 FILM NUMBER: 96621297 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/A 1 FORM S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1996 REGISTRATION NO. 333-6589 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- AMENDMENT NO. 2 TO 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 INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION) --------------- 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 BOSTON, 125 HIGH STREET 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 MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT 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....... 4,370,000 shares $10.00 $43,700,000 $15,069
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Includes 570,000 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. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +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 August 27, 1996 3,800,000 Shares [LIGHTBRIDGE LOGO APPEARS HERE] Common Stock ------------- Of the 3,800,000 shares of Common Stock offered hereby, 3,021,868 shares are being sold by Lightbridge, Inc. ("Lightbridge" or the "Company") and 778,132 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. The Common Stock has been 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 570,000 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
SAMS(TM) IRIS(TM) POPS(TM) -------- -------- -------- Laptop-based "virtual office" Self-service multimedia Windows-based qualification for the mobile wireless sales education, sales, activation and activation processing at professional. and vending system. the retail point-of-sale. [image of laptop computer] [image of vending kiosk] [image of retail transaction]
[Circular Image]--Text: Distributed Workflow Management Lightbridge's Transaction Management Backbone Security . Validation . Notification . Exception Handling . Data Management [Text to the Left of Circular Image]: ACQUISITION Applicant Screening .ProFile(R) Proprietary Intercarrier Fraud Database .Postalpro(TM) Address Verification & Correction .Fraud Detect(TM) Identification Information Verification .Insight(TM) Proprietary Existing Customer Database Credit Qualification .Credit Decision System(TM) (CDS) On-line Real-time Credit Decisions [Text to the Right of Circular Image]: WIRELESS INTELLIGENCE(TM) Decision Support & Data Warehouse Services .Channel Wizard(TM) Sales Channel Performance Analysis .Churn Prophet(TM) Data Mining for Churn Prediction TELESERVICES(TM) .Qualification & Activation Outsourcing .Telemarketing .Back-up & Disaster Recovery .Customer Care [Text and Graphics Below Circular Image]: BUSINESS INTEGRATION
Links to: Links to: Links to: Payment Systems Activation Systems Fulfillment Systems Processing of payments with Establishment of accounts & Delivery of product from credit card. [image of credit activation through carrier & carrier & third party cards] third party billing systems. distribution centers. [image [image of call in progress] of delivery center]
Fraud Detect is a trademark of TRANS UNION. 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 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 405,065 shares of Common Stock upon exercise of certain warrants, all upon the closing of this offering, (iii) gives effect to the repurchase by the Company of 200,000 shares of Common Stock from an existing stockholder on or before September 3, 1996 and the purchase by certain stockholders of the Company of an aggregate of 200,000 shares of Common Stock from an existing stockholder on or before September 3, 1996, (iv) 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 (v) 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 39 wireless telecommunication clients, including 8 of the 12 largest domestic cellular carriers (based on total population coverage) and the only 3 domestic carriers currently delivering PCS service. In the year ended September 30, 1995, approximately 94% 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................. 3,021,868 shares By the Selling Stockholders.... 778,132 shares Common Stock to be outstanding after the offering.............. 14,530,377 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 August 26, 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) 750,250 shares of Common Stock issuable upon the exercise of warrants at an exercise price of $2.00 per share and 100,000 shares of Common Stock issuable upon the exercise of a warrant at an exercise price equal to the initial public offering price set forth on the front cover page hereof. 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." Also gives effect to the repurchase of an additional 200,000 shares of Common Stock by the Company upon the closing of this offering using a portion of the net proceeds. See "Use of Proceeds" and "Certain Transactions--Settlement Agreement and Related Matters." 4 SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
TWELVE THREE MONTHS SIX MONTHS MONTHS ENDED ENDED YEARS ENDED SEPTEMBER 30, ENDED DECEMBER 31, JUNE 30, ---------------------------------------- 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 $9,003 $13,263 Income (loss) from operations............ (1,125) (623) 130 1,207 (1,607) (1,806) 586 387 (1,331) 692 Net income (loss)...... (1,202) (753) (125) 950 (2,433) (2,773) 412 72 (1,736) 303 Pro forma net income (loss) per common share(2).............. $ (0.19) $ 0.01 $ 0.02 Pro forma weighted average number of common and common equivalent shares outstanding(2)........ 12,614 13,115 13,747
JUNE 30, 1996 --------------------------- AS ACTUAL ADJUSTED(2)(3) ------- -------------- BALANCE SHEET DATA: Cash and cash equivalents.......................... $ 3,532 $25,344 Working capital.................................... 2,420 25,845 Total assets....................................... 14,555 36,367 Long-term obligations, less current portion........ 2,694 2,581 Redeemable preferred stock......................... 9,226 -- Stockholders' equity (deficiency).................. (4,153) 28,611
- -------- (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. The Company has never declared or paid any cash dividends on its Common Stock. (3) Adjusted to reflect the sale of 3,021,868 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, the application of the net proceeds thereof and the payment by the Company of cash to purchase Common Stock from and settle certain obligations with an existing stockholder subsequent to June 30, 1996. 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 Limited Number of 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. One of these clients, which uses the call center support solutions provided by the Company's Teleservices Group and accounted for 10% of the Company's revenues in the year ended September 30, 1995, has notified the Company of its intent to terminate its agreements with the Company, effective in the fourth calendar quarter of 1996. During 1996, another of these clients, which accounted for 31% of the Company's revenues in the fiscal year ended September 30, 1995, is changing the way it accesses the Company's Customer Acquisition System, from using the call center support solutions provided by the Teleservices Group to using on-line access. As a result, the Company expects the revenues from this client to decrease significantly during 1996 and 1997. The Company believes that the termination of these agreements by one client, and the change in the services used by another client, will not have a material adverse effect on its business, financial condition, results of operations or cash flow. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview." The concentration of the Company's revenues 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 its significant 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, could 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." Fluctuations in Quarterly Performance May Adversely Affect Market Price of Common Stock. 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 6 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. During the three months ended June 30, 1996, the Company's revenues from customized software integration services resulted primarily from projects undertaken for one client, which projects the Company currently expects will continue at least through the end of 1996. 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. 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 June 30, 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 7 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 Requires Ongoing Product Development Efforts. 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 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." Risks Associated with Managing a Changing Business. 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. With the exception of Ms. Reeve, none of the Company's 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 8 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." 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." Highly Competitive Industry. 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 9 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. 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 10 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 Software, Inc. under a license agreement that will expire in December 2000 and licenses software from Trans Union Corporation under a one-year renewable agreement. 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." Risks Associated with 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, 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." Limited Protection of Proprietary Technology; Risk of Third Party Claims. 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 11 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 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 and 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, financial condition, results of operations 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 12 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. Control by Existing Stockholders May Discourage Change of Control. After the sale of the shares of Common Stock offered hereby and the application of the net proceeds thereof, the Company's executive officers, directors and 5% stockholders will own beneficially an aggregate of 9,957,488 shares or approximately 62.2% of the outstanding shares of Common Stock. As a result, these stockholders, if 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 into the public market following this offering could adversely affect the prevailing market price of the Common Stock and the Company's ability to raise capital in the future. Upon completion of this offering, the Company will have a total of 14,530,377 shares of Common Stock outstanding, of which the 3,800,000 shares offered hereby will be freely tradable without restriction under the Securities Act of 1933, as amended (the "Securities Act") by persons other than "affiliates" of the Company, as defined under the Securities Act. The remaining 10,730,377 shares of Common Stock outstanding are "restricted securities" as that term is defined by Rule 144 and Rule 701 as promulgated under the Securities Act (the "Restricted Shares"). Of the 10,730,377 Restricted Shares, 8,572,487 shares may be sold under Rule 144, subject in some cases to certain volume restrictions and other conditions imposed thereby. An additional 95,390 shares will become eligible for sale 90 days after completion of the offering pursuant to Rules 144 and 701. The remaining 2,062,500 shares will be eligible for sale upon the expiration of their respective two-year holding periods subject to the conditions of Rule 144, such holding periods to expire on April 3, 1998 for 2,000,000 shares and on June 30, 1998 for 62,500 shares. 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 permit earlier resale of shares of Common Stock currently subject to holding periods under Rule 144. No assurance can be given concerning whether or when the proposal will be adopted by the Commission. Furthermore, all of the 10,730,377 Restricted Shares 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 the lock-up agreements, 8,667,877 of the 10,730,377 Restricted Shares may be sold pursuant to Rules 144 or 701, subject in some cases to certain volume restrictions imposed thereby. 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 3,393,786 shares of Common Stock issued or issuable under its stock option plans and 100,000 shares of Common Stock issuable under its employee stock purchase plan. Of the 2,615,800 shares issuable under its option plans, 1,615,800 shares were subject to outstanding options as of August 26, 1996, of which 770,555 options were 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. 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 13 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." Benefits of the Offering to Current Stockholders. The completion of the offering made by this Prospectus will provide significant benefits to the current stockholders of the Company, including certain of its directors and officers. The Company will not receive any of the proceeds from the sale of shares by the Selling Stockholders. In addition, the Company intends to use approximately $927,000 of the net proceeds of this offering to repurchase shares of Common Stock from, and repay indebtedness outstanding under promissory notes held by, a greater-than-5% stockholder of the Company. See "Use of Proceeds" and "Certain Transactions." The completion of this offering will also create a public market for the Common Stock and thereby is expected to increase the market value of the investment by current stockholders in the Company. Upon the closing of this offering, assuming an 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), the difference between the aggregate purchase price paid or payable by the Company's current securityholders for shares of Common Stock held by them or subject to options or warrants held by them and the aggregate market value of such shares will be approximately $127 million. See "Dilution." 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 Charter requires 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. The Restated By-Laws 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 a majority of the Board of Directors. 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 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." Immediate and Future 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 3,021,868 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 $24,443,035, after deducting the estimated underwriting discounts and commissions and offering expenses payable by the Company. 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 August 26, 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 August 26, 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 $440,000 of the net proceeds of this offering to repurchase an aggregate of 200,000 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 $487,000 of the net proceeds of this offering to repay indebtedness outstanding under two 8% promissory notes issued in partial payment of the exercise prices of options to acquire 400,000 shares of Common Stock. One promissory note was issued in April 1996 and matures in two equal installments in April 1997 and 1998. The other promissory note is to be issued on or before September 3, 1996 and will mature in two equal installments on the first and second anniversaries of the date of issuance. 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. See "Risk Factors--Management's Discretion as to Use of Unallocated Net Proceeds" and "--Risks Associated with Potential Acquisitions." 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 June 30, 1996 (i) on an actual basis and (ii) as adjusted to reflect the issuance and sale by the Company of 3,021,868 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 payment of cash to purchase Common Stock from and settle certain obligations with an existing stockholder subsequent to June 30, 1996 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.
JUNE 30, 1996 ------------------- AS ACTUAL ADJUSTED ---------- -------- (IN THOUSANDS) Total long-term obligations, less current portion.......... $ 2,694 $ 2,581 ------- ------- Redeemable convertible preferred stock and stockholders' equity: Redeemable convertible preferred stock, $.01 par value; 2,475,516 shares authorized, 2,451,305 shares issued and outstanding, actual; no shares authorized, issued and outstanding, as adjusted................................. 9,226 -- Preferred stock, $.01 par value; no shares authorized, issued or outstanding, actual; 5,000,000 shares authorized, no shares issued and outstanding, as adjusted................................................. -- -- Common stock, $.01 par value; 20,000,000 shares authorized and 6,256,120 shares outstanding, actual; 60,000,000 shares authorized and 14,530,377 shares outstanding, as adjusted(1).............................................. 67 153 Additional paid-in capital................................. 75 33,658 Warrants................................................... 375 375 Notes receivable, stockholders............................. (13) (13) Accumulated deficit........................................ (3,951) (4,026) Less treasury stock, at cost; 401,148 shares, actual; 801,148 shares, as adjusted............................... (706) (1,536) ------- ------- Total redeemable convertible preferred stock and stockholders' equity..................................... 5,073 28,611 ------- ------- Total capitalization.................................... $ 7,767 $31,192 ======= =======
- -------- (1) Excludes (i) 1,615,800 shares of Common Stock issuable upon exercise of stock options outstanding as of June 30, 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, (iv) 750,250 shares of Common Stock issuable upon exercise of warrants outstanding as of June 30, 1996 and (v) 100,000 shares of Common Stock issuable upon the exercise a warrant granted to an existing stockholder on August 26, 1996. See "Management--Benefit Plans," "Certain Transactions--Settlement Agreement and Related Matters" and Notes 7 and 12 to Notes to Financial Statements. 16 DILUTION The pro forma net tangible book value of the Company as of June 30, 1996 was $4,344,000, or $0.38 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 conversion of all outstanding shares of Convertible Preferred Stock into Common Stock (which will occur upon the closing of this offering). After giving effect to the sale of 3,021,868 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), the Company's repurchase of 400,000 shares of Common Stock for an aggregate purchase price of $830,000, the payment of $75,000 to a stockholder and 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 June 30, 1996 would have been $30,693,000, or $2.11 per share. This represents an immediate increase in pro forma net tangible book value of $1.73 per share to existing stockholders and an immediate dilution of $7.89 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 June 30, 1996... $0.38 Increase per share attributable to new investors............... 1.73 ----- Pro forma as adjusted net tangible book value per share after offering...................................................... 2.11 ------ Dilution per share to new investors............................ $ 7.89 ======
The following table summarizes, on a pro forma as adjusted basis as of June 30, 1996, the number of shares of Common Stock purchased from the Company (after giving effect to 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)... 11,904,592 79.8% $ 9,346,000 23.6% $ 0.79 New investors(1)........... 3,021,868 20.2 30,218,680 76.4 10.00 ---------- ----- ----------- ----- Total.................... 14,926,460 100.0% $39,564,680 100.0% ========== ===== =========== =====
- -------- (1) Sales by the Selling Stockholders in this offering will reduce the number of shares held by existing stockholders to 11,126,460 or approximately 74.5% (10,556,460 shares or approximately 70.7% if the Underwriters' over- allotment option is exercised in full) and will increase the number of shares held by new investors to 3,800,000 or approximately 25.5% (4,370,000 shares or approximately 29.3% 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 or warrants since June 30, 1996 or the repurchases of Common Stock by the Company and assumes no exercise of any currently outstanding options or warrants. As of June 30, 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 750,250 shares of Common Stock at an exercise price of $2.00 (excluding certain warrants to be exercised as of the closing of this offering). In addition, on August 26, 1996, the Company issued a warrant to purchase 100,000 shares of Common Stock at the initial public offering price set forth on the front cover page hereof to an existing stockholder. 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, and six months ended June 30, 1995 and June 30, 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 six months ended June 30, 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 SIX MONTHS MONTHS ENDED ENDED YEARS ENDED SEPTEMBER 30, ENDED DEC. 31, JUNE 30, ----------------------------------------- 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 $9,003 $13,263 Cost of revenues........ 824 1,703 3,554 7,415 12,607 13,075 3,016 3,484 6,232 7,511 ------- ------ ------ ------- ------- ------- ------ ------ ------- ------- Gross profit............ 350 1,285 3,432 5,983 6,743 7,272 2,499 3,028 2,771 5,752 ------- ------ ------ ------- ------- ------- ------ ------ ------- ------- Operating expenses: Development............ 614 790 1,164 2,317 3,864 4,159 850 1,145 1,863 1,971 Sales and marketing.... 214 241 829 815 1,902 2,264 433 795 938 1,917 General and administra- tive.................. 647 877 1,309 1,644 2,584 2,655 630 701 1,301 1,172 ------- ------ ------ ------- ------- ------- ------ ------ ------- ------- Total operating ex- penses................. 1,475 1,908 3,302 4,776 8,350 9,078 1,913 2,641 4,102 5,060 ------- ------ ------ ------- ------- ------- ------ ------ ------- ------- Income (loss) from oper- ations................. (1,125) (623) 130 1,207 (1,607) (1,806) 586 387 (1,331) 692 Other income (ex- pense)(2).............. (77) (130) (255) (234) (826) (965) (174) (313) (405) (370) ------- ------ ------ ------- ------- ------- ------ ------ ------- ------- Income (loss) before in- come taxes............. (1,202) (753) (125) 973 (2,433) (2,771) 412 74 (1,736) 322 Provision for income taxes.................. -- -- -- (23) -- (2) -- (2) -- (19) ------- ------ ------ ------- ------- ------- ------ ------ ------- ------- Net income (loss)....... $(1,202) $ (753) $ (125) $ 950 $(2,433) $(2,773) $ 412 $ 72 $(1,736) $ 303 ======= ====== ====== ======= ======= ======= ====== ====== ======= ======= Pro forma net income (loss) per common share(3)............... $ (0.19) $ 0.01 $ 0.02 Pro forma weighted aver- age number of common and common equivalent shares outstanding(3).. 12,614 13,115 13,747
SEPTEMBER 30, ------------------------------------------- DEC. 31, JUNE 30, 1991 1992 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equiva- lents.................. $ 44 $ 182 $ 192 $ 1,832 $ 539 $ 58 $ 3,532 Working capital (defi- ciency)................ (818) (1,030) (292) 1,715 (3,280) (1,967) 2,420 Total assets............ 1,095 2,390 3,396 9,181 10,214 11,041 14,555 Long-term obligations, less current portion... 172 624 554 4,197 3,796 4,515 2,694 Redeemable convertible preferred stock........ 1,009 2,198 2,933 2,948 3,131 3,177 9,226 Stockholders' deficien- cy..................... (1,420) (2,292) (2,132) (1,093) (3,564) (3,535) (4,153)
- -------- (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 conversion of all outstanding shares of Convertible Preferred Stock into 5,247,324 shares of Common Stock upon the closing of this offering. The Company has never declared or paid any cash dividends on its Common Stock. 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 19.7% of total revenues in the three months ended December 31, 1995 and the six months ended June 30, 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, each of the Company's four largest clients, and for the six months ended June 30, 1996, each of the Company's three largest clients, accounted for more than 10% of the Company's total revenues, representing an aggregate of 64%, 63%, 61% and 50% 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. One of the Company's clients, which accounted for 10% and 11% of the Company's revenues in the year ended September 30, 1995 and the six months ended June 30, 1996, respectively, has notified the Company of its intent to terminate its agreements with the Company, effective in the fourth calendar quarter of 1996. During 1996, another of these clients, which accounted for 31% and 19% of the Company's revenues in the fiscal year ended September 30, 1995 and the six months ended June 30, 1996, respectively, is changing the way it accesses the Company's Customer Acquisition System. Both of these clients historically used the call center support solutions provided by the Company's Teleservices Group. The continuing customer is switching to on-line access to the Customer Acquisition System. As a result, the Company expects the revenues from this client to decrease significantly during 1996 and 1997. The Company currently believes that the loss of revenues from these clients will be mitigated by increased revenues from existing clients and revenues from new clients. Further, the cost of processing transactions through the Teleservices Group typically involves personnel costs associated with staffing the Company's call center, which are not required for on-line transaction processing. Thus, the Company currently expects that its variable cost of revenues associated with processing transactions will decrease as a result of the termination of the agreements with one client and the change in services used by the other client. As a result, the Company currently believes that the termination of these agreements by one client, and the change in services used by the other client, will not have a material adverse effect on its business, financial condition, results of operations or cash flow. See "Risk Factors-- Dependence on Limited Number of Clients." 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. Royalties totalling $6,000 were paid as of June 30, 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 SIX MONTHS ENDED -------------------- ------------------- YEAR ENDED SEPTEMBER 30, DECEMBER 31, JUNE 30, ----------------------------- -------------------- ------------------- 1993 1994 1995 1994 1995 1995 1996 -------- -------- -------- --------- --------- -------- -------- Revenues: Transaction........... 94.0% 96.3% 95.1% 96.6% 93.0% 96% 80.3% Software and other.... 6.0 3.7 4.9 3.4 7.0 4.0 19.7 -------- -------- -------- --------- --------- -------- -------- 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 69.2 56.6 -------- -------- -------- --------- --------- -------- -------- Gross profit............ 49.1 44.7 34.8 45.3 46.5 30.8 43.4 -------- -------- -------- --------- --------- -------- -------- Operating expenses: Development........... 16.7 17.3 20.0 15.4 17.6 20.7 14.9 Sales and marketing... 11.9 6.1 9.8 7.9 12.2 10.4 14.5 General and adminis- trative.............. 18.7 12.3 13.3 11.4 10.8 14.5 8.8 -------- -------- -------- --------- --------- -------- -------- Total operating ex- penses............. 47.3 35.7 43.1 34.7 40.6 45.6 38.2 -------- -------- -------- --------- --------- -------- -------- Income (loss) from oper- ations................. 1.8 9.0 (8.3) 10.6 5.9 (14.8) 5.2 Other income (expense), net.................... (3.6) (1.7) (4.3) (3.1) (4.8) (4.5) (2.8) -------- -------- -------- --------- --------- -------- -------- Income (loss) before in- come taxes............. (1.8) 7.3 (12.6) 7.5 1.1 (19.3) 2.4 Provision for income taxes.................. -- (0.2) -- -- -- -- (0.1) -------- -------- -------- --------- --------- -------- -------- Net income (loss)....... (1.8)% 7.1% (12.6)% 7.5% 1.1% (19.3)% 2.3% ======== ======== ======== ========= ========= ======== ========
Six Months Ended June 30, 1996 Compared with Six Months Ended June 30, 1995 Revenues. Total revenues increased by 47% to $13.3 million in the six months ended June 30, 1996 from $9.0 million in the six months ended June 30, 1995. Transaction revenues increased by 23% to $10.7 million in the six months ended June 30, 1996 from $8.6 million in the six months ended June 30, 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 621% to $2.6 million in the six months ended June 30, 1996 from $0.4 million in the six months ended June 30, 1995 principally as a result of the increase in revenues attributable to customized software integration services provided to both existing and new clients and inclusion in the 1996 period of revenues from the Company's Channel Solutions products and services. The increase in revenues from customized software integration services in the 1996 period resulted primarily from projects undertaken for one client, which projects the Company currently expects will continue at least through the end of 1996. 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 21% to $7.5 million in the six months ended June 30, 1996 from $6.2 million in the six months ended June 30, 1995, while decreasing as a percentage of total revenues to 57% from 69%. 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 21 higher percentage of revenues from customized software integration services and software licenses and increased utilization of the Company's operating and networking systems. 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 5.8% to $2.0 million in the six months ended June 30, 1996 from $1.9 million in the six months ended June 30, 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 customized software integration services, as well as 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 six months ended June 30, 1996 and capitalized $524,000 of internally developed software development costs during the six months ended June 30, 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, Business Integration 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 104% to $1.9 million in the six months ended June 30, 1996 from $0.9 million in the six months ended June 30, 1995, and increased as a percentage of total revenues to 14% from 10%. 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 10% to $1.2 million in the six months ended June 30, 1996 from $1.3 million in the six months ended June 30, 1995, and decreased as a percentage of total revenues to 9% from 14%. The decrease in general and administrative expenses was due principally to a decrease in legal costs associated with litigation (see "Certain Transactions--Settlement Agreement and Related Matters") as well as reduced general and administrative headcount. Other Income (Expense) Net. Other income (expense) decreased by 9% to $370,000 in the six months ended June 30, 1996 from $405,000 in the six months ended June 30, 1995. Other income (expense) 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 decreased by 1% to $416,000 in the six months ended June 30, 1996 from $421,000 in the six months ended June 30, 1995. Interest income, which historically had not been significant, increased to $44,000 in the six months ended June 30, 1996 from $15,000 in the six months ended June 30, 1995 as a result of the investment of the proceeds from the issuance of Series D Convertible Preferred Stock in April 1996. 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 six months ended June 30, 1996. The Company incurred a net loss for the three months ended June 30, 1995 and did not record a benefit for income tax for the period. 22 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 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 j1994. 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 23 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 1995 in its computing platform, as well as in increased networking and systems capacity. The increase in cost of revenues as a percentage of total revenues reflected continued investment in the Company's service delivery infrastructure. 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. 24 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 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 eight quarters ended June 30, 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 -------------------------------------------------------------------------- SEPT. 30 DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, 1994 1994 1995 1995 1995 1995 1996 1996 -------- -------- --------- -------- --------- -------- --------- -------- (IN THOUSANDS) RESULTS OF OPERATIONS Revenues: Transaction........... $3,815 $5,326 $4,215 $4,426 $ 4,435 $6,054 $5,284 $5,369 Software and other.... 164 189 237 125 397 458 1,030 1,580 ------ ------ ------ ------ ------- ------ ------ ------ 3,979 5,515 4,452 4,551 4,832 6,512 6,314 6,949 Cost of revenues........ 2,589 3,016 3,125 3,107 3,360 3,484 3,634 3,877 ------ ------ ------ ------ ------- ------ ------ ------ Gross profit............ 1,390 2,499 1,327 1,444 1,472 3,028 2,680 3,072 ------ ------ ------ ------ ------- ------ ------ ------ Operating expenses: Development........... 756 850 929 934 1,151 1,145 953 1,018 Sales and marketing... 212 433 477 462 530 795 896 1,021 General and adminis- trative.............. 340 630 566 735 653 701 549 623 ------ ------ ------ ------ ------- ------ ------ ------ Total operating ex- penses............. 1,308 1,913 1,972 2,131 2,334 2,641 2,398 2,662 ------ ------ ------ ------ ------- ------ ------ ------ Income (loss) from oper- ations................. 82 586 (645) (687) (862) 387 282 410 Other income (expense), net.................... (99) (174) (202) (203) (247) (313) (250) (120) ------ ------ ------ ------ ------- ------ ------ ------ Income (loss) before in- come taxes............. (17) 412 (847) (890) (1,109) 74 32 290 Provision for income taxes.................. -- -- -- -- -- (2) (9) (10) ------ ------ ------ ------ ------- ------ ------ ------ Net income (loss)....... $ (17) $ 412 $ (847) $ (890) $(1,109) $ 72 $ 23 $ 280 ====== ====== ====== ====== ======= ====== ====== ======
25
THREE MONTHS ENDED ---------------------------------------------------------------------------- SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, 1994 1994 1995 1995 1995 1995 1996 1996 --------- -------- --------- -------- --------- -------- --------- -------- AS A PERCENTAGE OF TOTAL REVENUES Revenues: Transaction........... 95.9% 96.6% 94.7% 97.3% 91.8% 93.0% 83.7% 77.3% Software and other.... 4.1 3.4 5.3 2.7 8.2 7.0 16.3 22.7 ----- ----- ----- ----- ----- ----- ----- ----- 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Cost of revenues........ 65.1 54.7 70.2 68.2 69.5 53.5 57.5 55.8 ----- ----- ----- ----- ----- ----- ----- ----- Gross profit............ 34.9 45.3 29.8 31.8 30.5 46.5 42.5 44.2 ----- ----- ----- ----- ----- ----- ----- ----- Operating expenses: Development........... 19.0 15.4 20.9 20.5 23.8 17.6 15.1 14.6 Sales and marketing... 5.3 7.9 10.7 10.2 11.0 12.2 14.2 14.7 General and adminis- trative.............. 8.5 11.4 12.7 16.2 13.5 10.8 8.7 9.0 ----- ----- ----- ----- ----- ----- ----- ----- Total operating ex- penses............. 32.8 34.7 44.3 46.9 48.3 40.6 38.0 38.3 ----- ----- ----- ----- ----- ----- ----- ----- Income (loss) from oper- ations................. 2.1 10.6 (14.5) (15.1) (17.8) 5.9 4.5 5.9 Other income (expense), net.................... (2.5) (3.1) (4.5) (4.4) (5.1) (4.8) (4.0) (1.8) ----- ----- ----- ----- ----- ----- ----- ----- Income (loss) before in- come taxes............. (0.4) 7.5 (19.0) (19.5) (22.9) 1.1 0.5 4.1 Provision for income taxes.................. -- -- -- -- -- -- (0.1) (0.1) ----- ----- ----- ----- ----- ----- ----- ----- Net income (loss)....... (0.4)% 7.5% (19.0)% (19.5)% (22.9)% 1.1% 0.4% 4.0% ===== ===== ===== ===== ===== ===== ===== =====
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. One of the Company's clients, which uses the call center support solutions provided by the Company's Teleservices Group and accounted for 10% of the Company's revenues in the year ended September 30, 1995, has notified the Company of its intent to terminate its agreements with the Company, effective in the fourth calendar quarter of 1996. During 1996, another of these clients, which accounted for 31% of the Company's revenues in the fiscal year ended September 30, 1995, is changing the way it accesses the Customer Acquisition System from using the call center support solutions provided by the Teleservices Group to on-line access. As a result, the Company expects the revenues from this client to decrease significantly during 1996 and 1997. See "--Overview." 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. During the three months ended June 30, 1996, the Company's revenues from customized software integration services resulted primarily from projects undertaken for one client, which projects the Company currently expects will continue at least through the end of 1996. 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." 26 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. 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, the three months ended December 31, 1995 and the six months ended June 30, 1996 was $0.4 million, $0.5 million, $1.1 million, $(0.3) million and $0.8 million, respectively. The Company's capital expenditures in the years ended September 30, 1993, 1994 and 1995, the three months ended December 31, 1995 and the six months ended June 30, 1996 aggregated $1.0 million, $3.6 million, $3.7 million, $0.3 million and $1.0 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 six months of 1996 will be approximately $2.0 million. The Company has a $4.0 million working capital line of credit and a $2.0 million equipment line of credit with Silicon Valley Bank (the "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% (8.50% at June 30, 1996) and advances under the equipment line of credit bear interest at the Bank's prime rate plus .75% (9.0% at June 30, 1996). At June 30, 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. After giving effect to an amendment to the bank agreement dated August 8, 1996, the Company was in compliance with the required financial covenants and ratios as of June 30, 1996. Further, the Company believes that the August 8, 1996 amendment will permit the Company to remain in compliance with the required financial covenants and ratios throughout the term of the bank agreement. The working capital line of credit expires in June 1997, and the equipment line of credit expires in June 1999. As of June 30, 1996, an aggregate of $2.1 million in principal amount was outstanding under unsecured subordinated notes issued by the Company to a greater-than-5% stockholder and a director, acting as custodian for a minor child. See "Certain Transactions--Other." The principal of these notes is due in quarterly installments from September 30, 1997 through June 30, 2001. Prepayment of the notes is subject to a premium, currently 6% of the principal amount prepaid. The notes accrue interest at an annual rate of 8% which is payable quarterly. The Company's agreement with the holders of the notes includes certain covenants that, among other things, prohibit the declaration or payment of dividends and require the Company to maintain certain financial ratios. 27 As of June 30, 1996, the Company had cash and cash equivalents of $3.5 million and working capital of $2.4 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. 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 39 wireless telecommunication clients, including 8 of the 12 largest domestic cellular carriers (based on total population coverage) and the only 3 domestic carriers currently delivering personal communications systems ("PCS") service. In the year ended September 30, 1995, approximately 94% 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 Services 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 POPS terminal Box 2: CAS validates application for completeness & 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 IF 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 in switch Box 6: Confirmation sent to agent with customer name, mobile number & 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 June 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 under agreement 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 through Lightbridge 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 substantially 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. As of August 26, 1996, the TeleServices Group included a total of 176 full- time and part-time employees, which number fluctuates with the number of transactions processed. 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 CAS COMM, a library of software functions for the remote host that enables third-party systems to connect to CAS. CAS COMM is an application layer protocol that gives CAS the appearance of a local process 36 to the third-party system. CAS COMM runs on DEC VMS, Microsoft Windows NT and certain Unix platforms and supports both TCP/IP and DECnet. To date, the Business Integration Group has implemented more than 35 such interfaces, of which 13 use CAS COMM. 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 39 wireless telecommunication clients, including 8 of the 12 largest domestic cellular carriers (based on total population coverage) and the only 3 domestic carriers currently delivering PCS service. In the year ended September 30, 1995, approximately 94% 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. Powertel, Inc. GTE Mobile Communications Service Cor- Sprint Spectrum L.P. poration Palmer Wireless, Inc. Western Wireless Corporation Southwestern Bell Mobile Systems, Inc.
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. During 1996, GTE Mobile is changing the way it accesses the Company's Customer Acquisition System from using the call center support solutions provided by the Teleservices Group to using on-line access. As a result, the Company expects the revenues from GTE Mobile to decrease significantly during 1996 and 1997. Ameritech has notified the Company of its intent to terminate its agreements with the Company, effective in the fourth calendar quarter of 1996. See "Risk Factors--Dependence on Certain Clients," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview" 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 Mobile as of June 30 of any year upon 60 days' prior notice. In addition, if the Company fails to meet certain performance criteria, GTE Mobile 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 (an affiliate of Sprint Spectrum L.P.) in Washington, D.C., Western Wireless Corporation in Hawaii and certain Western states and BellSouth Mobility DCS, Inc. in certain Southeastern states. These three 38 corporations are the only three 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." 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 8 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--Six Months Ended June 30, 1996 Compared with Six Months Ended June 30, 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 August 26, 1996, Lightbridge had 50 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. 39 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. 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. 40 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 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 41 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. EMPLOYEES As of August 26, 1996, the Company had a total of 313 full-time and part- time employees. Of these employees, 50 were employed in software and product development, 49 in sales and marketing, client services and account management, 15 in operations, 23 in finance and administration and 176 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 August 26, 1996 are as follows:
NAME AGE POSITION ---------------------- --- --------------------------------------- Pamela D.A. Reeve President, Chief Executive Officer and 47 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 Non-Qualified 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 have 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........... 274,500/195,500 $2,710,020/$1,897,180 Richard H. Antell........... 42,500/7,500 $ 421,600/$ 74,400 William G. Brown............ 69,500/10,500 $ 691,245/$ 104,055 Douglas E. Blackwell........ --/40,000 $ --/$ 380,000 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 Non-Qualified Stock Option Plan (the "1996 Plan"), which was approved 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 August 26, 1996, options to purchase an aggregate of 1,615,800 shares of Common Stock having a weighted average exercise price of $1.80 per share were outstanding under the 1990 Plan and options for 777,986 shares had been exercised under the 1990 Plan. 46 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 ("Non-Qualified 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. Non-Qualified 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 Non-Qualified 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 Non-Qualified 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 Non-Qualified 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 Non-Qualified 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 Non-Qualified Option will be equal to the fair market value of the Common Stock on the date the Non-Qualified 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 was approved 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 the following formula: (i) up to 6% (as determined by the employee) of the employee's base pay on such date divided by 85% of the market value of one share of Common Stock on the first day of the offering period multiplied by (ii) two. 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 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 47 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. EMPLOYMENT AGREEMENT In August 1996 the Company executed an employment agreement with Pamela D.A. Reeve. The Company agreed to employ Ms. Reeve as President and Chief Executive Officer of the Company at an annual salary of $165,000. The employment agreement is terminable at will by either party, but if Ms. Reeve's employment is terminated by the Company for any reason, other than death or disability, within one year after a change of control of the Company or if the Company terminates Ms. Reeve's employment at any time without cause, the Company is required to continue to pay Ms. Reeve's salary for a period of twelve months after such termination, offset by any amounts received by Ms. Reeve from subsequent employment during such period. 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 record 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, which had shared the costs of the litigation with the Company, 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 Partnerships 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. At the same time, in consideration of the agreement of the Entrepreneurial Partnerships described above regarding the form of the proceeds to be received by the Company 48 from the settlement of the litigation against Mr. Boyle, the Company reimbursed the Entrepreneurial Partnerships for a portion of the legal fees and expenses incurred by them in connection with the litigation in an aggregate amount of $260,000. The Company expects to repurchase an additional 200,000 shares of Common Stock from Mr. Boyle at a price of $1.95 per share on or before September 3, 1996, pursuant to options granted by Mr. Boyle that will expire on that day. The Company expects to pay $130,000 of the exercise price in cash and the remaining $260,000 by delivering an 8% promissory note payable to Mr. Boyle. On August 26, 1996 the Company and Mr. Boyle entered into a letter agreement pursuant to which Mr. Boyle, his wife and a corporation controlled by Mr. Boyle agreed to offer hereby an aggregate of 778,132 shares of Common Stock representing all of the shares of Common Stock owned by them not subject to the options held by the Company and the Entrepreneurial Partnerships described above. The Company has agreed to indemnify Mr. Boyle, his wife and the corporation against certain liabilities, including liabilities under the Securities Act, arising in connection with this offering. The letter agreement also provides that the Company will, upon the closing of this offering, exercise all of its remaining options to purchase Common Stock from Mr. Boyle and repay the promissory notes issued to Mr. Boyle in connection with the exercise of such options. See "Use of Proceeds." Pursuant to the terms of the letter agreement, the Company also paid Mr. Boyle the sum of $75,000, issued to a trust for the benefit of Mr. Boyle's children a three-year warrant to purchase 100,000 shares of Common Stock at the initial public offering price set forth on the front cover page hereof, and granted incidental ("piggyback") registration rights with respect to such shares. See "Description of Capital Stock--Warrants" and "Shares Eligible for Future Sale--Registration Rights." The letter agreement also provided for the Company, Mr. Boyle, the Entrepreneurial Partnerships and certain other parties to re-affirm and ratify the mutual release executed by them under the terms of the Settlement Agreement. 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 believes that the terms of the license and maintenance agreements were no less favorable than those available to it from unaffiliated third parties. 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. The warrants, all of which remain outstanding on the date of this Prospectus, expire in June 2001. See "Principal and Selling Stockholders" and "Description of Capital Stock--Warrants." 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 August 26, 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 39.8% -- 4,582,384 31.1% Entrepreneurial Limited Partnership I Entrepreneurial Limited Partnership II Entrepreneurial Limited Partnership III Entrepreneurial Limited 3,439,524 29.9 -- 3,439,524 23.3 Partnership IV(4)...... c/o The Harder Group 281 Winter Street Waltham, Massachusetts 02154 Advent International Investors II Limited Partnership Advent Partners Limited Partnership Global Private Equity II 2,000,000 17.7 -- 2,000,000 13.8 Limited Partnership(5). 101 Federal Street Boston, Massachusetts 02110 Brian E. Boyle(6)....... 1,558,132 13.7 778,132 580,000 4.0 31 Hallett Hill Road Weston, Massachusetts 02193 Massachusetts Capital 1,477,156 12.5 -- 1,477,156 9.8 Resource Company(7).... 420 Boylston Street Boston, Massachusetts 02116 Pamela D.A. Reeve(8).... 764,614 6.6 -- 764,614 5.1 D. Quinn Mills(9)....... 581,640 5.1 -- 581,640 4.0 Michael A. Perfit(10)... 337,694 3.0 -- 337,694 2.3 William G. Brown(11).... 95,000 * -- 95,000 * Richard H. Antell(12)... 76,000 * -- 76,000 * Douglas E. Blackwell(13).......... 43,000 * -- 43,000 * Andrew I. Fillat(14).... 5,500 * -- 5,500 * Douglas A. Kingsley(15). 5,500 * -- 5,500 * All directors and executive officers as a group (9 persons)(16)........ 6,491,332 53.8 -- 6,491,332 42.4
- -------- * 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 August 26, 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) 6,256,120 shares of Common Stock outstanding as of August 26, 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 3,021,868 shares of Common Stock being offered for sale by the Company in this offering, includes 405,065 shares of Common Stock expected to be issued in connection with the exercise of certain warrants to purchase shares of the Common Stock and excludes 200,000 shares to be repurchased by the Company upon the closing of the offering. 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. If the underwriters' over- allotment option is exercised in full, the number and percent of shares to be owned beneficially after the offering by Mr. Harder will be 4,239,757 and 28.8%, respectively. See Note 4. (4) Consists of 1,470,240 shares held by Entrepreneurial Limited Partnership I, 848,356 shares held by Entrepreneurial Limited Partnership II, 100,000 shares held by Entrepreneurial Limited Partnership III and 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 200,000 shares purchasable upon exercise of call options held by the Partnerships. The general partner of Entrepreneurial Limited Partnership I is Entrepreneurial Ventures, Inc., of which Mr. Harder is the majority stockholder, president and a director. The general partners of Entrepreneurial Limited Partnerhip II and Entrepreneurial Limited Partnership III are Mr. Harder and Entrepreneurial Ventures, Inc. The general partners of Entrepreneurial Limited Partnership IV are Mr. Harder and Entrepreneurial, Inc., of which Mr. Harder is the majority stockholder, president and a director. As a result of the foregoing relationships, Mr. Harder may be deemed to be the beneficial owner of the shares held by the Partnerships. If the underwriters' over-allotment option is exercised in full, the Partnerships will sell 342,627 shares of Common Stock and the number and percent of shares to be owned beneficially after the offering by the Partnerships will be 3,096,897 and 21.0%, respectively. (5) 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. Advent International Corporation is the general partner of Advent International Investors II Limited Partnership, Advent Partners Limited Partnership and Advent International Limited Partnership, which the general partner of Global Private Equity II Limited Partnership. Because Advent International Corporation is controlled by a group of 4 persons, none of whom may act independently and a majority of whom must act in concert to exercise voting or intestment power over the holdings of such entity, individually, no individual in this group is deemed to share such voting or investment power. (6) Includes 50,000 shares held directly and indirectly by the spouse of Mr. Boyle, 280,000 shares owned by a trust for the benefit of Mr. Boyle's children, 100,000 shares purchasable upon exercise of a warrant held by such trust and 50,000 shares held by Boyle Corp, of which Mr. Boyle is the President. Also includes an aggregate of 400,000 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." Shares to be Beneficially Owned After Offering gives effect to the repurchase by the Company of 200,000 shares pursuant to the exercise of such call options upon the closing of the offering. Number of Shares Being Offered consists of 678,132 shares being offered by Mr. Boyle, 50,000 shares being offered by the spouse of Mr. Boyle and 50,000 shares being offered by Boyle Corp. (7) Includes 500,000 shares currently purchasable upon exercise of a warrant. William J. Torpey, Jr. is the president, and Joan C. McArdle is the vice president, of Massachusetts Capital Resource Company, and as a result of these relationships Mr. Torpey and Ms. McArdle may be deemed to be the beneficial owners of 51 the shares held by Massachusetts Capital Resource Company. If the underwriters' over-allotment option is exercised in full, Massachusetts Capital Resource Company will sell 167,198 shares of Common Stock and the number and percent of shares to be owned beneficially after the offering by MCRC will be 1,309,958 and 8.7%, respectively. (8) Includes 362,000 shares subject to stock options exercisable within 60 days of August 26, 1996. Ms. Reeve is the President and Chief Executive Officer and a director of the Company. (9) 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. If the underwriters' over- allotment option is exercised in full, Dr. Mills will sell 60,175 shares of Common Stock and the number and percent of shares to be owned beneficially after the offering by Dr. Mills will be 521,465 and 3.6%, respectively. (10) 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. (11) Includes 45,500 shares subject to stock options exercisable within 60 days of August 26, 1996. Mr. Brown is the Chief Financial Officer, Vice President of Finance and Administration and Treasurer of the Company. (12) Consists of 76,000 shares subject to stock options exercisable within 60 days of August 26, 1996. Mr. Antell is the Vice President of Software Development of the Company. (13) Consists of 43,000 shares subject to stock options exercisable within 60 days of August 26, 1996. Mr. Blackwell is the Vice President of Service Delivery of the Company. (14) Consists of shares held by Advent Partners Limited Partnership. Mr. Fillat holds a limited partnership interest in Advent Partners Limited Partnership representing beneficial ownership of the shares listed in the table. Mr. Fillat is a director of the Company. (15) Consists of shares held by Advent Partners Limited Partnership. Mr. Kingsley holds a limited partnership interest in Advent Partners Limited Partnership representing beneficial ownership of the shares listed in the table. Mr. Kingsley is a director of the Company. (16) Represents shares described in Notes 3, 8, 9, 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 August 26, 1996 there were outstanding 6,256,120 shares of Common Stock held by 28 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 August 26, 1996, it is currently expected that, immediately after the closing of this offering, 14,530,377 shares of Common Stock will be outstanding, together with options to acquire 1,615,800 additional shares and warrants to purchase 850,250 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 850,250 shares of Common Stock, subject to certain antidilution adjustments. The Warrants to purchase 750,250 shares have an exercise price of $2.00 per share and the Warrants to purchase 100,000 shares have an exercise price equal to the initial public offering price. All of the Warrants are exercisable in full. The Warrants expire on dates between September 1999 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 Charter provides 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 American Stock Transfer & Trust Company. 55 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have 14,530,377 shares of Common Stock outstanding (including 5,247,324 shares of Common Stock issuable upon conversion of all outstanding shares of Preferred Stock and assuming no exercise of options or warrants outstanding as of the date of this Prospectus, other than a warrant to be automatically exercised for 405,065 shares). Of these shares, the 3,800,000 shares to be sold in this offering will be freely tradable 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 promulgated under the Securities Act. SALES OF RESTRICTED SHARES The remaining 10,730,377 shares are "restricted securities" as defined by Rules 144 or 701 (the "Restricted Shares"). Restricted securities may be sold in the public market only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 under the Securities Act. All 10,730,377 Restricted Shares are subject to the lock-up agreements described below. Upon the expiration of the lock-up agreements, 8,667,877 of the 10,730,377 shares may be sold pursuant to Rules 144 or 701, subject in some cases to certain volume restrictions imposed thereby. Subject to Rules 144, 144(k) and 701 and to the lock-up agreements, additional shares will be available for sale in the public market as follows: (i) 8,572,487 shares will be eligible for resale in the public market immediately following the completion of this offering, subject in some cases to certain volume restrictions and other conditions pursuant to Rules 144 and 144(k); (ii) 95,390 shares will become eligible for sale during the 90 days following the date of this Prospectus pursuant to Rules 144 and 701; and (iii) 2,062,500 shares will be eligible for sale upon expiration of their respective two-year holding periods, subject to the restrictions and conditions of Rule 144, such holding periods to expire on April 3, 1998 for 2,000,000 shares and on June 30, 1998 for 62,500 shares. 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 145,300 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 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 615,020 shares of Common Stock were fully vested as of August 26, 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 1990 Plan, the 1996 Plan 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. 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." 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 10,730,377 shares of Common Stock, options to purchase 1,615,800 shares of Common Stock and warrants to purchase 850,250 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. Pursuant to a Registration Rights Agreement dated August 26, 1996, the Company has granted incidental registration rights with respect to 100,000 shares of Common Stock issuable upon exercise of an outstanding warrant. The holder of such shares may request that all or a portion of such shares be included in a registration statement (other than a registration statement on 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 such holder 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.......................................................... 3,800,000 =========
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 570,000 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 3,800,000 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. In addition, in a separate agreement, the Company has agreed to indemnify certain of the Selling Stockholders against certain liabilities, including liabilities under the Securities 58 Act, and to contribute to payments such Selling Stockholders may be required to make in respect thereof. See "Certain Transactions--Settlement Agreement and Related Matters." 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 June 30, 1996 (Unaudited)................................................ F-3 Statements of Operations for the Years Ended September 30, 1993, 1994 and 1995, the Three Months Ended December 31, 1994 (Unaudited), December 31, 1995, and the Six Months Ended June 30, 1995 (Unaudited) and June 30, 1996 (Unaudited)......................................................... F-4 Statements of Stockholders' Deficiency for the Years Ended September 30, 1993, 1994 and 1995, the Three Months Ended December 31, 1995, and the Six Months Ended June 30, 1996 (Unaudited)............................... F-5 Statements of Cash Flows for the Years Ended September 30, 1993, 1994 and 1995, the Three Months Ended December 31, 1994 (Unaudited), December 31, 1995, and the Six Months Ended June 30, 1995 (Unaudited) and June 30, 1996 (Unaudited)......................................................... F-6 Notes to Financial Statements............................................. F-7
F-1 INDEPENDENT AUDITORS' REPORT 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. Deloitte & Touche LLP Boston, Massachusetts April 22, 1996 (Except for Notes 4 and 11 as to which the dates are August 8, 1996 and July 15, 1996, respectively) F-2 LIGHTBRIDGE, INC. BALANCE SHEETS
SEPTEMBER 30, JUNE 30, PRO FORMA ------------------------ DECEMBER 31, 1996 JUNE 30, 1996 1994 1995 1995 (UNAUDITED) (UNAUDITED) ----------- ----------- ------------ ----------- ------------- ASSETS Current assets: Cash and cash equivalents........... $ 1,831,916 $ 539,025 $ 58,064 $ 3,532,294 Accounts receivable.... 2,676,451 2,753,758 4,578,143 5,270,830 Accounts receivable from related parties.. 107,231 121,100 136,809 93,877 Other current assets... 223,885 158,571 144,294 310,956 ----------- ----------- ----------- ----------- Total current assets............. 4,839,483 3,572,454 4,917,310 9,207,957 Noncurrent receivable from related party..... 45,638 -- -- -- Fixed assets--net....... 4,101,292 5,319,832 4,881,655 4,089,622 Capitalized software development costs--net. -- 896,141 762,084 574,810 Deposits................ 167,963 206,620 225,807 229,024 Other assets............ 26,241 219,236 254,625 453,245 ----------- ----------- ----------- ----------- Total assets........ $ 9,180,617 $10,214,283 $11,041,481 $14,554,658 =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable and accrued expenses...... $ 1,305,254 $ 2,304,595 $ 3,025,038 $ 2,178,554 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 2,017,970 Deferred revenues...... 58,333 228,650 74,800 808,781 Dividends payable on preferred stock....... 166,876 166,876 166,876 166,876 Related parties: Accounts payable...... 784 -- -- -- Subordinated notes payable.............. -- 69,071 -- 113,333 Interest payable...... 99,670 39,035 44,096 2,000 Current portion of obligations under capital leases....... 61,952 -- -- -- ----------- ----------- ----------- ----------- Total current liabilities........ 3,124,450 6,851,967 6,884,705 6,787,514 Deferred revenues-- related parties........ 2,781 -- -- -- Obligations under capital leases......... 2,355,733 1,916,609 1,502,128 683,069 Notes payable: Unaffiliated parties... 1,754,018 1,789,643 2,848,837 1,807,156 Related parties........ 87,701 89,576 164,298 203,848 ----------- ----------- ----------- ----------- Total liabilities... 7,324,683 10,647,795 11,399,968 9,481,587 ----------- ----------- ----------- ----------- 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 $9,393,164 at September 30, 1994 and 1995 and December 31, 1995 and June 30, 1996, respectively).......... 2,948,439 3,130,983 3,176,618 9,226,288 $ -- ----------- ----------- ----------- ----------- ----------- Stockholders' equity (deficiency): Common stock, $.01 par value; 20,000,000 shares authorized; 6,498,232, 6,500,748, 6,575,098 and 6,657,268 shares issued; 6,657,268, 6,499,600, 6,573,950 and 6,256,120 shares outstanding at September 30, 1994 and 1995, December 31, 1995 and June 30, 1996, respectively.... 64,982 65,007 65,751 66,573 123,096 Additional paid-in capital............... 100,003 -- -- 75,316 9,245,081 Warrants............... 262,500 406,375 406,375 375,125 375,125 Note receivable, stockholder........... (13,085) (13,085) (13,085) (13,085) (13,085) Accumulated deficit.... (1,506,905) (4,022,218) (3,993,572) (3,951,072) (4,026,072) ----------- ----------- ----------- ----------- ----------- Total............... (1,092,505) (3,563,921) (3,534,531) (3,447,143) 5,704,145 Less treasury stock, at cost.................. -- (574) (574) (706,074) (1,536,074) ----------- ----------- ----------- ----------- ----------- Total stockholders' equity (deficiency)....... (1,092,505) (3,564,495) (3,535,105) (4,153,217) $ 4,168,071 ----------- ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity (deficiency)....... $ 9,180,617 $10,214,283 $11,041,481 $14,554,658 =========== =========== =========== ===========
See notes to financial statements. F-3 LIGHTBRIDGE, INC. STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED YEARS ENDED SEPTEMBER 30, DECEMBER 31, JUNE 30, ------------------------------------ ----------------------- ------------------------ 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, $29,240 and $3,125, respectively).. $6,985,912 $13,397,863 $19,350,467 $5,514,643 $6,512,050 $ 9,003,012 $13,263,057 Cost of revenues 3,553,577 7,415,356 12,607,879 3,015,687 3,484,175 6,231,663 7,511,529 ---------- ----------- ----------- ---------- ---------- ----------- ----------- Gross profit............ 3,432,335 5,982,507 6,742,588 2,498,956 3,027,875 2,771,349 5,751,528 ---------- ----------- ----------- ---------- ---------- ----------- ----------- Operating expenses: Development............ 1,164,469 2,317,454 3,864,000 849,705 1,144,973 1,862,712 1,970,735 Sales and marketing.... 829,004 814,891 1,901,716 433,509 794,687 937,869 1,916,694 General and administrative........ 1,309,049 1,643,496 2,583,912 629,841 700,640 1,301,226 1,172,095 ---------- ----------- ----------- ---------- ---------- ----------- ----------- Total operating expenses............ 3,302,522 4,775,841 8,349,628 1,913,055 2,640,300 4,101,807 5,059,524 ---------- ----------- ----------- ---------- ---------- ----------- ----------- Income (loss) from operations............. 129,813 1,206,666 (1,607,040) 585,901 387,575 (1,330,458) 692,004 Other income (expense): Interest income: Related parties........ 11,788 12,604 8,688 2,633 1,551 4,937 3,182 Other.................. 4,328 9,384 29,006 9,120 510 10,362 41,071 Interest expense: Related parties........ (125,600) (20,753) (3,908) (53,201) (60,586) (102,750) (166,172) Other.................. (124,704) (224,927) (859,660) (131,800) (246,525) (317,933) (249,371) Other nonoperating expense............... (21,048) (9,802) -- (930) (7,920) -- 1,286 ---------- ----------- ----------- ---------- ---------- ----------- ----------- Income (loss) before provision for income taxes.................. (125,423) 973,172 (2,432,914) 411,723 74,605 (1,735,842) 322,000 Provision for income taxes.................. -- 22,900 -- -- 2,400 -- 19,500 ---------- ----------- ----------- ---------- ---------- ----------- ----------- Net income (loss)....... $ (125,423) $ 950,272 $(2,432,914) $ 411,723 $ 72,205 $(1,735,842) $ 302,500 ========== =========== =========== ========== ========== =========== =========== Pro forma net income (loss) per common share.................. $ (0.19) $ 0.01 $ 0.02 =========== ========== =========== Pro forma weighted average number of common and common equivalent shares outstanding............ 12,614,495 13,114,599 13,746,830 =========== ========== ===========
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.................. 5,274,938 $52,749 -- $ -- $ -- $ -- $(13,085) $(2,331,754) $(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.................. 6,412,132 64,121 -- -- 274,284 -- (13,085) (2,457,177) (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.................. 6,498,232 64,982 -- -- 100,003 262,500 (13,085) (1,506,905) (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.................. 6,500,748 65,007 1,148 (574) -- 406,375 (13,085) (4,022,218) (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.................. 6,575,098 65,751 1,148 (574) -- 406,375 (13,085) (3,993,572) (3,535,105) Unaudited: Issuance of common stock for cash....... 82,170 822 -- -- 135,336 -- -- -- 136,158 Exercise of common stock warrant........ -- -- -- -- 31,250 (31,250) -- -- -- Repurchase of common stock for cash....... -- -- 400,000 (705,500) -- -- -- -- (705,500) Dividends on redeemable convertible preferred stock................ -- -- -- -- (91,270) -- -- -- (91,270) Expenses paid on behalf of stockholder.......... -- -- -- -- -- -- -- (260,000) (260,000) Net income............ -- -- -- -- -- -- -- 302,500 302,500 --------- ------- ------- --------- --------- -------- -------- ----------- ----------- Balance, June 30, 1996 (unaudited)........... 6,657,268 $66,573 401,148 $(706,074) $ 75,316 $375,125 $(13,085) $(3,951,072) $(4,153,217) ========= ======= ======= ========= ========= ======== ======== =========== ===========
See notes to financial statements. F-5 LIGHTBRIDGE, INC. STATEMENTS OF CASH FLOWS
THREE MONTHS SIX MONTHS YEARS ENDED ENDED ENDED SEPTEMBER 30, DECEMBER 31, JUNE 30, ----------------------------------- ------------------------ ----------------------- 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 $(1,735,842) $ 302,500 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 1,447,268 1,665,679 Amortization of discount on notes..... -- 4,219 76,500 9,375 87,853 18,750 35,534 Changes in assets and liabilities: Accounts receivable... (847,786) (1,278,988) (77,307) (1,474,071) (1,840,094) 1,556,256 (649,755) Other assets.......... (54,475) (269,299) (173,594) (227,752) (30,014) (59,240) (388,860) Accounts payable and accrued liabilities.. 274,697 341,878 935,172 610,339 725,504 (40,187) (888,580) Deferred revenues..... 297,752 (254,721) 167,536 655,094 (153,850) (246,567) 733,981 --------- ----------- ----------- ----------- ----------- ----------- ---------- Net cash provided by (used in) operating activities......... 413,730 493,418 1,063,160 540,674 (274,204) 940,438 810,499 --------- ----------- ----------- ----------- ----------- ----------- ---------- Cash flows used in investing activities: Purchases of fixed assets................ (309,868) (339,223) (1,391,679) (359,874) (184,186) (960,360) (463,646) Capitalization of software costs........ -- -- (980,453) (310,652) -- (523,983) -- --------- ----------- ----------- ----------- ----------- ----------- ---------- Net cash used in investing activities......... (309,868) (339,223) (2,372,132) (670,526) (184,186) (1,484,343) (463,646) --------- ----------- ----------- ----------- ----------- ----------- ---------- 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) -- -- -- -- (1,151,000) Payments under capital lease obligations..... (412,988) (823,085) (1,884,512) (410,045) (525,391) (965,366) (1,077,348) Proceeds from issuance of common stock....... 25,480 9,124 167 -- 2,820 167 136,158 Payments toward the purchase of treasury stock................. -- -- (574) -- -- (574) (478,833) Expenses paid on behalf of stockholder........ -- -- -- -- -- -- (260,000) Proceeds from issuance of mandatory redeemable convertible preferred stock, net.. 584,228 -- -- -- -- -- 5,958,400 --------- ----------- ----------- ----------- ----------- ----------- ---------- Net cash provided by (used in) financing activities......... (94,280) 1,486,039 16,081 (410,045) (22,571) (215,773) 3,127,377 --------- ----------- ----------- ----------- ----------- ----------- ---------- Net increase (decrease) in cash and cash equivalents............ 9,582 1,640,234 (1,292,891) (539,897) (480,961) (759,678) 3,474,230 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 $ 532,341 $3,532,294 ========= =========== =========== =========== =========== =========== ========== Cash paid for interest.. $ 152,292 $ 283,272 $ 904,605 $ 251,372 $ 176,271 $ 418,730 $ 495,875 ========= =========== =========== =========== =========== =========== ========== Cash paid for income taxes.................. $ -- $ 5,300 $ 25,000 $ 25,000 $ 15,700 $ 9,650 $ 31,100 ========= =========== =========== =========== =========== =========== ==========
See notes to financial statements. F-6 LIGHTBRIDGE, INC. NOTES TO FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED DECEMBER 31, 1994, AND THE SIX MONTHS ENDED JUNE 30, 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 Basis of Presentation--As discussed in Note 6, the redeemable convertible preferred stock will be automatically converted upon the closing of the public offering contemplated by this prospectus. The accompanying pro forma balance sheet gives effect to this conversion as if it had occurred on June 30, 1996. In addition, the pro forma balance sheet gives effect as of June 30, 1996 to (i) the exercise of warrants to purchase 457,288 shares of common stock (to be accomplished through the surrender of 52,223 shares of common stock), (ii) the exercise of the Company's option to repurchase 400,000 shares of common stock, as described in Note 5, and (iii) the payment of $75,000 to an existing stockholder (see Note 11). 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 six months ended June 30, 1996 during which these items comprised approximately 20% 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, the three months ended December 31, 1994 and 1995, and the six months ended June 30, 1995 and 1996 are as follows:
PERCENT OF REVENUE --------------------------------------------------- THREE SIX MONTHS ENDED MONTHS ENDED YEARS ENDED --------------- --------------- SEPTEMBER 30, DECEMBER 31, JUNE 30, ---------------- --------------- --------------- CUSTOMER 1993 1994 1995 1994 1995 1995 1996 -------- ---- ---- ---- ------ ------ ------ ------ A....................... 20% 32% 31% 32% 22% 33% 19% B....................... 14 12 11 -- 18 12 20 C....................... -- 10 -- -- -- -- -- D....................... -- 10 11 12 10 10 -- E....................... -- -- 10 11 11 11 11 --- --- --- ------ ------ ------ ------ 34% 64% 63% 55% 61% 66% 50% === === === ====== ====== ====== ======
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 $406,000 at September 30, 1995, December 31, 1995 and June 30, 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 SIX MONTHS YEARS ENDED ENDED ENDED SEPTEMBER 30, DECEMBER 31, JUNE 30, ------------------------------ ------------------- ----------------- 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 $379,013 $202,364 ======== ========== ========== ========== ======== ======== ======== Exchange of notes and interest payable for common stock.......... $410,597 ========
In April 1996, the Company reacquired 200,000 shares of its common stock from a former director. This repurchase was partially financed through the issuance of an 8% note payable in the amount of $226,667. 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. For purposes of applying the Bulletin, the Company has assumed an initial public offering price of $9 per share. 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 SIX MONTHS YEARS ENDED ENDED ENDED SEPTEMBER 30, DECEMBER 31, JUNE 30, --------------------------------- -------------------- ---------------------- 1993 1994 1995 1994 1995 1995 1996 --------- --------- ----------- --------- --------- ----------- --------- Net income (loss)....... $(125,423) $ 950,272 $(2,432,914) $ 411,723 $ 72,205 $(1,735,842) $ 302,500 Accretion of preferred dividends.............. (150,421) (182,544) (182,544) (45,635) (45,635) (91,270) (91,270) --------- --------- ----------- --------- --------- ----------- --------- Net income (loss) available for common stock.................. $(275,844) $ 767,728 $(2,615,458) $ 366,088 $ 26,570 $(1,827,112) $ 211,230 ========= ========= =========== ========= ========= =========== ========= Net income (loss) per common share........... $ (0.04) $ 0.10 $ (0.36) $ 0.05 $ -- $ (0.25) $ 0.02 Weighted average number of common and common equivalent shares outstanding............ 6,525,147 7,748,919 7,367,171 7,847,346 7,867,275 7,367,066 8,499,506
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 the six-month periods ended June 30, 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, JUNE 30, 1994 1995 1995 1996 ----------- ----------- ------------ ----------- Furniture and fixtures.. $ 18,704 $ 118,408 $ 117,876 $ 129,567 Leasehold improvements.. 319,828 877,778 867,726 876,321 Computer equipment...... 528,784 1,115,014 1,161,052 1,453,901 Computer equipment under capital leases......... 4,858,573 6,942,977 6,972,938 7,133,488 Computer software....... 353,550 685,546 829,436 978,339 ----------- ----------- ----------- ----------- 6,079,439 9,739,723 9,949,028 10,571,616 Less accumulated depre- ciation and amortization....... (1,978,147) (4,419,891) (5,067,373) (6,481,994) ----------- ----------- ----------- ----------- Fixed assets--net....... $ 4,101,292 $ 5,319,832 $ 4,881,655 $ 4,089,622 =========== =========== =========== ===========
Accumulated amortization of equipment under capital leases was $1,242,725, $3,155,114, $3,606,915 and $4,659,098 at September 30, 1994 and 1995, December 31, 1995 and June 30 , 1996, respectively. 4. NOTES PAYABLE The carrying value of notes payable consisted of the following:
SEPTEMBER 30, 1994 SEPTEMBER 30, 1995 DECEMBER 31, 1995 JUNE 30, 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 90,514 1,807,156 16% subordinated notes.. -- -- 69,071 976,992 74,253 1,050,288 -- -- 8% note payable- settlement shares...... -- -- -- -- -- -- 226,667 -- ------- ---------- -------- ---------- -------- ---------- -------- ---------- Total................... 87,701 2,004,018 158,647 3,766,635 164,298 4,348,837 317,181 3,307,156 Less current portion.... -- 250,000 69,071 1,976,992 -- 1,500,000 113,333 1,500,000 ------- ---------- -------- ---------- -------- ---------- -------- ---------- Long-term portion....... $87,701 $1,754,018 $ 89,576 $1,789,643 $164,298 $2,848,837 $203,848 $1,807,156 ======= ========== ======== ========== ======== ========== ======== ==========
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 and March 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 agreements 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 and June 1996, respectively. 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. After giving effect to an amendment to the Amended Bank Agreement dated August 8, 1996, the Company was in compliance with the required financial covenants and ratios as of June 30, 1996. Further, the Company believes that the August 8, 1996 amendment will permit the Company to remain in compliance with the required financial covenants and ratios throughout the term of the Amended Bank Agreement. 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 F-11 LIGHTBRIDGE, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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 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, $814,910 and $741,747 for the years ended September 30, 1993, 1994 and 1995, for the three months ended December 31, 1995, and for the six months ended June 30, 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 (see Note 11). 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 share during the first, second and final share allotments, respectively. In the event F-12 LIGHTBRIDGE, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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%. Such amount was repaid in June 1996. 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: . Series A; 630,516 shares authorized, issued and outstanding . Series B; 620,000 shares authorized, issued and outstanding . Series C; 225,000 shares authorized, 200,789 shares issued and outstanding In April 1996, 1,000,000 shares of Series D Preferred Stock were issued, of which all remained outstanding at June 30, 1996. There were no changes in the number of outstanding shares of Series A, B and C Preferred Stock during the six-month period ended June 30, 1996. Changes in redeemable convertible preferred stock were as follows:
SERIES A SERIES B SERIES C SERIES D 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 Stock issued, net of issu- ance costs of $41,600 ... -- -- -- 5,958,400 5,958,400 Dividends accreted........ 30,488 38,052 22,730 -- 91,270 ---------- ---------- -------- ---------- ---------- Balances, June 30, 1996... $1,252,853 $1,337,911 $677,124 $5,958,400 $9,226,288 ========== ========== ======== ========== ==========
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 and Series D 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, Series C and Series D 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 D Preferred Stock began accruing dividends at the rate of 8% per annum beginning on April 2, 1996. Prior to the issuance of the Series D Preferred Stock, the Series A, Series B and Series C Preferred Stock dividends were payable in cash for fiscal years in which the Company has net income in excess of $500,000 and would accrue in all other years. Accrued dividends outstanding for any year were payable in cash in subsequent years to the extent net income 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. Since the issuance of the Series D Preferred Stock, the Series A, Series B and Series C Preferred Stock dividends are payable in cash or by subordinated promissory note for fiscal years in which the Company has net income of $1,000,000 or more, to the extent of the lesser of 20% of net income in excess of $1,000,000 or all dividends then payable. 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--Prior to the issuance of the Series D Preferred Stock, the Series A and Series B Preferred Stock had a mandatory redemption date of December 31, 1997 and the Series C Preferred Stock had a mandatory redemption date of December 31, 1999. Since the issuance of the Series D Preferred Stock, holders of two-thirds of all shares of Serial Preferred Stock may, commencing on April 1, 2000 and on the same date in each following year, require the Company to redeem 1/3 of their shares. 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 14,000,000 to 20,000,000 shares, of which 2,000,000 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 SIX MONTHS ENDED ENDED ------------ ----------- YEARS ENDED SEPTEMBER 30, --------------------- DECEMBER 31, JUNE 30, 1994 1995 1995 1996 --------- ---------- ------------ ----------- Outstanding, beginning of period....................... 991,184 716,100 1,013,700 1,072,700 Granted: Options................... 200,000 321,700 233,500 625,800 Range of exercise prices in dollars per share..... $ 0.375 $ .50-.75 $ 0.75 $ 0.75-8.50 Exercised................... (86,100) (2,516) (74,350) (19,670) Cancelled................... (388,984) (21,584) (100,150) (63,030) --------- ---------- ---------- ----------- Outstanding, end of period.... 716,100 1,013,700 1,072,700 1,615,800 ========= ========== ========== =========== Options exercisable........... 426,832 561,915 ========== =========== Aggregate option price........ $ 55,724 $ 238,024 ========== ===========
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 $ -- $2,400 State............................ -- 89,156 -- -- Deferred: Federal.......................... -- (278,341) -- -- State............................ -- (87,256) -- -- ------- ----------- ------- ------ Income tax provision............... $ -- $ 22,900 $ -- $2,400 ======= =========== ======= ======
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 $31,000 for the years ended September 30, 1993, 1994 and 1995, the three months ended December 31, 1995, and the six months ended June 30, 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. Equipment Line Borrowings--Subsequent to June 30, 1996, the Company borrowed an aggregate of $763,000 under its Equipment Line agreement. Stockholder Matters--On August 26, 1996, the Company entered into an agreement with the former director (see Note 5) pursuant to which the Company paid $75,000 to the former director and granted the former director a warrant to purchase 100,000 shares of the Company's Common Stock at the initial public offering price in exchange for the execution of certain agreements related to the public offering contemplated by this Prospectus. * * * * * * 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. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 3,800,000 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..... 4,870 Listing fee of Nasdaq Stock Market, Inc........................... 50,000 Premium for directors' and officers' insurance.................... 235,000 Accounting fees and expenses...................................... 165,000 Blue sky fees and expenses (including related legal fees)......... 25,000 Legal fees and expenses........................................... 265,000 Printing and engraving expenses................................... 60,000 Transfer agent fees............................................... 5,000 Miscellaneous..................................................... 23,990 -------- Total......................................................... $850,000 ========
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 August 26, 1996, the Company issued and sold to an existing stockholder a warrant to purchase 100,000 shares of Common Stock at a price equal to the initial public offering price. (c) On June 30, 1996, the Company issued and sold 62,500 shares of its Common Stock upon exercise of a warrant held by an accredited investor. (d) 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 (e) 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
(f) 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. (g) 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 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
II-3
EXHIBIT NO. DESCRIPTION ------- ----------- 10.6** 1990 Incentive and Nonqualified 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 10.11 Employment Agreement dated August 16, 1996 between the Company and Pamela D.A. Reeve 10.12 Office Lease dated August 5, 1994, as amended, between the Company and L&E Investment of Massachusetts One, Inc. 10.13 Letter Agreement, dated August 26, 1996, between the Company and Brian E. Boyle, including form of Common Stock Purchase Warrant and Registration Rights Agreement 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 six months ended June 30, 1996.
- -------- * Supersedes previously filed exhibit. ** Previously filed. (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 AUGUST 27, 1996. Lightbridge, Inc. /s/ Pamela D. A. Reeve By: __________________________________ PAMELA D. A. REEVE PRESIDENT AND CHIEF EXECUTIVE OFFICER 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 - ------------------------------------ Executive Officer August 27, 1996 PAMELA D. A. REEVE and Director (Principal Executive Officer) * Chief Financial - ------------------------------------ Officer, Vice August 27, 1996 WILLIAM G. BROWN President of Finance and Administration and Treasurer (Principal Financial and Accounting Officer) * Director - ------------------------------------ August 27, 1996 ANDREW I. FILLAT * Director - ------------------------------------ August 27, 1996 TORRENCE C. HARDER * Director - ------------------------------------ August 27, 1996 DOUGLAS A. KINGSLEY * Director - ------------------------------------ August 27, 1996 D. QUINN MILLS /s/ Pamela D.A. Reeve *By: _______________________________ PAMELA D.A. REEVE ATTORNEY-IN-FACT II-5 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 Nonqualified 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 10.11 Employment Agreement dated August 16, 1996 between the Company and Pamela D.A. Reeve 10.12 Office Lease dated August 5, 1994, as amended, between the Company and L&E Investment of Massachusetts One, Inc. 10.13 Letter Agreement, dated August 26, 1996, between the Company and Brian E. Boyle, including form of Common Stock Purchase Warrant and Registration Rights Agreement 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
- -------- * Supersedes previously filed exhibit. ** Previously filed. EX-1.1 2 UNDERWRITING AGREEMENT EXHIBIT 1.1 8/23/96 3,800,000 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 3,800,000 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 3,800,000 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 - --------------------------- /1/________________________________ Plus an option to purchase up to 570,000 additional shares from the Company to cover over-allotments. -1- Underwriters, upon the terms and conditions set forth in Section 3 hereof, up to an additional 570,000 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." 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. 333-6589) 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 -2- 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, (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 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 Preeffective 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 -3- 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 (except pursuant to stock plans and warrants described in the Registration Statement), or any material change in the short-term or long-term debt of the Company. (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 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, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company. The Company has all requisite power and authority, and all necessary -4- 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 OTHER THAN BGX, INC.("BGX"), OF WHICH THE COMPANY HOLDS 50% OF THE OUTSTANDING CAPITAL STOCK. AS OF THE DATE HEREOF, BGX HAS NOT BEGUN OPERATIONS AND HAS NO REAL PROPERTY, PLACE OF BUSINESS, ASSETS, LIABILITIES, CUSTOMERS OR SUPPLIERS. THERE IS NO ACTION, SUIT, CLAIM, PROCEEDING OR INVESTIGATION PENDING OR THREATENED AGAINST OR AFFECTING BGX AND BGX IS NOT SUBJECT TO ANY ORDER, WRIT, INJUNCTION OR DECREE ENTERED IN ANY LAWSUIT OR PROCEEDING. BGX DOES NOT OWN, LICENSE OR HAVE ANY RIGHT TO ANY COPYRIGHTS, PATENTS, TRADEMARKS, SERVICE MARKS, TRADENAMES OR APPLICATIONS FOR THE SAME. BGX IS NOT A PARTY TO OR OTHERWISE BOUND BY ANY WRITTEN OR ORAL AGREEMENT, INSTRUMENT, COMMITMENT OR RESTRICTION. (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, have been approved for quotation on the Nasdaq National Market and have been issued in compliance with all federal and state securities 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 stock purchase 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. -5- (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 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 -6- 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) of any court or governmental agency or body and the Company has all material 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. (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, -7- 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 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 -8- 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 517.075 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 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. -9- (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, severally and not jointly, - ------------- 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 any 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 prior written consent of Cowen, such Selling Stockholder will not offer, sell, assign, transfer, encumber, contract to sell, grant an option to purchase or otherwise dispose of any shares of Common Stock held by such Selling Stockholder (including without limitation any shares of Common Stock that may be deemed to be beneficially owned by such Selling Stockholder on the date hereof in accordance with the Rules and Regulations) or any securities convertible into, derivative of or exercisable or exchangeable for such Common Stock for 180 days commencing on -10- the date of the final prospectus, except for (i) shares of Common Stock sold by such Selling Stockholder pursuant to this Agreement, if any, (ii) shares of Common Stock purchased by such Selling Stockholder in the public market pursuant to brokers' transactions, (iii) shares of Common Stock sold to the Company or the entities on Schedule D, and (iv) distributions of Common Stock to limited partners or shareholders of such Selling Stockholder provided that the distributees thereof agree in writing to be bound by the terms of this restriction. (iv) Has duly executed and delivered a power of attorney, in substantially the form heretofore delivered by the Representatives (the "Power of Attorney"), appointing Pamela D.A. Reeve and William G. Brown, 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, -11- 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 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, -12- 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 of 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 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 LLP, 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. -13- 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 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 LLP, One Post Office Square, Boston, Massachusetts 02109. The Company and the Selling -14- 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 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 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 -15- 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 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 -16- 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. (h) The Company will use its best efforts to list the Stock on the Nasdaq National Market. (i) The Company will maintain a transfer agent and registrar for its Common Stock. (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 employee stock purchase and stock option plans. -17- (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, its financial condition, results of operation, business, prospects, assets or liabilities, 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 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. (Q) THE COMPANY HAS NOT DISTRIBUTED AND, PRIOR TO THE LATER OF (I) THE CLOSING DATE AND (II) THE COMPLETION OF THE DISTRIBUTION OF THE STOCK, WILL NOT DISTRIBUTE ANY OFFERING MATERIAL IN CONNECTION WITH THE OFFERING AND SALE OF THE STOCK OTHER THAN THE REGISTRATION STATEMENT OR ANY AMENDMENT THERETO, ANY PRELIMINARY PROSPECTUS OR THE PROSPECTUS OR ANY AMENDMENT OR SUPPLEMENT THERETO, OR OTHER MATERIALS, IF ANY PERMITTED BY THE ACT. -18- 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) and (b) hereof, but subject to the provisions of this Section 6(c) and Section 6(e) 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 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 -19- 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 and the Underwriters have exhausted their remedies against the Company for such payments, 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(c) 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(c) hereof which relates to information furnished by the Underwriters to the Company, directly or through the Representatives, 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. -20- (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 National Association of Securities Dealers, Inc. 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, unless the Company 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 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; provided, however, that in no case is the Company to be liable with respect to any claims made against any Underwriter Indemnified Party against whom the action is brought unless such Underwriter Indemnified Party shall have notified the Company in writing within a reasonable time after the summons or other first legal process giving -21- information of the nature of the claim served upon the Underwriter Indemnified Party, but failure to notify the Company of such claim shall not relieve it from any liability which it may have to any Underwriter Indemnified Party otherwise than on account of its indemnity agreement contained in this paragraph. 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 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. The Company shall not be liable to indemnify any person for any settlement of any such claim effected without the Company's consent. 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) Subject to the provisions of subparagraph (e) of this Section 6, 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 furnished to the Company by 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; provided, however, that in no case is such Selling -22- Stockholder to be liable with respect to any claims made against any Underwriter Indemnified Party against whom the action is brought unless such Underwriter Indemnified Party shall have notified such Selling Stockholder in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim served upon the Underwriter Indemnified Party, but failure to notify such Selling Stockholder of such claim shall not relieve it from any liability which it may have to any Underwriter Indemnified Party otherwise than on account of its indemnity agreement contained in this paragraph; and provided, further, that with respect to any indemnfication arising out of or based upon any breach of any representation contained in Section 2 hereof, the Underwriters agree to exhaust their remedies against the Company before proceeding against the Selling Stockholders. 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 in writing 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. The Selling Stockholders against whom indemnity may be sought shall not be liable to indemnify any person for any settlement of any such claim effective without such Selling Stockholder's consent. 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 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, -23- 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 Party or Stockholder Indemnified Party 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 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 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, subject to Section 6(e) below, 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 -24- 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 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) The liability of each Selling Stockholder under such Selling Stockholder's representations and warranties contained in Section 2 hereof and under the indemnity and reimbursement agreements contained in the provisions of this Section 5 and Section 6 hereof shall be limited to the lesser of (i) that portion of the total of such losses, claims, damages, liabilities or expenses indemnified against equal to the proportion of the Stock sold by such Selling Stockholder to the Underwriters or (ii) the proceeds (net of underwriting discounts and commission) received upon the sale of the Stock sold by such selling Stockholder to the Underwriters. -25- 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. -26- (c) The Representatives shall be satisfied that no legal or governmental action, suit or proceeding affecting the Company which is material 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 LLP, 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 and from Foley, Hoag & Eliot LLP or other counsel for the Selling Stockholders reasonably acceptable to the Representatives, an opinion, dated the Closing Dates, to the effect set forth in Exhibit II hereto. (g) The Representatives shall have received from Testa, Hurwitz & Thibeault, LLP, 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; -27- (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; (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 (except pursuant to stock plans and warrants described in the Registration Statement), 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 -28- material liability or obligation, direct, contingent or indirect, made any change in its capital stock (except pursuant to stock plans and warrants described in the Registration Statement), 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. (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 any shares of Common Stock held by such person (including without limitation any shares of Common Stock that may be deemed to be beneficially owned by such person on the date hereof in accordance with the Rules and Regulations) or any securities convertible into, derivative of or exercisable or exchangeable for such Common Stock for 180 days commencing on the date of the final prospectus, except for (i) shares of Common Stock sold pursuant to this Agreement, if any, and (ii) shares of Common Stock purchased by such person in the public market pursuant to brokers' transactions, (iii) shares of Common Stock sold to the Company or the entities on Schedule D and (iv) distributions of Common Stock to limited partners or shareholders of such Selling Stockholder provided that the distributees thereof agree in writing to be bound by the terms of this restriction. 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 -29- 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 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, -30- 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 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 its 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 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 -31- 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 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 -32- 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. 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 -33- By: Pamela D.A. Reeve Attorney-in-fact By: William G. Brown Attorney-in-fact Acting on behalf of the Selling Stockholders listed in Schedule B. -34- 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: -35- SCHEDULE A
Number of Firm Shares to be Name Purchased - ----- --------- Cowen & Company..................................................... Montgomery Securities............................................... Prudential Securities Incorporated.................................. Total.......................................................... =========
-36- SCHEDULE B
Number Number of of Optional Firm Shares to Shares to be Sold be Sold --------- --------- Selling Stockholders - --------------------
-37- SCHEDULE C LOCKUP AGREEMENTS [to include all stockholders and notice of the lock-up to be sent to optionholders] -38- SCHEDULE D ENTREPRENEURIAL LIMITED PARTNERSHIP I ENTREPRENEURIAL LIMITED PARTNERSHIP II ENTREPRENEURIAL LIMITED PARTNERSHIP III ENTREPRENEURIAL LIMITED PARTNERSHIP IV -39- EX-3.1 3 CERTIFICATE OF INCORPORATION EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF CREDIT TECHNOLOGIES, INC. FIRST: The name of the Corporation is Credit Technologies, 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 purposes 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 or his 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 corporation may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares of capital stock which the Corporation shall have the authority to issue shall be 2,500,000 shares of common stock, with a par value of $.01 per share. FIFTH: In furtherance of and not in limitation of powers conferred by statute, it is further provided that: (a) Subject to the limitations and expectations, 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 for the Corporation may be kept outside of 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 for 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. 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. 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: 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, except to the extent that any such limitation or elimination of liability is not permitted by the General Corporation Law of the Sate of Delaware. No amendment or repeal of this Article NINTH shall deprive a director of the benefits hereof with respect to any act or omission occurring prior to such amendment or repeal. TENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and this Certificate of Incorporation and all rights conferred upon stockholders herein are granted subject to this reservation. ELEVENTH: The name and the mailing address of the sole incorporator is as follows: NAME MAILING ADDRESS ---- --------------- James A. Smith c/o Foley, Hoag & Eliot One Post Office Square Boston, Massachusetts 02109 IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of June, 1989. /s/ James A. Smith ----------------------------- James A. Smith, Incorporator TO: DEPARTMENT OF STATE Division of Corporations Townsend Building Federal Street Dover, Delaware 19903 Pursuant to the provisions of Section 134 of Title 8 of the Delaware Code, the undersigned Agent for service of process, in order to change the address of the registered office of the corporations for which it is registered agent, hereby certifies that: 1. The name of the agent is The Prentice-Hall Corporation System, Inc. 2. The address of the old registered office was 229 South State Street, Dover, Kent County, Delaware 19901. 3. The address to which the registered office is to be changed is 32 Loockerman Square, Suite L-100, Dover, Kent County, Delaware 19901. The new address will be effective on October 27, 1989. 4. The names of the corporations represented by said agent are set forth on the list annexed to this certificate and made a part hereof by reference. IN WITNESS WHEREOF, said agent has caused this certificate to be signed on its behalf by its Vice President and Assistant Secretary this 10th day of October 1989. THE PRENTICE-HALL CORPORATION SYSTEM /s/ Alan E. Spiewak ------------------------------------ Alan Spiewak, Vice President ATTEST: /s/ Richard L. Kushay - -------------------------------------- Richard L. Kushay, Assistant Secretary STATE OF DELAWARE CHANGE OF ADDRESS FILING FOR PRENTICE-HALL CORPORATION SYSTEM, INC. AS OF OCTOBER 27, 1989 **DOMESTIC**
2199575 SENTAGE HOLDING CORPORATION 06/16/89 D DE 2199576 NEURAL TRADING SYSTEMS, INC. 06/16/89 D DE 2199577 ROCKUS INC. 06/16/89 D DE 2199578 CREDIT TECHNOLOGIES, INC. 06/16/89 D DE 2199579 W.H.G. CHARTERS, LTD. 06/16/89 D DE 2199580 DINNERWARE, PLUS, (AZ) INC. 06/16/89 D DE 2199581 SHELBY TISSUE, INC. 06/16/89 D DE 2199582 DINNERWARE PLUS, (CO) INC. 06/16/89 D DE 2199583 FT RESTAURANT CORP. 06/16/89 D DE 2199584 ERLANGER MINERALS AND METALS, INC. 06/16/89 D DE 2199585 G.I. ACQUISITION CORP. 06/16/89 D DE 2199586 MACON AUTOMOTIVE, INC. 06/16/89 D DE 2199602 NEWBRIDGE REALTY CORP. 06/16/89 D DE 2199612 TELCOST CONSULTANTS USA, INC. 06/16/89 D DE 2199613 MARATHON MALLS, INC. 06/16/89 D DE 2199622 P.D.T., INC. 06/16/89 D DE 2199626 FIBREBOARD FOREST INDUSTRIES CORPORATION 06/16/89 D DE 2199642 SOL MATE INC. 06/19/89 D DE 2199644 WEIGH TO GO INC. 06/19/89 D DE 2199646 U.S. HOVERCRAFT INC. 06/19/89 D DE 2199654 METRO GARDENS DEVELOPMENT INC. 06/19/89 D DE 2199655 GSI ACQUISITION CORP. 06/19/89 D DE 2199656 EXECUTIVE SOFTWARE EUROPE INC. 06/19/89 D DE 2199657 BGI ACQUISITION CORP. 06/19/89 D DE 2199658 WELLINGTON FINANCIAL MANAGEMENT, INC. 06/19/89 D DE 2199675 USASIA PUBLISHING, INC. 06/19/89 D DE 2199695 ADVENTURER ACQUISITION CORPORATION 06/19/89 D DE 2199696 DEEP RIVER BOUTIQUE, INC. 06/19/89 D DE 2199705 MABEY BRIDGE, INC. 06/19/89 D DE 2199708 ARIES FILM RELEASING CORP. 06/19/89 D DE 2199749 JHM CAPITAL ADVISORS, INC. 06/19/89 D DE 2199799 SURE BROADCASTING, INC. 06/20/89 D DE 2199807 ANZUS, INC. 06/20/89 D DE 2199808 WHEELABRATOR MONTGOMERY INC. 06/20/89 D DE 2199811 STANWICH INSURANCE AGENCY, INC. 06/20/89 D DE 2199817 CONSORTIUM PERESTROICORP, INC. 06/20/89 D DE 2199830 C.L.W., INC. 06/20/89 D DE 2199832 BUTTEMER, INC. 06/20/89 D DE 2199834 MCDONALD'S RESTAURANTES PORTUGAL LTD. 06/20/89 D DE 2199836 DEARFIELD FARMS INC. 06/20/89 D DE 2199838 HUNTERS CAPITAL INVESTMENTS-I, INC. 06/20/89 D DE 2199860 BNY LICENSING CORP. 06/20/89 D DE 2199861 GREENWOOD RACING INC. 06/20/89 D DE 2199893 61589 ACQUISITION CORP. 06/20/89 D DE 2199897 EBISCO, CORP. 06/20/89 D DE 2199905 DELTA MAILING SERVICES, INC. 06/20/89 D DE
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF CREDIT TECHNOLOGIES, INC. Credit Technologies, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the following amendment to the Certificate of Incorporation of Credit Technologies, Inc. (the "Corporation") has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law: That the Certificate of Incorporation of the Corporation be amended by deleting the old Article Fourth and inserting a new Article Fourth in its stead which shall be and read as follows in its entirety: "FOURTH: The total number of shares of capital stock which the Corporation shall have the authority to issue shall be 3,000,000 shares of common stock, with a par value of $.01 per share." IN WITNESS WHEREOF, Credit Technologies, Inc. has caused this certificate to be signed by its President and attested by its Assistant Secretary this sixth day of November, 1990. CREDIT TECHNOLOGIES, INC. By: /s/ Pamela D. A. Reeve ----------------------- Its President ATTEST By: /s/ William Brown ----------------------- Its Assistant Secretary CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF CREDIT TECHNOLOGIES, INC. Credit Technologies, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the following amendment to the Certificate of Incorporation of Credit Technologies, Inc. (the "Corporation") has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law: That the Certificate of Incorporation of the Corporation be amended by deleting the old Article Fourth and inserting a new Article Fourth in its stead which shall be and read as follows in its entirety: "FOURTH: The total number of shares of capital stock which the Corporation shall have the authority to issue shall be 4,500,000 shares of commons stock, with a par value of $.01 per share." IN WITNESS WHEREOF, Credit Technologies, Inc. has caused this certificate to be signed by its President and attested by its Assistant Secretary this 20th day of December, 1990. CREDIT TECHNOLOGIES, INC. By: /s/ Pamela D. A. Reeve ----------------------- Its President ATTEST By: /s/ William Brown ----------------------- Its Assistant Secretary CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF CREDIT TECHNOLOGIES, INC. Credit Technologies, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: That the following amendment to the Certificate of Incorporation of the Corporation dated June 16, 1989, as amended on November 13, 1990 and December 20, 1990, has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law: That the Certificate of Incorporation of the Corporation be amended by deleting the old Article Fourth and inserting a new Article Fourth in its stead which shall be and read as follows in its entirety: FOURTH: The total number of shares of capital stock which the Corporation shall have the authority to issue shall be 5,130,516 shares, of which 4,500,000 shall be shares of common stock, each of which shall have a par value of $.01 (the "Common Stock"), and 630,516 shall be shares of preferred stock, each of which shall have a par value of $.01 (the "Preferred Stock"), amounting to an aggregate par value of $51,305.16. The following is a statement of the designations, powers, preferences and rights, and the qualifications, limitations and restrictions, granted to or imposed upon the respective classes of shares of capital stock of the Corporation or the holders thereof: SERIES A CONVERTIBLE PREFERRED STOCK 1. Number of Shares. The series of Preferred Stock designated and known ---------------- "Series A convertible Preferred Stock" shall consist of 630,516 shares. 2. Voting. ------ 2A. General. Except as may be otherwise provided in these terms of ------- he Series A Convertible Preferred Stock or by law, the Series A Convertible Preferred Stock shall vote together with all other classes and series of stock of the Corporation as a single class on all actions to be taken by the stockholders of the Corporation, including, without limitation, the election of directors of the Corporation. Notwithstanding the foregoing or anything else to the contrary provided in the Certificate of Incorporation, if the Corporation fails or refuses, for any reason or for no reason, to redeem on the Redemption Date (as defined in paragraph 7) all of the then outstanding shares of Series A Convertible Preferred Stock in accordance with the terms and provisions of paragraph 7, the holders of the Series A Convertible Preferred Stock, voting as a separate series, shall be entitled to elect a majority of the directors of the Corporation. Each share of Series A Convertible Preferred Stock shall entitle the holder thereof to such number of votes per share on each such action as shall equal the number of shares of Common Stock (including fractions of a share) into which each share of Series A Convertible Preferred Stock is then convertible. 2B. Board Size. The Corporation shall not, without the written ---------- consent or affirmative vote of the holders of at least two-thirds of the then outstanding shares of Series A Convertible Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a series, increase the maximum number of directors constituting the Board of Directors to a number in excess of seven. 3. Dividends. Commencing on and from October 1, 1992, the holders of the --------- Series A Convertible Preferred Stock shall be entitled to receive, out of funds legally available therefor, annual dividends at the rate per annum of $.127 per share (annually an "Accrued Dividend" and collectively the "Accruing Dividends"), such payments to be made (except as hereinafter provided) on the last day of December in each year for the period ended on the immediately,prior September 30, with the first such dividend being paid on December 31, 1993 for the period ended September 30, 1993. Accruing Dividends shall accrue from day to day, whether or not earned or declared, and shall be cumulative. The Board of Directors may defer paying an Accruing Dividend for a period ended September 30 to the extent that for the Corporation's fiscal year ended such September 30 it had consolidated net income of less than $500,000. To the extent that the Corporation has deferred paying an Accrued Dividend, such Accrued Dividend shall be paid on the first December 31 thereafter in which the Corporation's consolidated net income for the immediately prior September 30 equals or exceeds $500,000. Payment of deferred Accrued Dividends shall be made at the rate of one deferred Accrued Dividend for each $500,000 of consolidated net income in excess of the first $500,000. For the purposes of this paragraph 3, consolidated net income shall be determined in accordance with generally accepted accounting principles, consistently applied. 4. Liquidation. Upon any liquidation, dissolution or winding up of the ----------- Corporation, whether voluntary or involuntary, the holders of the shares of Series A Convertible Preferred Stock shall first be entitled, before any distribution or payment is made upon any stock ranking on liquidation junior to the Series A Convertible Preferred Stock, to be paid an amount equal to the greater of (i) $1.586 per share plus, in the case of each share, an amount equal to all Accruing Dividends unpaid thereon (whether or not declared) and any other dividends declared but unpaid thereon, computed to the date payment thereof is made available, or (ii) such amount per share as would have been payable had each such share been converted to Common Stock pursuant to paragraph 6 immediately prior to such liquidation, dissolution or winding up, and the holders of Series A Convertible Preferred Stock shall not be entitled to any further payment, such amount payable with respect to one share of Series A Convertible Preferred stock being sometimes referred to as the "Liquidation Preference Payment" and with respect to all shares of Series A Convertible Preferred Stock being sometimes referred to as the "Liquidation Preference Payments". If upon such liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets to be distributed among the holders of Series A Convertible Preferred Stock shall be insufficient to permit payment in full to the holders of Series A Convertible Preferred Stock of the Liquidation Preference Payments, then the entire assets of the Corporation to be so distributed shall be distributed ratably among the holders of Series A Convertible Preferred Stock. Upon any such liquidation, dissolution or winding up of the Corporation, immediately after the holders of Series A Convertible Preferred Stock shall have been paid in full the Liquidation Preference Payments, the remaining net assets of the Corporation available for distribution may be distributed ratably among the holders of Common Stock. Written notice of such liquidation, dissolution or winding up, stating a payment date and the place where said payments shall be made, shall be given by mail, postage prepaid, or by telex to non-U.S. residents, not less than 20 days prior to the payment date stated therein, to the holders of record of Series A Convertible Preferred Stock, such notice to be addressed to each such holder at its address as shown by the records of the Corporation. The consolidation or merger of the Corporation into or with any other entity or entities which results in the exchange of outstanding shares of the Corporation for securities or other consideration issued or paid or caused to be issued or paid by any such entity or affiliate thereof (excluding any consolidation or merger in which the shareholders of the Corporation hold more than fifty percent (50%) of the voting securities of the surviving corporation), and the sale or transfer by the Corporation of all or substantially all its assets, shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of the provisions of this paragraph 4. For purposes hereof, the Common Stock shall rank in liquidation junior to the Series A Convertible Preferred Stock. 5. Restrictions. At any time when shares of Series A Convertible ------------ Preferred Stock are outstanding, except where the vote or written consent of the holders of a greater number of shares of the Corporation is required by law or by the Certificate of Incorporation, and in addition to any other vote required by law or the Certificate of Incorporation, without the approval of the holders of at least two-thirds of the then outstanding shares of Series A Convertible Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a series, the Corporation will not: 5A. Create or authorize the creation of any additional class or series of shares of stock unless the same ranks junior to the Series A Convertible Preferred Stock as to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, or increase the authorized amount of the Series A Convertible Preferred Stock or increase the authorized amount of any additional class or series of shares of stock unless the same ranks junior to the Series A Convertible Preferred Stock as to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, or create or authorize any obligation or security convertible into shares of Series A Convertible Preferred Stock or into shares of any other class or series of stock unless the same ranks junior to the Series A Convertible Preferred Stock as to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, whether any such creation, authorization or increase shall be by means of amendment to the Certificate of Incorporation or by merger, consolidation or otherwise; 5B. Consent to any liquidation, dissolution or winding up of the Corporation or consolidate or merge into or with any other entity or entities or sell or transfer all or substantially all its assets; 5C. Amend, alter or repeal its Certificate of Incorporation or By- laws so as to adversely affect the rights of the holders of the Series A Convertible Preferred Stock; 5D. Purchase or set aside any sums for the purchase of, or pay any dividend or make any distribution on, any shares of stock other than the Series A Convertible Preferred Stock, except for dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock and except for the purchase of shares of Common Stock from former employees of the Corporation who acquired such shares directly from the Corporation, if each such purchase is made pursuant to contractual rights held by the Corporation relating to the termination of employment of such former employee and the purchase price does not exceed the original issue price paid by such former employee to the Corporation for such shares; or 5E. Redeem or otherwise acquire any shares of Series A Convertible Preferred Stock except as expressly authorized in paragraph 7 hereof or pursuant to a purchase offer made pro rata to all holders of the shares of Series A Convertible Preferred Stock on the basis of the aggregate number of outstanding shares of Series A Convertible Preferred Stock then held by each such holder. 6. Conversions. The holders of shares of Series A Convertible Preferred ----------- Stock shall have the following conversion rights: 6A. Right to Convert. Subject to the terms and conditions of this ---------------- paragraph 6, the holder of any share or shares of Series A Convertible Preferred Stock shall have the right, at its option at any time, to convert any such shares of Series A Convertible Preferred Stock (except that upon any liquidation of the Corporation the right of conversion shall terminate at the close of business on the business day fixed for payment of the amount distributable on the Series A Convertible Preferred Stock) into such number of fully paid and nonassessable shares of Common Stock as is obtained by (i) multiplying the number of shares of Series A Convertible Preferred Stock so to be converted by $1.586 and (ii) dividing the result by the conversion price of $1.586 per share or, in case an adjustment of such price has taken place pursuant to the further provisions of this paragraph 6, then by the conversion price as last adjusted and in effect at the date any share or shares of Series A Convertible Preferred Stock are surrendered for conversion (such price, or such price as last adjusted, being referred to as the "Conversion Price"). Such rights of conversion shall be exercised by the holder thereof by giving written notice that the holder elects to convert a stated number of shares of Series A Convertible Preferred Stock into Common Stock and by surrender of a certificate or certificates for the shares so to be converted to the Corporation at its principal office (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holders of the Series A Convertible Preferred Stock) at any time during its usual business hours on the date set forth in such notice, together with a statement of the name or names (with address) in which the certificate or 'Certificates for shares of Common Stock shall be issued. 6B. Issuance of Certificates; Time Conversion Effected. Promptly -------------------------------------------------- after the receipt of the written notice referred to in subparagraph 6A and surrender of the certificate or certificates for the share or shares of Series A Convertible Preferred Stock to be converted, the Corporation shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares of Series A Convertible Preferred Stock. To the extent permitted by law, such conversion shall be deemed to have been effected and the Conversion Price shall be determined as of the close of business on the date on which such written notice shall have been received by the Corporation and the certificate or certificates for such share or shares shall have been surrendered as aforesaid, and at such time the rights of the holder of such share or shares of Series A Convertible Preferred Stock shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby. 6C. Fractional Shares; Dividends; Partial Conversion. No fractional ------------------------------------------------ shares shall be issued upon conversion of Series A Convertible Preferred Stock into Common Stock and no payment or adjustment shall be made upon any conversion on account of any cash dividends on the Common Stock issued upon such conversion. At the time of each conversion, the Corporation shall pay, out of assets legally available therefor, in cash an amount equal to all dividends, excluding Accruing Dividends, declared and unpaid on the shares of Series A Convertible Preferred Stock surrendered for conversion to the date upon which such conversion is deemed to take place as provided in subparagraph 6B. In case the number of shares of Series A Convertible Preferred Stock represented by the certificate or certificates surrendered pursuant to subparagraph 6A exceeds the number of shares converted, the Corporation shall, upon such conversion, execute and deliver to the holder, at the expense of the Corporation, a new certificate or certificates for the number of shares of Series A Convertible Preferred Stock represented by the certificate or certificates surrendered which are not to be converted. If any fractional share of Common Stock would, except for the provisions of the first sentence of this subparagraph 6C, be delivered upon such conversion, the Corporation, in lieu of delivering such fractional share, shall pay to the holder surrendering the Series A Convertible Preferred Stock for conversion an amount in cash equal to the current market price of such fractional share as determined in good faith by the Board of Directors of the Corporation. 6D. Adjustment of Price Upon Issuance of Common Stock. Except as ------------------------------------------------- provided in subparagraph 6E, if and whenever the Corporation shall issue or sell, or is, in accordance with subparagraphs 6D(1) through 6D(7), deemed to have issued or sold, any shares of Common Stock for a consideration per share less than the Conversion Price in effect immediately prior to the time of such issue or sale, then, forthwith upon such issue or sale, the Conversion Price shall be reduced to the price determined by dividing (i) an amount equal to the sum of (a) the number of shares of Common Stock outstanding immediately prior to such issue or sale (including the number of shares of Common Stock then issued or issuable upon conversion of all issued and outstanding shares of series A Convertible Preferred Stock) multiplied by the then existing Conversion Price and (b) the consideration, if any, received by the Corporation upon such issue or sale, by (ii) the total number of shares of Common Stock outstanding immediately after such issue or sale (including the number of shares of Common Stock then issued or issuable upon conversion of all issued and outstanding shares of Series A Convertible Preferred Stock). For purposes of this subparagraph 6D, the following subparagraphs 6D(1) to 6D(7) shall also be applicable: 6D(1) Issuance of Rights or Options. In case at any time the ----------------------------- Corporation shall in any manner grant (whether directly or by assumption in a merger or otherwise) any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or security convertible into or exchangeable for Common Stock (such warrants, rights or options being called "Options" and such convertible or exchangeable stock or securities being called "Convertible Securities") whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities (determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Conversion Price in effect immediately prior to the time of the granting of such options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options or the issuance of such Convertible Securities and thereafter shall be deemed to be outstanding. Except as otherwise provided in subparagraph 6D(3), no adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 6D(2) Issuance of Convertible Securities. In case the ---------------------------------- Corporation shall in any manner issue (whether directly or by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding, provided that (a) except as otherwise provided in subparagraph 6D(3), no adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and (b) if any such issue or sale of such Convertible Securities is made upon exercise of any Options to purchase any such Convertible Securities for which adjustments of the Conversion Price have been or are to be made pursuant to other provisions of this subparagraph 6D, no further adjustment of the Conversion Price shall be made by reason of such issue or sale. 6D(3) Change in Option Price or Conversion Rate. Upon the ----------------------------------------- happening of any of the following events, namely, if the purchase price provided for in any Option referred to in subparagraph 6D(1), the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subparagraph 6D(1) or 6D(2), or the rate at which Convertible Securities referred to in subparagraph 6D(1) or 6D(2) are convertible into or exchangeable for Common Stock shall change at any time (including, but not limited to, changes under or by reason of provisions designed to protect against dilution), the Conversion Price in effect at the time of such event shall forthwith be readjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold, but only if as a result of such adjustment the Conversion Price then in effect hereunder is thereby reduced; and on the expiration of any such Option or the termination of any such right to convert or exchange such Convertible Securities, the Conversion Price then in effect hereunder shall forthwith be increased to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. 6D(4) Stock Dividends. In case the Corporation shall declare a --------------- dividend or make any other distribution upon any stock of the Corporation payable in Common Stock (except for dividends or distributions upon the Common Stock), Options or Convertible Securities, any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration. 6D(5) Consideration for Stock. In case any shares of Common ----------------------- Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation therefor, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the Corporation, without deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any Options shall be issued in connection with the issue and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Corporation. 6D(6) Record Date. In case the Corporation shall take a record ----------- of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 6D(7) Treasury Shares. The number of shares of Common Stock --------------- outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be considered an issue or sale of Common Stock for the purpose of this subparagraph 6D. 6E. Certain Issues of Common Stock Excepted. Anything herein to the --------------------------------------- contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Conversion Price in the case of the issuance of (i) up to an aggregate of 800,000 shares (appropriately adjusted to reflect the occurrence of any event described in subparagraph 6F) of Common Stock to directors, officers, employees or consultants of the Corporation in connection with their service to the Corporation or their employment by the Corporation and (ii) shares of Common Stock issued upon conversion of the Series A Convertible Preferred Stock. Any shares of Common Stock issued pursuant to clause (i) of this subparagraph 6E which are hereinafter repurchased by the Company at a purchase price per share no greater than the price per share paid to the Company upon the issuance of such shares shall again be available for issuance pursuant to clause (i) of this subparagraph 6E . 6F. Subdivision or Combination of Common Stock. In case the ------------------------------------------ Corporation shall at any time subdivide (by any stock split, stock dividend or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and, conversely, in case the outstanding shares of Common Stock shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased. 6G. Reorganization or Reclassification. If any capital ---------------------------------- reorganization or reclassification of the capital stock of the Corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provisions shall be made whereby each holder of a share or shares of Series A Convertible Preferred Stock shall thereupon have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the conversion of such share or shares of Series A Convertible Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore receivable upon such conversion had such reorganization or reclassification not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including without limitation provisions for adjustments of the Conversion Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights. 6H. Notice of Adjustment. Upon any adjustment of the Conversion -------------------- Price, then and in each such case the Corporation shall give written notice thereof, by first class mail, postage prepaid, or by telex or telecopier to non- U.S. residents, addressed to each holder of shares of Series A Convertible Preferred Stock at the address of such holder as shown on the books of the Corporation, which notice shall state the Conversion Price resulting from such adjustment, setting forth in reasonable detail the method upon which such calculation is based. 6I. Other Notices. In case at any time: ------------- (1) the Corporation shall declare any dividend upon its Common Stock payable in cash or stock or make any other distribution to the holders of its Common Stock; (2) the Corporation shall offer for subscription pro rata to the --- ---- holders of its Common Stock any additional shares of stock of any class or other rights; (3) there shall be any capital reorganization or reclassification of the capital stock of the Corporation, or a consolidation or merger of the Corporation with or into, or a sale of all or substantially all its assets to, another entity or entities; or (4) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then, in any one or more of said cases, the Corporation shall give, by first class mail, postage prepaid, or by telex or telecopier to non-U.S. residents, addressed to each holder of any shares of Series A Convertible Preferred Stock at the address of such holder as shown on the books of the Corporation, (a) at least 20 days' prior written notice of the date on which the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 20 days, prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. 6J. Stock to be Reserved. The Corporation will at all times reserve -------------------- and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the conversion of Series A Convertible Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Series A Convertible Preferred Stock. The Corporation covenants that all shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, and, without limiting the generality of the foregoing, the Corporation covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the Conversion Price in effect at the time. The Corporation will take all such action as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirement of any national securities exchange upon which the Common Stock may be listed. The Corporation will not take any action which results in any adjustment of the Conversion Price if the total number of shares of Common Stock issued and issuable after such action upon conversion of the Series A Convertible Preferred Stock would exceed the total number of shares of Common Stock then authorized by its Certificate of Incorporation. 6K. No Reissuance of Series A Convertible Preferred Stock. Shares of ----------------------------------------------------- Series A Convertible Preferred Stock which are converted into shares of Common Stock as provided herein shall not be reissued. 6L. Issue Tax. The issuance of certificates for shares of Common --------- Stock upon conversion of Series A Convertible Preferred Stock shall be made without charge to the holders thereof for any issuance tax in respect thereof, provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Series A Convertible Preferred Stock which is being converted. 6M. Closing of Books. The Corporation will at no time close its ---------------- transfer books against the transfer of any Series A Convertible Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series A Convertible Preferred Stock in any manner which interferes with the timely conversion of such Series A Convertible Preferred Stock, except as may otherwise be required to comply with applicable securities laws. 6N. Definition of Common Stock. As used in this paragraph 6, the -------------------------- term "Common Stock shall mean and include the Corporation's authorized Common Stock, par value $.01 per share, as constituted on the date of filing of these terms of the Series A Convertible Preferred Stock, and shall also include any capital stock of any class of the Corporation thereafter authorized which shall neither be limited to a fixed sum or percentage of par value in respect of the rights of the holders thereof to participate in dividends nor entities to a preference in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation; provided that the shares of Common Stock receivable upon conversion of shares of Series A Convertible Preferred Stock shall include only shares designated as Common Stock of the Corporation on the date of filing of this instrument, or in case of any reorganization or reclassification of the outstanding shares thereof, the stock, securities or assets provided for in subparagraph 6C. 6O. Mandatory Conversion. If at any time (A) the Corporation shall -------------------- effect a firm commitment underwritten public offering of shares of Common Stock in which (i) the aggregate price paid for such shares by the public shall be at least $7,500,000 and (ii) the price paid by the public for such shares shall be at least $4.75 per share (appropriately adjusted to reflect the occurrence of any event described in subparagraph 6F) or (B) there shall be less than twenty percent (20%) of the originally issued shares of Series A Convertible Preferred Stock outstanding, then effective upon the closing of the sale of such shares by the Corporation pursuant to such public offering or such reduction in the number of outstanding shares of Series A Convertible Preferred Stock, as the case may be, all outstanding shares of Series A Convertible Preferred Stock shall automatically and without any further action on the part of the Corporation convert to shares of Common Stock. 7. Redemption. The shares of Series A Convertible Preferred Stock shall ---------- be redeemed as follows: 7A. Mandatory Redemption. On December 31, 1997 (the "Redemption -------------------- Date"), the Corporation shall redeem from each holder of shares of Series A Convertible Preferred Stock out of funds legally available therefor, all of the shares of Series A Convertible Preferred Stock held by such holder on the Redemption Date. 7B. Redemption Price and Payment. The Series A Convertible Preferred ---------------------------- Stock to be redeemed on the Redemption Date shall be redeemed by paying for each share in cash an amount equal to the greater of (i) the Liquidation Preference Payment and (ii) the Fair Market Value as of September 30, 1997, such amount being referred to as the "Redemption Price". Such payment shall be made in full on the Redemption Date to the holders entitled thereto. 7C. Redemption Mechanics. At least ten (10) but not more than ninety -------------------- (90) days prior to the Redemption Date, written notice (the "Redemption Notice") shall be given by the Corporation by mail, postage prepaid, or by telex or telecopier to non-U.S. residents, to each holder of record (at the close of business on the business day next preceding the day on which the Redemption Notice is given) of shares of Series A Convertible Preferred Stock notifying such holder of the redemption and specifying the Redemption Price, the Redemption Date and the place where said Redemption Price shall be payable. The Redemption Notice shall be addressed to each holder at his address as shown by the records of the Corporation. From and after the close of business on the Redemption Date, unless there shall have been a default in the payment of the Redemption Price, all rights of holders of shares of Series A Convertible Preferred Stock (except the right to receive the Redemption Price) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the Corporation legally available for redemption of shares of Series A Convertible Preferred Stock on the Redemption Date are insufficient to redeem the total number of outstanding shares of Series A Convertible Preferred Stock, the holders of shares of Series A Convertible Preferred Stock shall share ratably in any funds legally available for redemption of such shares according to the respective amounts which would be payable with respect to the full number of shares owned by them if all such outstanding shares were redeemed in full. The shares of Series A Convertible Preferred Stock not redeemed shall remain outstanding and entitled to all rights and preferences provided herein. At any time thereafter when additional funds of the Corporation are legally available for the redemption of such shares of Series A Convertible Preferred Stock, such funds will be used, at the end of the next succeeding fiscal quarter, to redeem the balance of such shares, or such portion thereof for which funds are then legally available, on the basis set forth above. 7D. Fair Market Value. For the purposes of this paragraph 7, "Fair ----------------- Market Value" per share of Series A Convertible Preferred Stock shall mean: 7D(1) if the Company's Common Stock is publicly traded, an amount (A) equal to (x) the average on September 30, 1997 of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if such stock is then traded on a national securities exchange; or (y) the last reported sale price on September 30, 1997 of the Common Stock on the NASDAQ National Market List, if the Common Stock is not then traded on a national securities exchange; or (z) the closing bid price (or average of bid prices) last quoted on September 30, 1997 by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the NASDAQ National Market List, (B) multiplied by the number of shares of Common Stock (including fractions of a share) into which each share of Series A Convertible Preferred Stock may be converted as of September 30, 1997; or 7D(2) if the Company's Common Stock is not publicly traded as provided in subparagraph 7(D)(1) above, an amount (A) determined by dividing the Company's Fair Market Value, determined as of September 30, 1997, by the number of actual outstanding shares of Common Stock, on a fully-diluted basis, as of September 30, 1997, (B) multiplied by the number of shares of Common Stock (including fractions of a share) into which each share of Series A Convertible Preferred Stock may be converted as of September 30, 1997. The Company's Fair Market Value shall be the price which could be obtained for one hundred percent (100%) of the equity interest in the Company on a consolidated basis if the Company were sold to a willing buyer by a willing seller in a single arm's-length transaction, determined by considering the Company's profits after tax, book value, revenues and cash flow as of September 30, 1997. In the event that the Fair Market Value per share of Common Stock is to be determined pursuant to subparagraph 7D(2) above then, in such event, on or before October 31 1997, a representative of the Company and a representative of the holder or holders of a majority of the then outstanding shares of Series A Convertible Preferred Stock will use their best efforts to reach agreement on the Company's Fair Market Value. If they are unable to reach such agreement within ten (10) days after the end of such period, the Company and such holder or holders will agree on the selection of an independent appraiser. Such appraiser will have fifteen (15) days in which to determine the Company's Fair Market Value, and its determination thereof will be final and binding on all parties concerned. If the Company and such holder or holders are unable to reach an agreement as to an independent appraiser within five (5) days after the aforesaid ten (10) day period, then two appraisers will be appointed within five (5) days thereafter to determine the Company's Fair Market Value, one by the Company and one by the holder or holders of a majority of the then outstanding shares of Series A Convertible Preferred Stock. Each of the Company and such holder or holders will cause their appraiser to determine independently the Company's Fair Market Value within fifteen (15) days after the time of their appointment. If the lesser of the two appraised values so determined (the "Low Value") exceeds or is equal to ninety percent (90%) of the value of the greater of the two appraised values (the "High Value"), the Company's Fair Market Value will be deemed to be equal to the average of the two appraisals. If the Low Value is less than ninety percent (90%) of the High Value, the two appraisers will themselves appoint a third appraiser within five (5) days after the two appraisals have been rendered. Such third appraiser will have fifteen (15) days in which to determine independently the Company's Fair Market Value. The median of the three (3) appraised values shall be binding on all parties concerned as the Company's Fair Market Value. The expenses of the appraisal will be borne solely by the Company. 7E. Additional Payments Upon Merger, Etc. If at any time within one ------------------------------------- year after the date of redemption provided for in paragraph 7A, the Company shall become party to one or more mergers, consolidations, sales of all or substantially all of its assets or other similar corporate actions pursuant to which the holders of the Company's Common Stock receive cash, securities or other property, or the Company is acquired by the purchase of a majority of its shares of Common Stock, or the Company or its stockholders enter into any agreement or letter of intent contemplating any of the foregoing transactions, the Company shall, simultaneously with the consummation of any such transaction or at such later time as any payment described below is received by the Company or its stockholders, make an additional payment to the holder or holders whose shares of Series A Convertible Preferred Stock were so redeemed by the Company in an amount equal to the excess, if any, of the value per share of the cash, securities and other property that such holder or holders would have received (or that the Company received in which such holder or holders would have had a beneficial interest) had the shares of Series A Convertible Preferred Stock not been redeemed pursuant to paragraph 7A, over the payment received by such holder or holders with respect to such shares of Series A Convertible Preferred Stock. Each payment made to such holder or holders pursuant to this subparagraph 7E shall be made either in cash or in the form of the securities and other property received by the holders of shares of Common Stock of the Company. 7F. Redeemed or Otherwise Acquired Shares to be Retired. Any shares --------------------------------------------------- of Series A Convertible Preferred Stock redeemed pursuant to this paragraph 7 or otherwise acquired by the Corporation in any manner whatsoever shall be cancelled and shall not under any circumstances be reissued; and the Corporation may from time to time take such appropriate corporate action as may be necessary to reduce accordingly the number of authorized shares of Series A Convertible Preferred Stock. 8. Amendments. No provision of these terms of the Series A Convertible ---------- Preferred Stock may be amended, modified or waived without the written consent or affirmative vote of the holders of at least two-thirds of the then outstanding shares of Series A Convertible Preferred Stock. IN WITNESS WHEREOF, Credit Technologies, Inc. has caused this certificate to be signed by its President and attested by its Secretary this eighth day of February, 1991. CREDIT TECHNOLOGIES, INC. By: /s/ Pamela D. A. Reeve -------------------------- Its President ATTEST By: /s/ John D. Patterson, Jr. --------------------------- Its Secretary CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF CREDIT TECHNOLOGIES, INC. Credit Technologies, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: That the following amendment to the Certificate of Incorporation of the Corporation dated June 16, 1989, as amended on November 13, 1990, December 20, 1990 and February 11, 1991, has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law: That the Certificate of Incorporation of the Corporation be amended by deleting the old Article Fourth and inserting a new Article Fourth in its stead which shall be and read as follows in its entirety: FOURTH: The total number of shares of capital stock which the Corporation shall have the authority to issue shall be 7,250,516 shares, of which 6,000,000 shall be shares of common stock, each of which shall have a par value of $.01 (the "Common Stock"), and 1,250,516 shall be shares of preferred stock, each of which shall have a par value of $.01 (the "Preferred Stock"), amounting to an aggregate par value of $72,505.16. The following is a statement of the designations, powers, preferences and rights, and the qualifications, limitations and restrictions, granted to or imposed upon the respective classes of shares of capital stock of the Corporation or the holders thereof: SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK 1. Number of Shares. The series of Preferred Stock designated and known ---------------- as "Series A Convertible Preferred Stock" shall consist of 630,516 shares. The series of Preferred Stock designated and known as the "Series B Convertible Preferred Stock" shall consist of 620,0000 shares. The term "Preferred Stock" used without reference to the Series A Convertible Preferred Stock or the Series B Convertible Preferred Stock means both the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock, share for share alike without distinction as to series except as otherwise expressly provided or as the context otherwise requires. 2. Voting. ------ 2A. General. Except as may be otherwise provided in these terms of ------- the Preferred Stock or by law, the Preferred Stock shall vote together with all other classes and series of stock of the Corporation as a single class on all actions to be taken by the stockholders of the Corporation, including, without limitation, the election of directors of the Corporation. Notwithstanding the foregoing or anything else to the contrary provided in the Certificate of Incorporation, if the Corporation fails or refuses, for any reason or for no reason, to redeem on the Redemption Date (as defined in paragraph 7) all of the then outstanding shares of Preferred Stock in accordance with the terms and provisions of paragraph 7, the holders of the Preferred Stock, voting together as a single series, shall be entitled to elect a majority of the directors of the Corporation. Each share of Preferred Stock shall entitle the holder thereof to such number of votes per share on each such action as shall equal the number of shares of Common Stock (including fractions of a share) into which each such share of Preferred Stock is then convertible. 2B. Board Size. The Corporation shall not, without the written ---------- consent or affirmative vote of the holders of at least two-thirds of the then outstanding shares of Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) together as a single series, increase the maximum number of directors constituting the Board of Directors to a number in excess of seven. 3. Dividends. Commencing on and from October 1, 1992, the holders of the --------- Series A Convertible Preferred Stock shall be entitled to receive, out of funds legally available therefor, annual dividends at the rate per annum or $.127 per share, and the holders of the Series B Convertible Preferred Stock shall be entitled to receive, out of funds legally available therefor, annual dividends at the rate per annum of $.14 per share (annually an "Accrued Dividend" and collectively the "Accruing Dividends"), such payments to be made (except as hereinafter provided) on the last day of December in each year for the period ended on the immediately prior September 30, with the first such dividend being paid on December 31, 1993 for the period ended September 30, 1993. Accruing Dividends shall accrue from day to day, whether or not earned or declared, and shall be cumulative. The Board of Directors may defer paying an Accruing Dividend on both the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock for a period ended September 30 to the extent that for the Corporation's fiscal year ended such September 30 it had consolidated net income of less than $500,000. To the extent that the Corporation has deferred paying an Accrued Dividend, such Accrued Dividend shall be paid on the first December 31 thereafter in which the Corporation's consolidated net income for the immediately prior September 30 equals or exceeds $500,000. Payment of deferred Accrued Dividends shall be made at the rate of one deferred Accrued Dividend for each $500,000 of consolidated net income in excess of the first $500,000. For the purposes of this paragraph 3, consolidated net income shall be determined in accordance with generally accepted accounting principles, consistently applied. 4. Liquidation. Upon any liquidation, dissolution or winding up of the ----------- Corporation, whether voluntary or involuntary, the holders of the shares of Preferred Stock shall first be entitled, before any distribution or payment is made upon any stock ranking on liquidation junior to the Preferred Stock, to be paid an amount equal to the greater of (i) $1.586 per share in the case of each share of Series A Convertible Preferred Stock and $1.75 per share in the case of each such share of Series B Convertible Preferred Stock, plus, in the case of each share, an amount equal to all Accruing Dividends unpaid thereon (whether or not declared) and any other dividends declared but unpaid thereon, computed to the date payment thereof is made available, or (ii) such amount per share as would have been payable had each such share of Preferred Stock been converted to Common Stock pursuant to paragraph 6 immediately prior to such liquidation, dissolution or winding up, and the holders of Preferred Stock shall not be entitled to any further payment, such amount payable with respect to one share of Preferred Stock being sometimes referred to as the "Liquidation Preference Payment" and with respect to all shares of Preferred Stock being sometimes referred to as the "Liquidation Preference Payments." If upon such liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets to be distributed among the holders of Preferred Stock shall be insufficient to permit payment in full to the holders of Preferred Stock of the Liquidation Preference Payments, then the entire assets of the Corporation to be so distributed shall be distributed ratably, based upon Liquidation Payments, among the holders of Preferred Stock. Upon any such liquidation, dissolution or winding up of the Corporation, immediately after the holders of Preferred Stock shall have been paid in full the Liquidation Preference Payments, the remaining net assets of the Corporation available for distribution may be distributed ratably among the holders of Common Stock. Written notice of such liquidation, dissolution or winding up, stating a payment date and the place where said payments shall be made, shall be given by mail, postage prepaid, or by telex to non-U.S. residents, not less than 20 days prior to the payment date stated therein, to the holders of record of Preferred Stock, such notice to be addressed to each such holder at its address as shown by the records of the Corporation. The consolidation or merger of the Corporation into or with any other entity or entities which results in the exchange of outstanding shares of the Corporation for securities or other consideration issued or paid or caused to be issued or paid by any such entity or affiliate thereof (excluding any consolidation or merger in which the shareholders of the Corporation hold more than fifty percent (50%) of the voting securities of the surviving corporation), and the sale or transfer by the Corporation of all or substantially all its assets, shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of the provisions of this paragraph 4. For purposes hereof, the Common Stock shall rank in liquidation junior to the Preferred Stock. 5. Restrictions. At any time when shares of Preferred Stock are ------------ outstanding, except where the vote or written consent of the holders of a greater number of shares of the Corporation is required by law or by the Certificate of Incorporation, and in addition to any other vote required by law or the Certificate of incorporation, without the approval of the holders of at least two-thirds of the then outstanding shares of Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) together as a single series, the Corporation will not: 5A. Create or authorize the creation of any additional class or series of shares of stock unless the same ranks junior to the Preferred Stock as to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, or increase the authorized amount of the Series A Convertible Preferred Stock or Series B Convertible Preferred Stock or increase the authorized amount of any additional class or series of shares of stock unless the same ranks junior to the Preferred Stock as to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, or create or authorize any obligation or security convertible into shares of Series A Convertible Preferred Stock or Series B Convertible Preferred Stock or into shares of any other class or series of stock unless the same ranks junior to the Preferred Stock as to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, whether any such creation, authorization or increase shall be by means of amendment to the Certificate of Incorporation or by merger, consolidation or otherwise; 5B. Consent to any liquidation, dissolution or winding up of the Corporation or consolidate or merge into or with any other entity or entities or sell or transfer all or substantially all its assets; 5C. Amend, alter or repeal its Certificate of Incorporation or By- laws so as to adversely affect the rights of the holders of the Series A Convertible Preferred Stock or the Series B Convertible Preferred Stock; 5D. Purchase or set aside any sums for the purchase of, or pay any dividend or make any distribution on, any shares of stock other than the Preferred Stock, except for dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock and except for the purchase of shares of Common Stock from former employees of the corporation who acquired such shares directly from the Corporation, if each such purchase is made pursuant to contractual rights held by the Corporation relating to the termination of employment of such former employee and the purchase price does not exceed the original issue price paid by such former employee to the corporation for such shares; or 5E. Redeem or otherwise acquire any shares of Preferred Stock except as expressly authorized in paragraph 7 hereof or pursuant to a purchase offer made pro rata to all holders of shares of Preferred Stock on the basis of the aggregate number of outstanding shares of Preferred Stock then held by each such holder. 6. Conversions. The holders of shares of Preferred Stock shall have the ----------- following conversion rights: 6A. Right to Convert. Subject to the terms and conditions of this ---------------- paragraph 6, the holder of any share or shares of Preferred Stock shall have the right, at its option at any time, to convert any such shares of Preferred Stock (except that upon any liquidation of the Corporation the right of conversion shall terminate at the close of business on the business day fixed for payment of the amount distributable on the Preferred Stock) into such number of fully paid and nonassessable shares of Common Stock as is obtained by (A) in the case of the Series A Convertible Preferred Stock, (i) multiplying the number of shares of Series A Convertible Preferred Stock so to be converted by $1.586 and (ii) dividing the result by the conversion price of $1.586 per share or, in case an adjustment of such price has taken place pursuant to the further provisions of this paragraph 6, then by the conversion price as last adjusted and in effect at the date any share or shares of Series A Convertible Preferred Stock are surrendered for conversion, and (B) in the case of the Series B Convertible Preferred Stock, (i) multiplying the number of shares of Series B Convertible Preferred Stock so to be converted by $1.75 and (ii) dividing the result by the conversion price of $1.75 per share or, in case an adjustment of such price has taken place pursuant to the further provisions of this paragraph 6, then by the conversion price as last adjusted and in effect at the date any share or shares of Series B Convertible Preferred Stock are surrendered for conversion. The conversion price set forth in clause A(ii) and clause B(ii) hereof or such price as last adjusted, being referred to as the "Conversion Price". Such rights of conversion shall be exercised by the holder thereof by giving written notice that the holder elects to convert a stated number of shares of Preferred Stock into Common Stock and by surrender of a certificate or certificates for the shares so to be converted to the Corporation at its principal office (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holders of the Preferred Stock) at any time during its usual business hours on the date set forth in such notice, together with a statement of the name or names (with address) in which the certificate or certificates for shares of Common Stock shall be issued. 6B. Issuance of Certificates; Time Conversion Effected. Promptly -------------------------------------------------- after the receipt of the written notice referred to in subparagraph 6A and surrender of the certificate or certificates for the share or shares of Preferred Stock to be converted, the Corporation shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares of Preferred Stock. To the extent permitted by law, such conversion shall be deemed to have been effected and the Conversion Price shall be determined as of the close of business on the date on which such written notice shall have been received by the Corporation and the certificate or certificates for such share or shares shall have been surrendered as aforesaid, and at such time the rights of the holder of such share or shares of Preferred Stock shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby. 6C. Fractional Shares; Dividends; Partial Conversion. No fractional ------------------------------------------------ shares shall be issued upon conversion of Preferred Stock into Common Stock and no payment or adjustment shall be made upon any conversion on account of any cash dividends on the Common Stock issued upon such conversion. At the time of each conversion, the Corporation shall pay, out of assets legally available therefor, in cash an amount equal to all dividends, excluding Accruing Dividends, declared and unpaid on the shares of Preferred Stock surrendered for conversion to the date upon which such conversion is deemed to take place as provided in subparagraph 6B. In case the number of shares of Preferred Stock represented by the certificate or certificates surrendered pursuant to subparagraph 6A exceeds the number of shares converted the Corporation shall, upon such conversion execute and deliver to the holder, at the expense of the Corporation, a new certificate or certificates for the number of shares of Preferred Stock represented by the certificate or certificates surrendered which are not to be converted. If any fractional share of Common Stock would, except for the provisions of the first sentence of this subparagraph 6C, be delivered upon such conversion, the Corporation, in lieu of delivering such fractional share, shall pay to the holder surrendering the Preferred Stock for conversion an amount in cash equal to the current market price of such fractional share as determined in good faith by the Board of Directors of the Corporation. 6D. Adjustment of Price Upon Issuance of Common Stock. Except as ------------------------------------------------- provided in subparagraph 6E, if and whenever the Corporation shall issue or sell, or is, in accordance with subparagraphs 6D(l) through 6D(7), deemed to have issued or sold, any shares of Common Stock for a consideration per share less than the Conversion Price in effect immediately prior to the time of such issue or sale, then, forthwith upon such issue or sale, the Conversion Price shall be reduced to the price determined by dividing (i) an amount equal to the sum of (a) the number of shares of Common Stock outstanding immediately prior to such issue or sale (including the number of shares of Common Stock then issued or issuable upon conversion of all issued and outstanding shares of Preferred Stock) multiplied by the then existing Conversion Price and (b) the consideration, if any, received by the Corporation upon such issue or sale, by (ii) the total number of shares of Common Stock outstanding immediately after such issue or sale (including the number of shares of Common Stock then issued or issuable upon conversion of all issued and outstanding shares of Preferred Stock). For purposes of this subparagraph 6D, the following subparagraphs 6D(l) to 6D(7) shall also be applicable: 6D(1) Issuance of Rights or Options. In case at any time the ----------------------------- Corporation shall in any manner grant (whether directly or by assumption in a merger or otherwise) any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or security convertible into or exchangeable for Common Stock (such warrants, rights or options being called "Options" and such convertible or exchangeable stock or securities being called "Convertible Securities") whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities (determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such options, plus the a minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Conversion Price in effect immediately prior to the time of the granting of such options then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options or the issuance of such Convertible Securities and thereafter shall be deemed to be outstanding. Except as otherwise provided in subparagraph 6D(3), no adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 6D(2) Issuance of Convertible Securities. In case the ---------------------------------- Corporation shall in any manner issue (whether directly or by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding, provided that (a) except as otherwise provided in subparagraph 6D(3), no adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and (b) if any such issue or sale of such Convertible Securities is made upon exercise of any Options to purchase any such Convertible Securities for which adjustments of the Conversion Price have been or are to be made pursuant to other provisions of this subparagraph 6D, no further adjustment of the Conversion Price shall be made by reason of such issue or sale. 6D(3) Change in Option Price or Conversion Rate. Upon the ----------------------------------------- happening of any of the following events, namely, if the purchase price provided for in any Option referred to in subparagraph 6D(l), the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subparagraph 6D(l) or 6D(2), or the rate at which Convertible Securities referred to in subparagraph 6D(l) or 6D(2) are convertible into or exchangeable for Common Stock shall change at any time (including, but not limited to, changes under or by reason of provisions designed to protect against dilution), the Conversion Price in effect at the time of such event shall forthwith be readjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold, but only if as a result of such adjustment the Conversion Price then in effect hereunder is thereby reduced; and on the expiration of any such Option or the termination of any such right to convert or exchange such Convertible Securities, the Conversion Price then in effect hereunder shall forthwith be increased to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. 6D(4) Stock Dividends. In case the Corporation shall declare a --------------- dividend or make any other distribution upon any stock of the Corporation payable in Common Stock (except for dividends or distributions upon the Common Stock), Options or Convertible Securities, any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration. 6D(5) Consideration for Stock. In case any shares of Common ----------------------- Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation therefor, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the Corporation, without deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any Options shall be issued in connection with the issue and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Corporation. 6D(6) Record Date. In case the Corporation shall take a record ----------- of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (i) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 6D(7) Treasury Shares. The number of shares of Common Stock --------------- outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be considered an issue or sale of Common Stock for the purpose of this subparagraph 6D. 6D(a) Special Adjustment to Series B Convertible Preferred Stock. ---------------------------------------------------------- In addition to the adjustments to the Conversion Price pursuant to subparagraph 6D, the Conversion Price of the Series B convertible Preferred Stock will be adjusted to an amount equal to: (a) two times the Corporation's consolidated gross revenues from operations for its fiscal year ending September 30, 1992, (b) divided by 4,143,892; provided, however, that in no event shall the foregoing adjustment result in a Conversion Price of less than $.965 per share or more than $1.93 per share. The foregoing notwithstanding no adjustment pursuant to this subparagraph 6D(a) will be made if the then Conversion Price of the Series B Convertible Preferred Stock shall be less than $.965 per share. The numbers and prices set forth in this subparagraph 6D(a) shall be appropriately adjusted to reflect the occurrence of any event described in subparagraph 6F. 6E. Certain Issues of Common Stock and Other Events Excepted. -------------------------------------------------------- Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Conversion Price in the case of the issuance of (i) up to an aggregate of 800,000 shares (appropriately adjusted to reflect the occurrence of any event described in subparagraph 6F) of Common Stock to directors, officers, employees or consultants of the Corporation in connection with their service to the Corporation or their employment by the Corporation and (ii) shares of Common Stock issued upon conversion of the Preferred Stock. Any shares of Common Stock issued pursuant to clause (i) of this subparagraph 6E which are hereinafter repurchased by the Company at a purchase price per share no greater than the price per share paid to the Company upon the issuance of such shares shall again be available for issuance pursuant to clause (i) of this subparagraph 6E. Further, no adjustment to the Conversion Price of the Series A Convertible Preferred Stock shall be made as a result of any adjustment to the Conversion Price of the Series B Convertible Preferred Stock pursuant to subparagraph 6D(a). 6F. Subdivision or Combination of Common Stock. In case the ------------------------------------------ Corporation shall at any time subdivide (by any stock split, stock dividend or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and, conversely, in case the outstanding shares of Common Stock shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased. 6G. Reorganization or Reclassification. If any capital ---------------------------------- reorganization or reclassification of the capital stock of the Corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provisions shall be made whereby each holder of a share or shares of Preferred Stock shall thereupon have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the conversion of such share or shares of Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore receivable upon such conversion had such reorganization or reclassification not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including without limitation provisions for adjustments of the Conversion Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stack, securities or assets thereafter deliverable upon the exercise of such conversion rights. 6H. Notice of Adjustment. Upon any adjustment of the Conversion -------------------- Price, then and in each such case the Corporation shall give written notice thereof, by first class mail, postage prepaid, or by telex or telecopier to non- U.S. residents, addressed to each holder of shares of Preferred Stock at the address of such holder as shown an the books of the Corporation, which notice shall state the Conversion Price resulting from such adjustment, setting forth in reasonable detail the method upon which such calculation is based. 6I. Other Notices. In case at any time: ------------- (1) the Corporation shall declare any dividend upon its Common Stock payable in cash or stock or make any other distribution to the holders of its Common Stock; (2) the Corporation shall offer for subscription pro rata to the --- ---- holders of its Common Stock any additional shares of stock of any class or other rights; (3) there shall be any capital reorganization or reclassification of the capital stock of the Corporation, or a consolidation or merger of the Corporation with or into, or a sale of all or substantially all its assets to, another entity or entities; or (4) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then, in any one or more of said cases, the Corporation shall give, by first class mail, postage prepaid, or by telex or telecopier to non-U.S. residents, addressed to each holder of any shares of Preferred Stock at the address of such holder as shown on the books of the Corporation, (a) at least 20 days' prior written notice of the date on which the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 20 days, prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. 6J. Stock to be Reserved. The Corporation will at all times reserve -------------------- and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the conversion of Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Preferred Stock. The Corporation covenants that all shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, and, without limiting the generality of the foregoing, the Corporation covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the Conversion Price in effect at the time. The Corporation will take all such action as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirement of any national securities exchange upon which the Common Stock may be listed. The Corporation will not take any action which results in any adjustment of the Conversion Price if the total number of shares of Common Stock issued and issuable after such action upon conversion of the Preferred Stock would exceed the total number of shares of Common Stock then authorized by its Certificate of Incorporation. 6K. No Reissuance of Preferred Stock. Shares of Preferred Stock -------------------------------- which are converted into shares of Common Stock as provided herein shall not be reissued. 6L. Issue Tax. The issuance of certificates for shares of Common --------- stock upon conversion of Preferred Stock shall be made without charge to the holders thereof for any issuance tax in respect thereof, provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Preferred Stock which is being converted. 6M. Closing of Books. The Corporation will at no time close its ---------------- transfer books against the transfer of any Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Preferred Stock in any manner which interferes with the timely conversion of such Preferred Stock, except as may otherwise be required to comply with applicable securities laws. 6N. Definition of Common Stock. As used in this paragraph 6, the -------------------------- term "Common Stock" shall mean and include the Corporation's authorized Common Stock, par value $.01 per share, as constituted on the date of filing of these terms of the Preferred Stock, and shall also include any capital stock of any class of the Corporation thereafter authorized which shall neither be limited to a fixed sum or percentage of par value in respect of the rights of the holders thereof to participate in dividends nor entitled to a preference in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation; provided that the shares of Common Stock receivable upon conversion of shares of Preferred Stock shall include only shares designated as Common Stock of the Corporation on the date of filing of this instrument, or in case of any reorganization' or reclassification of the outstanding shares thereof, the stock, securities or assets provided for in subparagraph 6G. 6O. Mandatory Conversion. If at any time (A) the Corporation shall -------------------- effect a firm commitment underwritten public offering of shares of Common Stock in which (i) the aggregate price paid for such shares by the public shall be at least $7,500,000 and (ii) the price paid by the public for such shares shall be at least $5.25 per share (appropriately adjusted to reflect the occurrence of any event described in subparagraph 6F) or (B) there shall be less than twenty percent (20%) of the originally issued shares of Preferred Stock outstanding, then effective upon the closing of the sale of such shares by the Corporation pursuant to such public offering or such reduction in the number of outstanding shares of Preferred Stock, as the case may be, all outstanding shares of Preferred Stock shall automatically and without any further action on the part of the Corporation convert to shares of Common Stock. 7. Redemption. The shares of Preferred Stock shall be redeemed as ---------- follows: 7A. Mandatory Redemption. On December 31, 1997 (the "Redemption --------------------- Date"), the Corporation shall redeem from each holder of shares of Preferred Stock, out of funds legally available therefor, all of the shares of Preferred Stock held by such holder on the Redemption Date. 7B. Redemption Price and Payment. The Preferred Stock to be redeemed ---------------------------- on the Redemption Date shall be redeemed by paying for each share in cash an amount equal to the greater of (i) the Liquidation Preference Payment for such Preferred Stock and (ii) the Fair Market Value as of September 30, 1997, such amount being referred to as the "Redemption Price". Such payment shall be made in full on the Redemption Date to the holders entitled thereto. 7C. Redemption Mechanics. At least ten (10) but not more than ninety -------------------- (90) days prior to the Redemption Date, written notice (the "Redemption Notice") shall be given by the Corporation by mail, postage prepaid, or by telex or telecopier to non-U.S. residents, to each holder of record (at the close of business on the business day next preceding the day on which the Redemption Notice is given) of shares of Preferred Stock notifying such holder of the redemption and specifying the Redemption Price, the Redemption Date and the place where said Redemption Price shall be payable. The Redemption Notice shall be addressed to each holder at his address as shown by the records of the Corporation. From and after the close of business on the Redemption Date, unless there shall have been a default in the payment of the Redemption Price, all rights of holders of shares of Preferred Stock (except the right to receive the Redemption Price) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the Corporation legally available for redemption of shares of Preferred Stock on the Redemption Date are insufficient to redeem the total number of outstanding shares of Preferred Stock, the holders of shares of Preferred Stock shall share ratably, based upon Liquidation Payments, in any funds legally available for redemption of such shares according to the respective amounts which would be payable with respect to the full number of shares owned by them if all such outstanding shares were redeemed in full. The shares of Preferred Stock not redeemed shall remain outstanding and entitled to all rights and preferences provided herein. At any time thereafter when additional funds of the Corporation are legally available for the redemption of such shares of Preferred Stock, such funds will be used, at the end of the next succeeding fiscal quarter, to redeem the balance of such shares, or such portion thereof for which funds are then legally available, on the basis set forth above. 7D. Fair Market Value. For the purposes of this paragraph 7, "Fair ----------------- Market Value" per share of Preferred Stock shall mean: 7D(1) if the Company's Common Stock is publicly traded, an amount (A) equal to (x) the average on September 30, 1997 of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if such stock is then traded on a national securities exchange; or (y) the last reported sale price on September 30, 1997 of the Common Stock on the NASDAQ National Market List, if the Common Stock is not then traded on a national securities exchange; or (z) the closing bid price (or average of bid prices) last quoted on September 30, 1997 by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the NASDAQ National Market List, (B) multiplied by the number of shares of Common Stock (including fractions of a share) into which each share of Preferred Stock may be converted as of September 30, 1997; or 7D(2) if the Company's Common Stock is not publicly traded as provided in subparagraph 7(D)(1) above, an amount (A) determined by dividing the Company's Fair Market Value, determined as of September 30, 1997, by the number of actual outstanding shares of Common Stock, on a fully-diluted basis, as of September 30, 1997, (B) multiplied by the number of shares of Common Stock (including fractions of a share) into which each share of Preferred Stock may be converted as of September 30, 1997. The Company's Fair Market Value shall be the price which could be obtained for one hundred percent (100%) of the equity interest in the Company on a consolidated basis if the Company were sold to a willing buyer by a willing seller in a single arm's-length transaction, determined by considering the Company's profits after tax, book value, revenues and cash flow as of September 30, 1997. In the event that the Fair Market Value per share of Common Stock is to be determined pursuant to subparagraph 7D(2) above then, in such event, on or before October 31, 1997, a representative of the Company and a representative of the holder or holders of a majority of the then outstanding shares of Preferred Stock will use their best efforts to reach agreement on the Company's Fair Market Value. If they are unable to reach such agreement within ten (10) days after the end of such period, the Company and such holder or holders will agree on the selection of an independent appraiser. Such appraiser will have fifteen (15) days in which to determine the Company's Fair Market Value, and its determination thereof will be final and binding on all parties concerned. If the Company and such holder or holders are unable to reach an agreement as to an independent appraiser within five (5) days after the aforesaid ten (10) day period, then two appraisers will be appointed within five (5) days thereafter to determine the Company's Fair Market Value, one by the Company and one by the holder or holders of a majority of the then outstanding shares of Preferred Stock. Each of the Company and such holder or holders will cause their appraiser to determine independently the Company's Fair Market Value within fifteen (15) days after the time of their appointment. If the lesser of the two appraised values so determined (the "Low Value") exceeds or is equal to ninety percent (90%) of the value of the greater of the two appraised values (the "High Value"), the Company's Fair Market Value will be deemed to be equal to the average of the two appraisals. If the Low Value is less than ninety percent (90%) of the High Value, the two appraisers will themselves appoint a third appraiser within five (5) days after the two appraisals have been rendered. Such third appraiser will have fifteen (15) days in which to determine independently the Company's Fair Market Value. The median of the three (3) appraised values shall be binding on all parties concerned as the Company's Fair Market Value. The expenses of the appraisal will be borne solely by the Company. 7E. Additional Payments Upon Merger, Etc. If at any time within one ------------------------------------ year after the date of redemption provided for in paragraph 7A, the Company shall become party to one or more mergers, consolidations, sales of all or substantially all of its assets or other similar corporate actions pursuant to which the holders of the Company's Common Stock receive cash, securities or other property, or the Company is acquired by the purchase of a majority of its shares of Common Stock, or the Company or its stockholders enter into any agreement or letter of intent contemplating any of the foregoing transactions, the Company shall, simultaneously with the consummation of any such transaction or at such later time as any payment described below is received by the Company or its stockholders, make an additional payment to the holder or holders whose shares of Preferred Stock were so redeemed by the Company in an amount equal to the excess, if any, of the value per share of the cash, securities and other property that such holder or holders would have received (or that the Company received in which such holder or holders would have had a beneficial interest) had the shares of Preferred Stock not been redeemed pursuant to paragraph 7A, over the payment received by such holder or holders with respect to such shares of Preferred Stock. Each payment made to such holder or holders pursuant to this subparagraph 7E shall be made either in cash or in the form of the securities and other property received by the holders of shares of Common Stock of the Company. 7F. Redeemed or Otherwise Acquired Shares to be Retired. Any shares --------------------------------------------------- of Preferred Stock redeemed pursuant to this paragraph 7 or otherwise acquired by the Corporation in any manner whatsoever shall be cancelled and shall not under any circumstances be reissued; and the Corporation may from time to time take such appropriate corporate action as may be necessary to reduce accordingly the number of authorized shares of Preferred Stock. 8. Amendments. No provision of these terms of the Preferred Stock may be ---------- amended, modified or waived without the written consent or affirmative vote of the holders of at least two-thirds of the then outstanding shares of Preferred Stock, voting together as a single series. IN WITNESS WHEREOF, Credit Technologies, Inc. has caused this certificate to be signed by its President and attested by its Secretary this 11 day of December, 1991. - -------- -------- CREDIT TECHNOLOGIES, INC. ATTEST By: /s/ Pamela D.A. Reeve ----------------------- Its President By: /s/ John D. Patterson, Jr. --------------------------- Its Secretary CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF CREDIT TECHNOLOGIES, INC. Credit Technologies, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: That the following amendment to the Certificate of Incorporation of the Corporation dated June 16, 1989, as amended on November 13, 1990, December 20, 1990, February 11, 1991 and December 19, 1991, has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law: That the Certificate of Incorporation of the Corporation be amended by deleting the old Article Fourth and insert in a new Article Fourth in its stead which shall be and read as follows in its entirety: FOURTH: The total number of shares of capital stock which the Corporation shall have the authority to issue shall be 8,475,516 shares, of which 7,000,000 shall be shares of common stock, each of which shall have a par value of $.01 (the "Common Stock"), and 1,475,516 shall be shares of preferred stock, each of which shall have a par value of $.01 (the "Preferred Stock"), amounting to an aggregate par value of $84,755.16. The following is a statement of the designations, powers, preferences and rights, and the qualifications, limitations and restrictions, granted to or imposed upon the respective classes of shares of capital stock of the Corporation or the holders thereof: IN WITNESS WHEREOF, Credit Technologies, Inc. has caused this certificate to be signed by its President and attested by its Secretary this 7th day of --- June, 1993. CREDIT TECHNOLOGIES, INC. By: /s/ Pamela D.A. Reeve ----------------------- Its President ATTEST By: /s/ John D. Patterson, Jr. --------------------------- Its Secretary SERIES A, SERIES B AND SERIES C CONVERTIBLE PREFERRED STOCK 1. Number of Shares. The series of Preferred Stock designated and known ---------------- as "Series A Convertible Preferred Stock" shall consist of 630,516 shares. The series of Preferred stock designated and known as the "Series B Convertible Preferred Stock" shall consist of 620,000 shares. The series of Preferred Stock designated and known as "Series C Convertible Preferred Stock" shall consist of 225,000 shares. The term "Preferred Stock" used without reference to the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock or the Series C Convertible Preferred Stock means the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock and the Series C Convertible Preferred Stock share for share alike and without distinction as to series except as otherwise expressly provided or as the context otherwise requires. 2. Voting. ------ 2A. General. Except as may be otherwise provided in these terms of ------- the Preferred Stock or by law, the Preferred Stock shall vote together with all other classes and series of stock of the Corporation as a single class on all actions to be taken by the stockholders of the Corporation, including, without limitation, the election of directors of the Corporation. Notwithstanding the foregoing or anything else to the contrary provided in the Certificate of Incorporation, if the Corporation fails or refuses, for any reason or for no reason, to redeem on the Redemption Date (as defined in paragraph 7) all of the then outstanding shares of Preferred Stock in accordance with the terms and provisions of paragraph 7, the holders of the Preferred Stock, voting together as a single series, shall be entitled to elect a majority of the directors of the Corporation. Each share of Preferred Stock shall entitle the holder thereof to such number of votes per share on each such action as shall equal the number of shares of Common Stock (including fractions of a share) into which each such share of Preferred Stock is then convertible. 2B. Board Size. The Corporation shall not, without the written ---------- consent or affirmative vote of the holders of at least two-thirds of the then outstanding shares of Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) together as a single series, increase the maximum number of directors constituting the Board of Directors to a number in excess of seven. 3. Dividends. Commencing on and from October 1, 1992, the holders of the --------- Series A Convertible Preferred Stock shall be entitled to receive, out of funds legally available therefor, annual dividends at the rate per annum of $.127 per share; commencing on and from October 1, 1992, the holders of the Series B Convertible Preferred Stock shall be entitled to receive, out of funds legally available therefor, annual dividends at the rate per annum of $.14 per share; and, commencing on and from October 1, 1993, the holders of the Series C Convertible Preferred Stock shall be entitled to receive, out of funds legally available therefor, annual dividends at the rate per annum of $.24 per share (annually an "Accrued Dividend" and collectively the "Accruing Dividends"), subject to the terms of this paragraph 3. Accruing Dividends shall be paid (except as hereinafter provided) on the last day of December in each year for the period ended on the immediately prior September 30, with the first such dividend with respect to the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock being paid on December 31, 1993 for the period ended September 30, 1993 and the first such dividend with respect to the Series C Convertible Preferred Stock being paid on December 31, 1994 for the period ended September 30, 1994. Accruing Dividends shall accrue from day to day, whether or not earned or declared, and shall be cumulative. If the Corporation has consolidated net after-tax income of less than $500,000 in a fiscal year ended September 30, the Board of Directors may defer paying an Accrued Dividend on the Preferred Stock for such period. If the Corporation has consolidated net after-tax income of $500,000 or more in any fiscal year in which Accrued Dividends are payable, then, on the December 31 immediately following the end of such fiscal year, the Corporation shall pay Accruing Dividends on all Preferred Stock with respect to which Accruing Dividends are then payable on a pro-rata basis to the extent of the lesser of 20% of consolidated net after-tax income or all Accruing Dividends then payable, subject to the following. Accrued Dividends with respect to each fiscal year will not be payable until all Accrued Dividends with respect to prior years have been paid. For each $500,000 in consolidated net after-tax income of the Corporation in a fiscal year, if the Corporation shall not pay the entire unpaid portion of one year's Accrued Dividend (to the extent that such Accrued Dividend is then payable), it shall, after payment of dividends, increase the unpaid amount of such Accrued Dividend by 8% of such unpaid amount. For the purposes of this paragraph 3, consolidated net after-tax income shall be determined in accordance with generally accepted accounting principles, consistently applied. 4. Liquidation. Upon any liquidation, dissolution or winding up of the ----------- Corporation, whether voluntary or involuntary, the holders of the shares of Preferred Stock shall first be entitled, before any distribution or payment is made upon any stock ranking on liquidation junior to the Preferred Stock, to be paid an amount equal to the greater of (i) $1.586 per share in the case of each share of Series A Convertible Preferred Stock, $1.75 per share in the case of each such share of Series B Convertible Preferred Stock and $3.00 per share in the case of each share of Series C Convertible Preferred Stock, plus, in the case of each share, an amount equal to all Accruing Dividends unpaid thereon (whether or not declared) and any other dividends declared but unpaid thereon, computed to the date payment thereof is made available, or (ii) such amount per share as would have been payable had each such share of Preferred Stock been converted to Common Stock pursuant to paragraph 6 immediately prior to such liquidation, dissolution or winding up, and the holders of Preferred Stock shall not be entitled to any further payment, such amount payable with respect to one share of Preferred Stock being sometimes referred to as the "Liquidation Preference Payment" and with respect to all shares of Preferred Stock being sometimes referred to as the "Liquidation Preference Payments". If upon such liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets to be distributed among the holders of Preferred Stock shall be insufficient to permit payment in full to the holders of Preferred Stock of the Liquidation Preference Payments, then the entire assets of the Corporation to be so distributed shall be distributed ratably, based upon Liquidation Payments, among the holders of Preferred Stock. Upon any such liquidation, dissolution or winding up of the Corporation, immediately after the holders of Preferred Stock shall have been paid in full the Liquidation Preference Payments, the remaining net assets of the Corporation available for distribution may be distributed ratably among the holders of Common Stock. Written notice of such liquidation, dissolution or winding up, stating a payment date and the place where said payments shall be made, shall be given by mail, postage prepaid, or by telex to non-U.S. residents, not less than 20 days prior to the payment date stated therein, to the holders of record of Preferred Stock, such notice to be addressed to each such holder at its address as shown by the records of the Corporation. The consolidation or merger of the Corporation into or with any other entity or entities which results in the exchange of outstanding shares of the Corporation for securities or other consideration issued or paid or caused to be issued or paid by any such entity or affiliate thereof (excluding any consolidation or merger in which the shareholders of the Corporation hold more than fifty percent (50%) of the voting securities of the surviving corporation), and the sale or transfer by the Corporation of all or substantially all its assets, shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of the provisions of this paragraph 4. For purposes hereof, the Common Stock shall rank in liquidation junior to the Preferred Stock. 5. Restrictions. At any time when shares of Preferred Stock are ------------ outstanding, except where the vote or written consent of the holders of a greater number of shares of the Corporation is required by law or by the Certificate of Incorporation, and in addition to any other vote required by law or the Certificate of Incorporation, without the approval of the holders of at least seventy-five percent (75%) of the then outstanding shares of Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) together as a single series, the Corporation will not: 5A. Create or authorize the creation of any additional class or series of shares of stock unless the same ranks junior to the Preferred Stock as to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, or increase the authorized amount of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock or Series C Convertible Preferred Stock or increase the authorized amount of any additional class or series of shares of stock unless the same ranks junior to the Preferred Stock as to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, or create or authorize any obligation or security convertible into shares of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock or Series C Convertible Preferred Stock or into shares of any other class or series of stock unless the same ranks junior to the Preferred Stock as to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, whether any such creation, authorization or increase shall be by means of amendment to the Certificate of Incorporation or by merger, consolidation or otherwise; 5B. Consent to any liquidation, dissolution or winding up of the Corporation or consolidate or merge into or with any other entity or entities or sell or transfer all or substantially all its assets; 5C. Amend, alter or repeal its Certificate of Incorporation or By- laws so as to adversely affect the rights of the holders of the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock or the Series C Convertible Preferred Stock; 5D. Purchase or set aside any sums for the purchase of, or pay any dividend or make any distribution on, any shares of stock other than the Preferred Stock, except for dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock and except for the purchase of shares of Common Stock from former employees of the Corporation who acquired such shares directly from the Corporation, if each such purchase is made pursuant to contractual rights held by the Corporation relating to the termination of employment of such former employee and the purchase price does not exceed the original issue price paid by such former employee to the Corporation for such shares; or 5E. Redeem or otherwise acquire any shares of Preferred Stock except as expressly authorized in paragraph 7 hereof or pursuant to a purchase offer made pro rata to all holders of shares of Preferred Stock on the basis of the aggregate number of outstanding shares of Preferred Stock then held by each such holder. 6. Conversions. The holders of shares of Preferred Stock shall have the ----------- following conversion rights: 6A. Right to Convert. Subject to the terms and conditions of this ---------------- paragraph 6, the holder of any share or shares of Preferred Stock shall have the right, at its option at any time, to convert any such shares of Preferred Stock (except that upon any liquidation of the Corporation the right of conversion shall terminate at the close of business on the business day fixed for payment of the amount distributable on the Preferred Stock) into such number of fully paid and nonassessable shares of Common Stock as is obtained by (A) in the case of the Series A Convertible Preferred Stock, (i) multiplying the number of shares of Series A Convertible Preferred Stock so to be converted by $1.586 and (ii) dividing the result by the conversion price of $1.586 per share or, in case an adjustment of such price has taken place pursuant to the further provisions of this paragraph 6, then by the conversion price as last adjusted and in effect at the date any share or shares of Series A Convertible Preferred Stock are surrendered for conversion; (B) in the case of the Series B Convertible Preferred Stock, (i) multiplying the number of shares of Series B Convertible Preferred Stock so to be converted by $1.75 and (ii) dividing the result by the conversion price of $1.44241251 per share or, in case an adjustment of such price has taken place pursuant to the further provisions of this paragraph 6, then by the conversion price as last adjusted and in effect at the date any share or shares of Series B Convertible Preferred Stock are surrendered for conversion; and (C) in the case of the Series C Convertible Preferred Stock, (i) multiplying the number of shares of Series C Convertible Preferred Stock so to be converted by $3.00 and (ii) dividing the result by the conversion price of $3.00 per share or, in the case an adjustment of such price has taken place pursuant to the further provisions of this paragraph 6, then by the conversion price as last adjusted and in effect at the date any share or shares of Series C Convertible Preferred Stock are surrendered for conversion. The conversion price set forth in each of clause A(ii), clause B(ii) and clause C(ii) hereof or such price as last adjusted, being referred to as the "Conversion Price". Such rights of conversion shall be exercised by the holder thereof by giving written notice that the holder elects to convert a stated number of shares of Preferred Stock into Common Stock and by surrender of a certificate or certificates for the shares so to be converted to the Corporation at its principal office (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holders of the Preferred Stock) at any time during its usual business hours on the date set forth in such notice, together with a statement of the name or names (with address) in which the certificate or certificates for shares of Common Stock shall be issued. 6B. Issuance of Certificates; Time Conversion Effected. Promptly -------------------------------------------------- after the receipt of the written notice referred to in subparagraph 6A and surrender of the certificate or certificates for the share or shares of Preferred Stock to be converted, the Corporation shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares of Preferred Stock. To the extent permitted by law, such conversion shall be deemed to have been effected and the applicable Conversion Price shall be determined as of the close of business on the date on which such written notice shall have been received by the Corporation and the certificate or certificates for such share or shares shall have been surrendered as aforesaid, and at such time the rights of the holder of such share or shares of Preferred Stock shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby. 6C. Fractional Shares; Dividends; Partial Conversion. No fractional ------------------------------------------------ shares shall be issued upon conversion of Preferred Stock into Common Stock and no payment or adjustment shall be made upon any conversion on account of any cash dividends on the Common Stock issued upon such conversion. At the time of each conversion, the Corporation shall pay, out of assets legally available therefor, in cash an amount equal to all dividends, excluding Accruing Dividends, declared and unpaid on the shares of Preferred Stock surrendered for conversion to the date upon which such conversion is deemed to take place as provided in subparagraph 6B. In case the number of shares of Preferred Stock represented by the certificate or certificates surrendered pursuant to subparagraph 6A exceeds the number of shares converted, the Corporation shall, upon such conversion, execute and deliver to the holder, at the expense of the Corporation, a new certificate or certificates for the number of shares of Preferred Stock represented by the certificate or certificates surrendered which are not to be converted. If any fractional share of Common Stock would, except for the provisions of the first sentence of this subparagraph 6C, be delivered upon such conversion, the Corporation, in lieu of delivering such fractional share, shall pay to the holder surrendering the Preferred Stock for conversion an amount in cash equal to the current market price of such fractional share as determined in good faith by the Board of Directors of the Corporation. 6D. Adjustment of Price Upon Issuance of Common Stock. Except as ------------------------------------------------- provided in subparagraph 6E, if and whenever the Corporation shall issue or sell, or is, in accordance with subparagraphs 6D(1) through 6D(7), deemed to have issued or sold, any shares of Common Stock for a consideration per share less than any Conversion Price in effect immediately prior to the time of such issue or sale, then, forthwith upon such issue or sale, such Conversion Price shall be reduced to the price determined by dividing (i) an amount equal to the sum of (a) the number of shares of Common Stock outstanding immediately prior to such issue or sale (including the number of shares of Common Stock then issued or issuable upon conversion of all issued and outstanding shares of Preferred Stock) multiplied by the then existing Conversion Price and (b) the consideration, if any, received by the Corporation upon such issue or sale, by (ii) the total number of shares of Common Stock outstanding immediately after such issue or sale (including the number of shares of Common Stock then issued or issuable upon conversion of all issued and outstanding shares of Preferred Stock). For purposes of this subparagraph 6D, the following subparagraphs 6D(1) to 6D(7) shall also be applicable: 6D(1) Issuance of Rights or Options. In case at any time the ----------------------------- Corporation shall in any manner grant (whether directly or by assumption in a merger or otherwise) any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or security convertible into or exchangeable for Common Stock (such warrants, rights or options being called "Options" and such convertible or exchangeable stock or securities being called "Convertible Securities") whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities (determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than any Conversion Price in effect immediately prior to the time of the granting of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options or the issuance of such Convertible Securities and thereafter shall be deemed to be outstanding. Except as otherwise provided in subparagraph 6D(3), no adjustment of any Conversion Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 6D(2) Issuance of Convertible Securities. In case the ---------------------------------- Corporation shall in any manner issue (whether directly or by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than any Conversion Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding, provided that (a) except as otherwise provided in subparagraph 6D(3), no adjustment of any Conversion Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and (b) if any such issue or sale of such Convertible Securities is made upon exercise of any Options to purchase any such Convertible Securities for which adjustments of any Conversion Price have been or are to be made pursuant to other provisions of this subparagraph 6D, no further adjustment of such Conversion Price shall be made by reason of such issue or sale. 6D(3) Change in Option Price or Conversion Rate. Upon the ----------------------------------------- happening of any of the following events, namely, if the purchase price provided for in any Option referred to in subparagraph 6D(1), the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subparagraph 6D(1) or 6D(2), or the rate at which Convertible Securities referred to in subparagraph 6D(1) or 6D(2) are convertible into or exchangeable for Common Stock shall change at any time (including, but not limited to, changes under or by reason of provisions designed to protect against dilution), each Conversion Price in effect at the time of such event shall forthwith be readjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold, but only if as a result of such adjustment the Conversion Price then in effect hereunder is thereby reduced; and on the expiration of any such Option or the termination of any such right to convert or exchange such Convertible Securities, each Conversion Price then in effect hereunder shall forthwith be increased to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. 6D(4) Stock Dividends. In case the Corporation shall declare a --------------- dividend or make any other distribution upon any stock of the Corporation payable in Common Stock (except for dividends or distributions upon the Common Stock), Options or Convertible Securities, any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration. 6D(5) Consideration for Stock. In case any shares of Common ----------------------- Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation therefor, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the Corporation, without deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any Options shall be issued in connection with the issue and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Corporation. 6D(6) Record Date. In case the Corporation shall take a record ----------- of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 6D(7) Treasury Shares. The number of shares of Common Stock --------------- outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be considered an issue or sale of Common Stock for the purpose of this subparagraph 6D. 6D(a) Special Adjustment to Series C Convertible Preferred Stock. In ---------------------------------------------------------- addition to the adjustments to the Conversion Prices pursuant to subparagraph 6D, the Conversion Price of the Series C Convertible Preferred Stock and the $3.00 per share liquidation payment with respect to the Series C Convertible Preferred Stock described in paragraph 4 will be adjusted as described in this subparagraph. In the event that the Corporation's audited financial statements for the year ended September 30, 1993 indicate that the Corporation has a net profit for such period, then such Conversion Price and liquidation payment shall be adjusted to an amount equal to: (a) 2.22 times the Corporation's consolidated gross revenues from operations for its fiscal year ending September 30, 1993, (b) divided by 5,169,230; provided, however, that in no event shall the foregoing adjustment result in a Conversion Price of less than $2.50 per share or more than $3.00 per share. In the event that the Corporation's audited financial statements for the year ended September 30, 1993 indicate that the Corporation has a net loss for such period, then such Conversion Price and liquidation payment shall be adjusted to an amount equal to $2.50. The foregoing notwithstanding, no adjustment pursuant to this subparagraph 6D(a) will be made if the then Conversion Price of the Series C Convertible Preferred Stock shall be less than $2.50 per share. The numbers and prices set forth in this subparagraph 6D(a) shall be appropriately adjusted to reflect the occurrence of any event described in subparagraph 6F. 6E. Certain Issues of Common Stock and Other Events Excepted. -------------------------------------------------------- Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of any Conversion Price in the case of the issuance of (i) up to an aggregate of 900,000 shares (appropriately adjusted to reflect the occurrence of any event described in subparagraph 6F) of Common Stock to directors, officers, employees or consultants of the Corporation in connection with their service to the Corporation or their employment by the Corporation and (ii) shares of Common Stock issued upon conversion of the Preferred Stock. Any shares of Common Stock issued pursuant to clause (i) of this subparagraph 6E which are hereinafter repurchased by the Corporation at a purchase price per share no greater than the price per share paid to the Corporation upon the issuance of such shares shall again be available for issuance pursuant to clause (i) of this subparagraph 6E. Further, no adjustment to the Conversion Prices of the Series A Convertible Preferred Stock or the Series B Convertible Preferred Stock shall be made as a result of any adjustment to the Conversion Price of the Series C Convertible Preferred Stock pursuant to subparagraph 6D(a). 6F. Subdivision or Combination of Common Stock. In case the ------------------------------------------ Corporation shall at any time subdivide (by any stock split, stock dividend or otherwise) its outstanding shares of Common Stock into a greater number of shares, each Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and, conversely, in case the outstanding shares of Common Stock shall be combined into a smaller number of shares, each Conversion Price in effect immediately prior to such combination shall be proportionately increased. 6G. Reorganization or Reclassification. If any capital ---------------------------------- reorganization or reclassification of the capital stock of the Corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provisions shall be made whereby each holder of a share or shares of Preferred Stock shall thereupon have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the conversion of such share or shares of Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore receivable upon such conversion had such reorganization or reclassification not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including without limitation provisions for adjustments of the Conversion Prices) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights. 6H. Notice of Adjustment. Upon any adjustment of the Conversion -------------------- Price of any series of Preferred Stock, then and in each such case the Corporation shall give written notice thereof, by first class mail, postage prepaid, or by telex or telecopier to non-U.S. residents, addressed to each holder of shares of such series of Preferred Stock at the address of such holder as shown on the books of the Corporation, which notice shall state the Conversion Price resulting from such adjustment, setting forth in reasonable detail the method upon which such calculation is based. 6I. Other Notices. In case at any time: ------------- (1) the Corporation shall declare any dividend upon its Common Stock payable in cash or stock or make any other distribution to the holders of its Common Stock; (2) the Corporation shall offer for subscription pro rata to the --- ---- holders of its Common Stock any additional shares of stock of any class or other rights; (3) there shall be any capital reorganization or reclassification of the capital stock of the Corporation, or a consolidation or merger of the Corporation with or into, or a sale of all or substantially all its assets to, another entity or entities; or (4) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then, in any one or more of said cases, the Corporation shall give, by first class mail, postage prepaid, or by telex or telecopier to non-U.S. residents, addressed to each holder of any shares of Preferred Stock at the address of such holder as shown on the books of the Corporation, (a) at least 20 days' prior written notice of the date on which the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 20 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. 6J. Stock to be Reserved. The Corporation will at all times reserve -------------------- and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the conversion of Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Preferred Stock. The Corporation covenants that all shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, and, without limiting the generality of the foregoing, the Corporation covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the Conversion Prices in effect at the time. The Corporation will take all such action as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirement of any national securities exchange upon which the Common Stock may be listed. The Corporation will not take any action which results in any adjustment of any Conversion Price if the total number of shares of Common Stock issued and issuable after such action upon conversion of the Preferred Stock would exceed the total number of shares of Common Stock then authorized by its Certificate of Incorporation. 6K. No Reissuance of Preferred Stock. Shares of Preferred Stock -------------------------------- which are converted into shares of Common Stock as provided herein shall not be reissued. 6L. Issue Tax. The issuance of certificates for shares of Common --------- Stock upon conversion of Preferred Stock shall be made without charge to the holders thereof for any issuance tax in respect thereof, provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Preferred Stock which is being converted. 6M. Closing of Books. The Corporation will at no time close its ---------------- transfer books against the transfer of any Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Preferred Stock in any manner which interferes with the timely conversion of such Preferred Stock, except as may otherwise be required to comply with applicable securities laws. 6N. Definition of Common Stock. As used in this paragraph 6, the -------------------------- term "Common Stock" shall mean and include the Corporation's authorized Common Stock, par value $.01 per share, as constituted on the date of filing of these terms of the Preferred Stock, and shall also include any capital stock of any class of the Corporation thereafter authorized which shall neither be limited to a fixed sum or percentage of par value in respect of the rights of the holders thereof to participate in dividends nor entitled to a preference in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation; provided that the shares of Common Stock receivable upon conversion of shares of Preferred Stock shall include only shares designated as Common Stock of the Corporation on the date of filing of this instrument, or in case of any reorganization or reclassification of the outstanding shares thereof, the stock, securities or assets provided for in subparagraph 6G. 60. Mandatory Conversion. If at any time (A) the Corporation shall -------------------- effect a firm commitment underwritten public offering of shares of Common Stock in which (i) the aggregate price paid for such shares by the public shall be at least $7,500,000 and (ii) the price paid by the public for such shares shall be at least $5.25 per share (appropriately adjusted to reflect the occurrence of any event described in subparagraph 6F) or (B) there shall be less than twenty percent (20%) of the originally issued shares of Preferred Stock outstanding, then effective upon the closing of the sale of such shares by the Corporation pursuant to such public offering or such reduction in the number of outstanding shares of Preferred Stock, as the case may be, all outstanding shares of Preferred Stock shall automatically and without any further action on the part of the Corporation convert to shares of Common Stock. 7. Redemption. The shares of Preferred Stock shall be redeemed as ---------- follows: 7A. Mandatory Redemption. On the Redemption Date (as hereinafter -------------------- defined), the Corporation shall redeem from each holder of shares of Preferred Stock, out of funds legally available therefor, all of the shares of Preferred Stock held by such holder on the Redemption Date. The Redemption Date with respect to the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock shall be December 31, 1997. The Redemption Date with respect to the Series C Convertible Preferred Stock shall be December 31, 1999. 7B. Redemption Price and Payment. The Preferred Stock to be redeemed ---------------------------- on the Redemption Date shall be redeemed by paying for each share in cash an amount equal to the greater of (i) the Liquidation Preference Payment for such Preferred Stock and (ii) the Fair Market Value as of the date ninety (90) days prior to the applicable Redemption Date (the "Valuation Date"), such amount being referred to as the "Redemption Price". Such payment shall be made in full on the Redemption Date to the holders entitled thereto. 7C. Redemption Mechanics. At least ten (10) but not more than ninety -------------------- (90) days prior to the Redemption Date, written notice (the "Redemption Notice") shall be given by the Corporation by mail, postage prepaid, or by telex or telecopier to non-U.S. residents, to each holder of record (at the close of business on the business day next preceding the day on which the Redemption Notice is given) of shares of Preferred Stock whose shares are to be redeemed on such Redemption Date notifying such holder of the redemption and specifying the Redemption Price, the Redemption Date and the place where said Redemption Price shall be payable. The Redemption Notice shall be addressed to each holder at his address as shown by the records of the Corporation. From and after the close of business on the Redemption Date, unless there shall have been a default in the payment of the Redemption Price, all rights of holders of shares of Preferred Stock whose shares are to be redeemed on such Redemption Date (except the right to receive the Redemption Price) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the Corporation legally available for redemption of shares of Preferred Stock on the Redemption Date are insufficient to redeem the total number of outstanding shares of Preferred Stock then to be redeemed, the holders of such shares of Preferred Stock shall share ratably, based upon Liquidation Payments, in any funds legally available for redemption of such shares according to the respective amounts which would be payable with respect to the full number of shares owned by them if all such outstanding shares were redeemed in full. The shares of Preferred Stock due for redemption but not redeemed shall remain outstanding and entitled to all rights and preferences provided herein. At any time thereafter when additional funds of the Corporation are legally available for the redemption of such shares of Preferred Stock, such funds will be used, at the end of the next succeeding fiscal quarter, to redeem the balance of such shares, or such portion thereof for which funds are then legally available, on the basis set forth above. 7D. Fair Market Value. For the purposes of this paragraph 7, "Fair ----------------- Market Value" per share of Preferred Stock shall mean: 7D(1) if the Corporation's Common Stock is publicly traded, an amount (A) equal to (x) the average on the Valuation Date of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if such stock is then traded on a national securities exchange; or (y) the last reported sale price on the Valuation Date of the Common Stock on the NASDAQ National Market List, if the Common Stock is not then traded on a national securities exchange; or (z) the closing bid price (or average of bid prices) last quoted on the Valuation Date by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the NASDAQ National Market List, (B) multiplied by the number of shares of Common Stock (including fractions of a share) into which each share of Preferred Stock may be converted as of the Valuation Date; or 7D(2) if the Corporation's Common Stock is not publicly traded as provided in subparagraph 7(D)(1) above, an amount (A) determined by dividing the Corporation's Fair Market Value, determined as of the Valuation Date, by the number of actual outstanding shares of Common Stock, on a fully-diluted basis, as of the Valuation Date, (B) multiplied by the number of shares of Common Stock (including fractions of a share) into which each share of Preferred Stock may be converted as of the Valuation Date. The Corporation's Fair Market Value shall be the price which could be obtained for one hundred percent (100%) of the equity interest in the Corporation on a consolidated basis if the Corporation were sold to a willing buyer by a willing seller in a single arm's-length transaction, determined by considering the Corporation's profits after tax, book value, revenues and cash flow as of the Valuation Date. In the event that the Fair Market Value per share of Common Stock is to be determined pursuant to subparagraph 7D(2) above then, in such event, on or before thirty (30) days after the Valuation Date, a representative of the Corporation and a representative of the holder or holders of a majority of the then outstanding shares of Preferred Stock will use their best efforts to reach agreement on the Corporation's Fair Market Value. If they are unable to reach such agreement within ten (10) days after the end of such period, the Corporation and such holder or holders will agree on the selection of an independent appraiser. Such appraiser will have fifteen (15) days in which to determine the Corporation's Fair Market Value, and its determination thereof will be final and binding on all parties concerned. If the Corporation and such holder or holders are unable to reach an agreement as to an independent appraiser within five (5) days after the aforesaid ten (10) day period, then two appraisers will be appointed within five (5) days thereafter to determine the Corporation's Fair Market Value, one by the Corporation and one by the holder or holders of a majority of the then outstanding shares of Preferred Stock. Each of the Corporation and such holder or holders will cause their appraiser to determine independently the Corporation's Fair Market Value within fifteen (15) days after the time of their appointment. If the lesser of the two appraised values so determined (the "Low Value") exceeds or is equal to ninety percent (90%) of the value of the greater of the two appraised values (the "High Value"), the Corporation's Fair Market Value will be deemed to be equal to the average of the two appraisals. If the Low Value is less than ninety percent (90%) of the High Value, the two appraisers will themselves appoint a third appraiser within five (5) days after the two appraisals have been rendered. Such third appraiser will have fifteen (15) days in which to determine independently the Corporation's Fair Market Value. The median of the three (3) appraised values shall be binding on all parties concerned as the Corporation's Fair Market Value. The expenses of the appraisal will be borne solely by the Corporation. 7E. Additional Payments Upon Merger, Etc. If at any time within one ------------------------------------ year after the date of redemption provided for in paragraph 7A, the Corporation shall become party to one or more mergers, consolidations, sales of all or substantially all of its assets or other similar corporate actions pursuant to which the holders of the Corporation's Common Stock receive cash, securities or other property, or the Corporation is acquired by the purchase of a majority of its shares of Common Stock, or the Corporation or its stockholders enter into any agreement or letter of intent contemplating any of the foregoing transactions, the Corporation shall, simultaneously with the consummation of any such transaction or at such later time as any payment described below is received by the Corporation or its stockholders, make an additional payment to the holder or holders whose shares of Preferred Stock were so redeemed by the Corporation in an amount equal to the excess, if any, of the value per share of the cash, securities and other property that such holder or holders would have received (or that the Corporation received in which such holder or holders would have had a beneficial interest) had the shares of Preferred Stock not been redeemed pursuant to paragraph 7A, over the payment received by such holder or holders with respect to such shares of Preferred Stock. Each payment made to such holder or holders pursuant to this subparagraph 7E shall be made either in cash or in the form of the securities and other property received by the holders of shares of Common Stock of the Corporation. 7F. Redeemed or Otherwise Acquired Shares to be Retired. Any shares --------------------------------------------------- of Preferred Stock redeemed pursuant to this paragraph 7 or otherwise acquired by the Corporation in any manner whatsoever shall be cancelled and shall not under any circumstances be reissued; and the Corporation may from time to time take such appropriate corporate action as may be necessary to reduce accordingly the number of authorized shares of Preferred Stock. 8. Amendments. No provision of these terms of the Preferred Stock may be ---------- amended, modified or waived without the written consent or affirmative vote of the holders of at least seventy-five percent (75%) of the then outstanding shares of Preferred Stock, voting together as a single class. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF CREDIT TECHNOLOGIES, INC. Credit Technologies, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: That the following amendment to the Certificate of Incorporation of the Corporation dated June 16, 1989, as amended on November 13, 1990, December 20, 1990, February 11, 1991, December 19, 1991 and June 7, 1993, has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law: That the Certificate of Incorporation of the Corporation be amended by: 1. deleting the words "seventy-five percent (75%)" from the seventh line of section 5 of Article Fourth and substituting therefor the words "two thirds"; 2. deleting the words "seventy-five percent (75%)" from the fourth line of section 8 of Article Fourth and substituting therefor the words "two thirds"; IN WITNESS WHEREOF, Credit Technologies, Inc. has caused this certificate to be signed by its President and attested by its Secretary this 27 day of August, 1993. ATTEST CREDIT TECHNOLOGIES, INC. By: /s/ John D. Patterson, Jr. By: /s/ ----------------------------- ------------------------- Secretary Chairman of the Board of Directors CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF CREDIT TECHNOLOGIES, INC. Credit Technologies, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of the Corporation, resolutions were duly adopted proposing and declaring advisable that the Certificate of Incorporation of the Corporation be amended and that such amendment be submitted to the stockholders of the Corporation for their consideration, as follows: RESOLVED: That the Board of Directors recommends and deems it advisable that the Certificate of Incorporation of the Corporation be amended to change the name of the Corporation to "Lightbridge, Inc." RESOLVED: That the aforesaid proposed amendment be submitted to the stockholders of the Corporation for their consideration. RESOLVED: That following the approval by the stockholders of the aforesaid proposed amendment as required by law, the officers of the Corporation be, and they hereby are, and each of them hereby is, authorized and directed to prepare, execute and file with the Secretary of State of Delaware a Certificate of Amendment setting forth the aforesaid amendment in the form approved by the stockholders. SECOND: That in lieu of a meeting and vote of stockholders, the stockholders have given written consent to said amendment in accordance with the provisions of section 228 of the General Corporation Law of the State of Delaware, and written notice of the adoption of the amendment has been given as provided in section 228 of the General Corporation Law of the State of Delaware to every stockholder entitled to such notice. THIRD: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of section 228 and section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said Credit Technologies, Inc. has caused this certificate to be signed by Pamela D.A. Reeve, its President, and attested by William G. Brown, its Assistant Secretary, this 1st day of November, 1994. ATTEST: CREDIT TECHNOLOGIES, INC. By: /s/ William G. Brown By: /s/ Pamela D.A. Reeve -------------------------- --------------------------- Assistant Secretary President CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF LIGHTBRIDGE, INC. Lightbridge, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does Hereby Certify: That the following amendment to the Certificate of Incorporation of the corporation dated June 16, 1989, as heretofore amended, has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law: That the Certificate of Incorporation of the Corporation be amended by deleting the old Article Fourth and inserting a new Article Fourth in its stead which shall be and read as follows in its entirety: FOURTH: The total number of shares of capital stock which the Corporation shall have the authority to issue shall be 12,475,516 shares, of which 10,000,000 shall be shares of common stock, each of which shall have a par value of $.01 (the "Common Stock"), and 2,475,516 shall be shares of preferred stock, each of which shall have a par value of $.01 (the "Preferred Stock"), amounting to an aggregate par value of $124,755.16. The following is a statement of the designations, powers, preferences and rights, and the qualifications, limitations and restrictions, granted to or imposed upon the respective classes of shares of capital stock of the Corporation or the holders thereof: SERIES A, SERIES B, SERIES C AND SERIES D CONVERTIBLE PREFERRED STOCK 1. Number of Shares. The series of Preferred Stock designated and known ---------------- as "Series A Convertible Preferred Stock" shall consist of 630,516 shares. The series of Preferred Stock designated and known as the "Series B Convertible Preferred Stock" shall consist of 620,000 shares. The series of Preferred Stock designated and known as "Series C Convertible Preferred Stock" shall consist of 225,000 shares. The series of Preferred Stock designated and known as "Series D Convertible Preferred Stock" shall consist of 1,000,000 shares. The term "Preferred Stock" used without reference to the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock, the Series C Convertible Preferred Stock or the Series D Convertible Preferred Stock means the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock, the Series C Convertible and the Series D Convertible Preferred Stock share for share alike and without distinction as to series except as otherwise expressly provided or as the context otherwise requires. 2. Voting. ------ 2A. General. Except as may be otherwise provided in these terms of ------- the Preferred Stock or by law, the Preferred Stock shall vote together with all other classes and series of stock of the Corporation as a single class on all actions to be taken by the stockholders of the Corporation, including, without limitation, the election of directors of the Corporation. Notwithstanding the foregoing or anything else to the contrary provided in the Certificate of Incorporation, if the Corporation fails or refuses, for any reason or for no reason, to redeem on the Redemption Date (as defined in paragraph 7) all of the then outstanding shares of Preferred Stock in accordance with the terms and provisions of paragraph 7, the holders of the Preferred Stock, voting together as a single series, shall be entitled to elect a majority of the directors of the Corporation. Each share of Preferred Stock shall entitle the holder thereof to such number of votes per share on each such action as shall equal the number of shares of Common Stock (including fractions of a share) into which each such share of Preferred Stock is then convertible. 2B. Board Size. The Corporation shall not, without the written ---------- consent or affirmative vote of the holders of at least two-thirds of the then outstanding shares of Preferred Stock, given in writing or by vote at a meeting, consenting or, voting (as the case may be) together as a single series, increase the maximum number of directors constituting the Board of Directors to a number in excess of seven. 3. Dividends. (a) If the Corporation has consolidated net after-tax --------- income of $1,000,000 or more in any fiscal year, then, on the December 31 immediately following the end of such fiscal year, the Corporation shall pay Accrued Dividends (as defined below) on the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred Stock on a pro-rata basis to the extent of the lesser of 20% of consolidated net after- tax income in excess of $1,000,000 or all Accrued Dividends then payable subject to the prior consent of the Board of Directors of the Corporation, provided that if the Board of Directors shall not consent to the payment of the Accrued Dividends when such dividends would otherwise be required to be paid under this Section 3(a), the amount of such Accrued Dividends shall be paid to the holders of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred Stock through the issuance of subordinated notes to such holders with a principal amount equal to the Accrued Dividends which would otherwise be required to be paid. Such subordinated notes shall have a maturity date as determined by the Board but, in any event, will be required to be paid in full promptly following the closing of any initial public offering of Common Stock by the Company and shall accrue interest at the annual rate of eight percent (8%). For purposes of this Section 3(a), "Accrued Dividends" shall mean (i) with respect to the Series A Convertible Preferred Stock, $.496 per share of Series A Convertible Preferred Stock, (ii) with respect to the Series B Convertible Preferred Stock, $.524 per share of Series B Convertible Preferred Stock, and (iii) with inspect to the Series C Convertible Preferred Stock, $.632 per share of Series C Convertible Preferred Stock, in each case, as such amounts shall be reduced by any payments under this paragraph 3(a). For the purpose of this paragraph 3(a), consolidated net after-tax income shall be determined in accordance with generally accepted accounting principles, consistently applied. (b) From and after April 2, 1996, the holders of the then outstanding Preferred Stock shall be entitled to receive, out of funds legally available therefor, cumulative annual dividends when and as may be declared from time to time by the Board of Directors of the Corporation at an annual rate per share equal to eight percent (8%) of the original purchase price per share paid to the Corporation for the Preferred Stock, such amount to be compounded annually such that if the dividend is not paid for such year the unpaid amount shall be added to the original purchase price per share paid to the Corporation for the Preferred Stock for purposes of calculating succeeding years' dividends. Such dividends shall be deemed to accrue on the Preferred Stock from April 2, 1996 and be cumulative, whether or not earned or declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. If such cumulative dividends in respect of any prior or current annual dividend period shall not have been declared and paid or if there shall not have been a sum sufficient for the payment thereof set apart, the deficiency shall first be fully paid before any dividend or other distribution shall be paid or declared and set apart with respect to any class of the Corporation's capital stock, now or hereafter outstanding, except as specifically provided in Section 3(a) above. (c) In the event the Corporation shall make or issue, or shall fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution with respect to the Common Stock payable in (i) cash or (ii) other property, other than securities of the Corporation, then and in each such event the holders of Preferred Stock shall receive, at the same time such distribution is made with respect to Common Stock, such cash, the number of securities or such other assets of the Corporation which they would have received had their Preferred Stock been converted into Common Stock immediately prior to the record date for determining holders of Common Stock entitled to receive such distribution. 4. Liquidation. Upon any liquidation, dissolution or winding up of the ----------- Corporation, whether voluntary or involuntary, the holders of the shares of Preferred Stock shall first be entitled, before, any distribution or payment is made upon any stock ranking on liquidation junior to the Preferred Stock, to be paid an amount equal to the greater of (i) $1.586 per share in the case of each share of Series A Convertible Preferred Stock, $1.75 per share in the case of each such share of Series B Convertible Preferred Stock, $3.00 per share in the case of each share of Series C Convertible Preferred Stork and $6.00 per share in the case of each share of Series D Convertible Preferred Stock, plus, in the case of each share, an amount equal to all accrued and unpaid dividends thereon (whether or not declared) and any other dividends declared but unpaid thereon, computed to the date payment thereof is made available, or (ii) such amount per share as would have been payable had each such share of Preferred Stock been converted to Common Stock pursuant to paragraph 6 immediately prior to such liquidation, dissolution or winding up, and the holders of Preferred Stock shall not be entitled to any further payment, such amount payable with respect to one share of Preferred Stock being sometimes referred to as the "Liquidation Preference Payment" and with respect to all shares of Preferred Stock being sometimes referred to as the "Liquidation Preference Payments". If upon such liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets to be distributed among the holders of Preferred Stock shall be insufficient to permit payment in full to the holders of Preferred Stock of the Liquidation Preference Payments, then the entire assets of the Corporation to be so distributed shall be distributed ratably, based upon Liquidation Payments, among the holders of Preferred Stock. Upon any such liquidation, dissolution or winding up of the Corporation, immediately after the holders of Preferred Stock shall have been paid in full the Liquidation Preference Payments, the remaining net assets of the Corporation available for distribution may be distributed ratably among the holders of Common Stock. Written notice of such liquidation, dissolution or winding up, stating a payment date and the place where said payments shall be made, shall be given by mail, postage prepaid, or by telex or telecopier to non-U.S. residents, not less than 20 days prior to the payment date stated therein, to the holders of record of Preferred Stock, such notice to be addressed to each such holder at its address as shown by the records of the Corporation. The consolidation or merger of the Corporation into or with any other entity or entities which results in the exchange of outstanding shares of the Corporation for securities or other consideration issued or paid or caused to be issued or paid by any such entity or affiliate thereof (excluding any consolidation or merger in which the shareholders of the Corporation hold more than fifty percent (50%) of the voting securities of the surviving corporation), and the sale or transfer by the Corporation of all or substantially all its assets, shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of the provisions of this paragraph 4. For purposes hereof, the Common Stock shall rank in liquidation junior to the Preferred Stock. 5. Restrictions. At any time when shares of Preferred Stock are ------------ outstanding, except where the vote or written consent of the holders of a greater number of shares of the Corporation is required by law or by the Certificate of Incorporation, and in addition to any other vote required by law or the Certificate of Incorporation, without the approval of the holders of at least two-thirds (2/3) of the then outstanding shares of Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) together as a single series, the Corporation will not: 5A. Create or authorize the creation of any additional class or series of shares of stock unless the same ranks junior to the Preferred Stock as to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, or increase the authorized amount of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stork or Series D Convertible Preferred Stock or increase the authorized amount of any additional class or series of shares of stock unless the same ranks junior to the Preferred Stock as to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, or create or authorize any obligation or security convertible into shares of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock or Series D Convertible Preferred Stock or into shares of any other class or series of stock unless the same ranks junior to the Preferred Stock as to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, whether any such creation, authorization or increase shall be by means of amendment to the Certificate of Incorporation or by merger, consolidation or otherwise; 5B. Consent to any liquidation, dissolution or winding up of the Corporation or consolidate or merge into or with any other entity or entities or sell or transfer all or substantially all its assets; 5C. Amend, alter or repeal its Certificate of Incorporation or By- laws so as to adversely affect the rights of the holders of the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock, the Series C Convertible Preferred Stock or Series D Convertible Preferred Stock; 5D. Purchase or set aside any sums for the purchase of, or pay any dividend or make any distribution on, any shares of stock other than the Preferred Stock, except for dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock and except for the purchase of shares of Common Stock from former employees of the Corporation who acquired such shares directly from the Corporation, if each such purchase is made pursuant to contractual rights held by the Corporation relating to the termination of employment of such former employee and the purchase price does not exceed the original issue price paid by such former employee to the Corporation for such shares; or 5E. Redeem or otherwise acquire any shares of Preferred Stock except as expressly authorized in paragraph 7 hereof or pursuant to a purchase offer made pro rata to all holders of shares of Preferred Stock on the basis of the aggregate number of outstanding shares, of Preferred Stock then held by each such holder. 6. Conversions. The holders of shares of Preferred Stock shall have the ----------- following conversion rights: 6A. Right to Convert. Subject to the terms and conditions of this ---------------- paragraph 6, the holder of any share or shares of Preferred Stock shall have the right, at its option at any time, to convert any such shares of Preferred Stock (except that upon any liquidation of the Corporation the right of conversion shall terminate at the close of business on the business day fixed for payment of the amount distributable on the Preferred Stock) into such number of fully paid and nonassessable shares of Common Stock as is obtained by (A) in the case of the Series A Convertible Preferred Stock, (i) multiplying the number of shares of Series A Convertible Preferred Stock so to be converted by $1.586 and (ii) dividing the result by the conversion price of $1.586 per share or, in case an adjustment of such price has taken place pursuant to the further provisions of this paragraph 6, then by the conversion price as last adjusted and in effect at the date any share or shares of Series A Convertible Preferred Stock are surrendered for conversion; (B) in the case of the Series B Convertible Preferred Stock, (i) multiplying the number of shares of Series B Convertible Preferred Stock so to be converted by $1.75 and (ii) dividing the result by the conversion price of $1.44241251 per share or, in case an adjustment of such price has taken place pursuant to the further provisions of this paragraph 6, then by the conversion price as last adjusted and in effect at the date any share or shares of Series B Convertible Preferred Stock are surrendered for conversion; (C) in the case of the Series C Convertible Preferred Stock, (i) multiplying the number of shares of Series C Convertible Preferred Stock so to be converted by $3.00 and (ii) dividing the result by the conversion price of $2.50 per share, or, in the case an adjustment of such price has taken place pursuant to the further provisions of this paragraph 6, then by the conversion price as last adjusted and in effect at the date any share or shares of series C Convertible Preferred Stock are surrendered for conversion; and (D) in the case of the Series D Convertible Preferred Stock, (i) multiplying the number of shares of Series D Convertible Preferred Stock so to be converted by $6.00 and (ii) dividing the result by the conversion price of $6.00 per share or, in the case an adjustment of such price has taken place pursuant to the further provisions of this paragraph 6, then by the conversion price as last adjusted and in effect at the date any share or shares of Series D Convertible Preferred Stock are surrendered for conversion. The conversion price set forth in each of clause A(ii), clause B(ii), clause C(ii) and clause D(ii) hereof or such price as last adjusted, being referred to as the "Conversion Price". Such rights of conversion shall be exercised by the holder thereof by giving written notice that the holder elects to convert a stated number of shares of Preferred Stock into Common Stock and by surrender of a certificate or certificates for the shares so to be converted to the Corporation at its principal office (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holders of the Preferred Stock) at any time during its usual business hours on the date set forth in such notice, together with a statement of the name or names (with address) in which the certificate or certificates for shares of Common Stock shall be issued. 6B. Issuance of Certificates; Time Conversion Effected. Promptly -------------------------------------------------- after the receipt of the written notice referred to in subparagraph 6A and surrender of the certificate or certificates for the share or shares of Preferred Stock to be converted, the Corporation shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares of Preferred Stock. To the extent permitted by law, such conversion shall be deemed to have been effected and the applicable Conversion Price shall be determined as of the close of business on the date on which such written notice shall have been received by the Corporation and the certificate or certificates for such share or shares shall have been surrendered as aforesaid, and at such time the rights of the holder of such share or shares of Preferred Stock shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby. 6C. Fractional Shares; Dividends; Partial Conversion. No fractional ------------------------------------------------ shares shall be issued upon conversion of Preferred Stock into Common Stock and no payment or adjustment shall be made upon any conversion on account of any cash dividends on the Common Stock issued upon such conversion. At the time of each conversion, the Corporation shall pay, out of assets legally available therefor, in cash an amount equal to all dividends excluding Accruing Dividends and dividends payable pursuant to paragraph 3(b), declared and unpaid on the shares of Preferred Stock surrendered for conversion to the date upon which such conversion is deemed to take place as provided in subparagraph 6B. In case the number of shares of Preferred Stock represented by the certificate or certificates surrendered pursuant to subparagraph 6A exceeds the number of shares converted, the Corporation shall, upon such conversion, execute and deliver to the holder, at the expense of the Corporation, a new certificate or certificates for the number of shares of Preferred Stock represented by the certificate or certificates surrendered which are not to be converted. If any fractional share of Common Stock would, except for the provisions of the first sentence of this subparagraph 6C, be delivered upon such conversion, the Corporation, in lieu of delivering such fractional share, shall pay to the holder surrendering the Preferred Stock for conversion an amount in cash equal to the current market price of such fractional share as determined in good faith by the Board of Directors of the Corporation. 6D. Adjustment of Price Upon Issuance of Common Stock. Except as ------------------------------------------------- provided in subparagraph 6E, if and whenever the Corporation shall issue or sell, or is, in accordance with subparagraphs 6D (1) through 6D (7), deemed to have issued or sold, any shares of Common Stock for a consideration per share less than any Conversion Price in effect immediately prior to the time of such issue or sale, then, forthwith upon such issue or sale, such Conversion Price shall be reduced to the price determined by dividing (i) an amount equal to the sum of (a) the number of shares of Common Stock outstanding immediately prior to such issue or sale (including the number of shares of Common Stock then issued or issuable upon conversion of all issued and outstanding shares of Preferred Stock) multiplied by the then existing Conversion Price and (b) the consideration, if any, received by the Corporation upon such issue or sale, by (ii) the total number of shares of Common Stock outstanding immediately after such issue or sale (including the number of shares of Common Stock then issued or issuable upon conversion of all issued and outstanding shares of Preferred Stock). For purposes of this subparagraph 6D, the following subparagraphs 6D(l) to 6D(7) shall also be applicable: 6D(1) Issuance of Rights or Options. In case at any time the ----------------------------- Corporation shall in any manner grant (whether directly or by assumption in a merger or otherwise) any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or security convertible into or exchangeable for Common Stock (such warrants, rights or options being called "Options" and such convertible or exchangeable stock or securities being called "Convertible Securities") whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such options or upon the conversion or exchange of such Convertible Securities (determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration, payable to the Corporation upon the exercise of all such Options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than any Conversion Price in effect lately prior to the time of the granting of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options or the issuance of such Convertible Securities and thereafter shall be deemed to be outstanding. Except as otherwise provided in subparagraph 6D(3), no adjustment of any conversion Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 6D(2) Issuance of Convertible Securities. In case the ---------------------------------- Corporation shall in any manner issue (whether directly or by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the total amount received or receivable by the corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than any Conversion Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding, provided that (a) except as otherwise provided in subparagraph 6D(3), no adjustment of any Conversion Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and (b) if any such issue or sale of such Convertible Securities is made upon exercise of any Options to purchase any such Convertible Securities for which adjustments of any Conversion Price have been or are to be made pursuant to other provisions of this subparagraph 6D, no further adjustment of such Conversion Price shall be made by reason of such issue or sale. 6D(3) Change in Option Price or Conversion Rate. Upon the ----------------------------------------- happening of any of the following events, namely, if the purchase price provided for in any Option referred to in subparagraph 6D(1), the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subparagraph 6D(1) or 6D(2), or the rate at which Convertible Securities referred to in subparagraph 6D(1) or 6D(2) are convertible into or exchangeable for Common Stock shall change at any time (including, but not limited to, changes under or by reason of provisions designed to protect against dilution), each Conversion Price in effect at the time of such event shall forthwith be readjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold, but only if as a result of such adjustment the Conversion Price then in effect hereunder is thereby reduced; and on the expiration of any such Option or the termination of any such right to convert or exchange such Convertible Securities, each Conversion Price then in effect hereunder shall forthwith be increased to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. 6D(4) Stock Dividends. In case the Corporation shall declare a --------------- dividend or make any other distribution upon any stock of the Corporation payable in Common Stock (except for dividends or distributions upon the Common Stock), Options or Convertible Securities, any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration. 6D(5) Consideration for Stock. In case any shares of Common ----------------------- Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation therefor, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the Corporation, without deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any options shall be issued in connection with the issue and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Corporation. 6D(6) Record Date. In case the Corporation shall take a record ----------- of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 6D(7) Treasury Shares. The number of shares of Common Stock --------------- outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be considered an issue or sale of Common Stock for the purpose of this subparagraph 6D. 6E. Certain Issues of Common Stock and Other Events Excepted. -------------------------------------------------------- Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of any Conversion Price in the case of the issuance of (i) up to an aggregate of 836,350 shares ("Reserved Shares") (appropriately adjusted to reflect the occurrence of any event described in subparagraph 6F) of Common Stock or Options therefor (including Options to purchase 536,350 shares of Common Stock outstanding on and Options to purchase 300,000 shares of Common Stock which may be granted after April 1, 1996) to directors, officers, employees or consultants of the Corporation in connection with their service to the Corporation or their employment by the Corporation (Any options, or portion thereof, currently outstanding or hereafter issued by the Company which expire or terminate unexercised and any shares of Common Stock issued upon exercise of any options currently outstanding or upon exercise of any options hereafter issued by the Company which are repurchased by the Company at a purchase price per share no greater than the price per share paid to the Company upon exercise of such options shall not reduce the number of "Reserved Shares"), (ii) shares of Common Stock issued upon conversion of the Preferred Stock and (iii) up to an aggregate of 622,122 shares of Common Stock issued upon the exercise of warrants, outstanding as of April 1, 1996, to purchase shares of Common Stock. Any shares of Common Stock issued pursuant to clause (i) of this subparagraph 6E which are hereinafter repurchased by the Corporation at a purchase price per share no greater than the price per share paid to the Corporation upon the issuance of such shares shall again be available for issuance pursuant to clause (i) of this subparagraph 6E. 6F. Subdivision or Combination of Common Stock. In case the ------------------------------------------ Corporation shall at any time subdivide (by any stock split, stock dividend or otherwise) its outstanding shares of Common Stock into a greater number of shares, each Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and, conversely, in case the outstanding shares of Common Stock shall be combined into a smaller number of shares, each Conversion Price in effect immediately prior to such combination shall be proportionately increased. 6G. Reorganization or Reclassification. If any capital ---------------------------------- reorganization or reclassification of the capital stock of the Corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provisions shall be made whereby each holder of a share or shares of Preferred Stock shall thereupon have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the conversion of such share or shares of Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore receivable upon such conversion had such reorganization or reclassification not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including without limitation provisions for adjustments of the Conversion Prices) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights. 6H. Notice of Adjustment. Upon any adjustment of the Conversion -------------------- Price of any series of Preferred Stock, then and in each such case the Corporation shall give written notice thereof, by first class mail, postage prepaid, or by telex or telecopier to non-U.S. residents, addressed to each holder of shares of such series of Preferred Stock at the address of such holder as shown on the books of the Corporation, which notice shall state the Conversion Price resulting from such adjustment, setting forth in reasonable detail the method upon which such calculation is based. 6I. Other Notices. In case at any time: ------------- (1) the Corporation shall declare any dividend upon its Common Stock payable in cash or stock or make any other distribution to the holders of its Common Stock; (2) the Corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (3) there shall be any capital reorganization or reclassification of the capital stock of the Corporation, or a consolidation or merger of the Corporation with or into, or a sale of all or substantially all its assets to, another entity or entities; or (4) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then, in any one or more of said cases, the Corporation shall give, by first class mail, postage prepaid, or by telex or telecopier to non-U.S. residents, addressed to each holder of any shares of Preferred Stock at the address of such holder as shown on the books of the Corporation, (a) at least 20 days' prior written notice of the date on which the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 20 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. 6J. Stock to be Reserved. The Corporation will at all times reserve -------------------- and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the conversion of Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Preferred Stock. The Corporation covenants that all shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, and, without limiting the generality of the foregoing, the Corporation covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the Conversion Prices in effect at the time. The Corporation will take all such action as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirement of any national securities exchange upon which the Common Stock may be listed. The Corporation will not take any action which results in any adjustment of any Conversion Price if the total number of shares of Common Stock issued and issuable after such action upon conversion of the Preferred Stock would exceed the total number of shares of Common Stock then authorized by its Certificate of Incorporation. 6K. No Reissuance of Preferred Stock. Shares of Preferred Stock -------------------------------- which are converted into shares of Common Stock as provided herein shall not be reissued. 6L. Issue Tax. The issuance of certificates for shares of Common --------- Stock upon conversion of Preferred Stock shall be made without charge to the holders thereof for any issuance tax in respect thereof, provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Preferred stock which is being converted. 6M. Closing of Books. The Corporation will at no time close its ---------------- transfer books against the transfer of any Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Preferred Stock in any manner which interferes with the timely conversion of such Preferred Stock, except as may otherwise be required to comply with applicable securities laws. 6N. Definition of Common Stock. As used in this paragraph 6, the -------------------------- term "Common Stock" shall mean and include the Corporation's authorized Common Stock, par value $.01 per share, as constituted on the date of filing of these terms of the Preferred Stock, and shall also include any capital stock of any class of the Corporation thereafter authorized which shall neither be limited to a fixed sum or percentage of par value in respect of the rights of the holders thereof to participate in dividends nor entitled to a preference in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation; provided that the shares of Common Stock receivable upon conversion of shares of Preferred Stock shall include only shares designated as Common Stock of the Corporation on the date of filing of this instrument, or in case of any reorganization or reclassification of the outstanding shares thereof, the stock, securities or assets provided for in subparagraph 6G. 6O. Mandatory Conversion. If at any time (A) the Corporation shall -------------------- effect a firm commitment underwritten public offering of shares of Common Stock in which (i) the aggregate price paid for such shares by the public shall be at least $7,500,000 and (ii) the price paid by the public for such shares shall be at least $10.00 per share (appropriately adjusted to reflect the occurrence of any event described in subparagraph 6F) or (B) there shall be less than ten percent (10%) of the originally issued shares of Preferred Stock outstanding, then effective upon the closing of the sale of such shares by the Corporation pursuant to such public offering or such reduction in the number of shares of Preferred Stock, as the case may be, all outstanding shares of Preferred Stock shall automatically and without any further action on the part of the Corporation convert to shares of Common Stock. 7. Redemption. The shares of Preferred Stock shall be redeemed as ---------- follows: 7A. Optional Redemption. Commencing on and from April 1, 2000, and ------------------- on the same date in each following year, the holders of at least two-thirds of the shares of the Preferred Stock then outstanding ("Requesting Holders") may request the Corporation to redeem one-third (1/3) of the outstanding Preferred Stock held by such Requesting Holders at the redemption price described paragraph 7B below. The Requesting Holders shall give the Corporation notice, by mail, postage prepaid (un "Optional Redemption Notice"), at least 10, but no more than 90, days prior to the date fixed for redemption pursuant to this paragraph 7A of their election to effect a redemption of shares of Preferred Stock. Upon receipt of an Optional Redemption Notice, the Company shall notify all holders of Preferred Stock who are not Requesting Holders ("Non-Requesting Holders") of the redemption request, and each Non-Requesting Holder shall have 30 days from the date of such notice to redeem, at the redemption price described in paragraph 7(B) below, the same percentage of Preferred Shares held by such Non-Requesting Holders as has been requested for redemption by the Requesting Holders. The redemption price described in paragraph 7B below shall be paid on the time and date (the "Redemption Date") and at the place fixed for redemption and specified in the Optional Redemption Notice upon surrender to the Corporation of certificates representing the shares of Preferred Stock to be redeemed. 7B. Redemption Price and Payment. The Preferred Stock to be redeemed ---------------------------- on the Redemption Date shall be redeemed by paying for each share in cash an amount equal to the greater of (i) the Liquidation Preference Payment for such Preferred Stock and (ii) the Fair Market Value as of the date ninety (90) days prior to the applicable Redemption Date (the "Valuation Date") , such amount being referred to as the "Redemption Price". Such payment shall be made in full on the Redemption Date to the holders entitled thereto. 7C. Redemption Mechanics. From and after the close of business on -------------------- the Redemption Date, unless there shall have been a default in the payment of the Redemption Price, all rights of holders of shares of Preferred Stock whose shares are to be redeemed on such Redemption Date (except the right to receive the Redemption Price) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the Corporation legally available for redemption of shares of Preferred Stock on the Redemption Date are insufficient to redeem the total number of outstanding shares of Preferred Stock then to be redeemed, the holders of such shares of Preferred Stock shall share ratably, based upon Liquidation Payments, in any funds legally available for redemption of such shares according to the respective amounts which would be payable with respect to the full number of shares owned by them if all such outstanding shares were redeemed in full. The shares of Preferred Stock due for redemption but not redeemed shall remain outstanding and entitled to all rights and preferences provided herein. At any time thereafter when additional funds of the Corporation are legally available for the redemption of such shares of Preferred Stock, such funds will be used, at the end of the next succeeding fiscal quarter, to redeem the balance of such shares, or such portion thereof for which funds are then legally available, on the basis set forth above. 7D. Fair Market Value. For the purposes of this paragraph 7, "Fair ----------------- Market Value" per share of Preferred Stock shall mean: 7D(1) if the Corporation's Common Stock is publicly traded, an amount (A) equal to (x) the average on the Valuation Date of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if such stock is then traded on a national securities exchange; or (y) last reported sale price on the Valuation Date of the Common Stock on the Nasdaq National Market System, if the Common Stock is not then traded on a national securities exchange; or (z) the closing bid price (or average of bid prices) last quoted on the Valuation Date by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the Nasdaq National Market System, (B) multiplied by the number of shares of Common Stock (including fractions of a share) into which each share of Preferred Stock may be converted as of the Valuation Date; or 7D(2) if the Corporation's Common Stock is not publicly traded as provided in subparagraph 7(D)(1) above, an amount (A) determined by dividing the Corporation's Fair Market Value, determined as of the Valuation Date, by the number of actual outstanding shares of Common Stock, on a fully-diluted basis, as of the Valuation Date, (B) multiplied by the number of shares of Common Stock (including fractions of a share) into which each share of Preferred Stock may be converted as of the Valuation Date, The Corporation's Fair Market Value shall be the price which could be obtained for one hundred percent (100%) of the equity interest in the Corporation on a consolidated basis if the Corporation were sold to a willing buyer by a willing seller in a single arm's length transaction, determined by considering the Corporation's profits after tax, book value, revenues and cash flow as of the Valuation Date. In the event that the Fair Market Value per share of Common Stock is to be determined pursuant to subparagraph 7D(2) above then, in such event, on or before thirty (30) days after the Valuation Date, a representative of the Corporation and a representative of the holder or holders of a majority of the then outstanding shares of Preferred Stock will use their best efforts to reach agreement on the Corporation's Fair Market Value. If they are unable to reach such agreement within ten (10) days after the end of such period, the Corporation and such holder or holders will agree on the selection of an independent appraiser. Such appraiser will have fifteen (15) days in which to determine the Corporation's Fair Market Value, and its determination thereof will be final and binding on all parties concerned. If the Corporation and such holder or holders are unable to reach an agreement as to an independent appraiser within five (5) days after the aforesaid ten (10) day period, then two appraisers will be appointed within five (5) days thereafter to determine the Corporation's Fair Market Value, one by the Corporation and one by the holder or holders of a majority of the then outstanding shares of Preferred Stock. Each of the Corporation and such holder or holders will cause their appraiser to determine independently the Corporation's Fair Market Value within fifteen (15) days after the time of their appointment. If the lesser of the two appraised values so determined (the "Low Value") exceeds or is equal to ninety percent (90%) of the value of the greater of the two appraised values (the "High Value"), the Corporation's Fair Market Value will be deemed to be equal to the average of tho two appraisals. If the Low Value is less than ninety percent (90%) of the High Value, the two appraisers will themselves appoint a third appraiser within five (5) days after the two appraisals have been rendered. Such third appraiser will have fifteen (15) days in which to determine independently the Corporation's Fair Market Value. The median of the three (3) appraised values shall be binding on all parties concerned as the Corporation's Fair Market Value. The expenses of the appraisal will be borne solely by the Corporation. 7E. Redeemed or Otherwise Acquired Shares to be Retired. Any shares --------------------------------------------------- of Preferred Stock redeemed pursuant to this paragraph 7 or otherwise acquired by the Corporation in any manner whatsoever shall be cancelled and shall not under any circumstances be reissued; and the Corporation may from time to time take such appropriate corporate action as may be necessary to reduce accordingly the number of authorized shares of Preferred Stock. 8. Amendments. No provision of these terms of the Preferred Stock may be ---------- amended, modified or waived without the written consent or affirmative vote of the holders of at least two-thirds (2/3) of the then outstanding shares of Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, Lightbridge, Inc. has caused this certificate to be signed by its President this ____ day of April, 1996. LIGHTBRIDGE, INC. By:/s/ Pamela D.A. Reeve ---------------------- Its President EX-3.2 4 AMENDED & RESTATED CERT. OF INCORPORATION Exhibit 3.2 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 65,000,000, consisting of (i) 60,000,000 shares of common stock, par value $.01 per share ("Common Stock"), and (ii) 5,000,000 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. ELEVENTH: 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 stockholders and may not be effected by any consent in writing by such stockholders. Notwithstanding any other provisions of law, this Amended and Restated Certificate of Incorporation or the by-laws of the Corporation, each as amended, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least seventy-five percent (75%) of the shares of capital stock of the Corporation issued and outstanding and entitled to vote shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article ELEVENTH. -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-4.1 5 SPECIMEN CERTIFICATE OF THE COMPANY EXHIBIT 4.1 Engraved specimen stock certificate of Company bearing the Company logo and the following text: [Obverse of Certificate] LIGHTBRIDGE, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP 532226 10 7 This Certifies that SEE REVERSE FOR CERTAIN DEFINITIONS is the owner of fully paid and non-assessable shares of the COMMON STOCK, $.01 par value, of Lightbridge, Inc. transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and held subject to the laws of The State of Delaware, the Certificate of Incorporation of the Corporation, as amended, and the By-Laws of the Corporation, as amended. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed by the facsimile signatures of its duly authorized officers and sealed with the facsimile seal of the Corporation. Dated: [Corporate seal bearing text:] LIGHTBRIDGE, INC. - 1989 - Delaware - * /s/ William G. Brown Treasurer /s/ Pamela D.A. Reeve President COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER AND TRUST COMPANY TRANSFER AGENT AND REGISTRAR By Authorized signature [Reverse of Certificate] LIGHTBRIDGE, INC. THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - _____________ Custodian ________________ (Cust) (Minor) under Uniform Gifts to Minors Act _____________ (State) Additional abbreviations may also be used though not in the above list. For value received, __________ hereby sell, assign, and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE [Box] - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) ______________ shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint _________________ Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated, ____ ________________________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed: - -------------------------------------------------------------------------------- THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. -2- EX-5.1 6 OPINION OF FOLEY, HOAG & ELIOT LLP August 27, 1996 Lightbridge, Inc. 281 Winter Street Waltham, Massachusetts 02154 Ladies and Gentlemen: This opinion is furnished to you in connection with Amendment No. 2 to Registration Statement on Form S-1 (Registration No. 333-6589) (the "Registration Statement") being filed on the date hereof by Lightbridge, Inc., a Delaware corporation (the "Company"), with the Securities and Exchange Commission under the Securities Act of 1933, as amended. The Registration Statement relates to the proposed public offering by the Company of 3,021,868 shares (the "Company Shares") of its Common Stock, $.01 par value per share, to be issued by the Company, and the proposed public offering by certain securityholders of the Company of 1,348,132 shares of such Common Stock, consisting of certain shares (the "Outstanding Shares") that are currently issued and outstanding and certain shares (the "Warrant Shares") that are to be issued upon the exercise of a warrant (the "Warrant"). The foregoing assumes exercise in full of the over-allotment option described in the Registration Statement. The Company Shares, the Outstanding Shares and the Warrant Shares are to be sold pursuant to an underwriting agreement (the "Underwriting Agreement") to be entered into among the Company, the holders of the Outstanding Shares and the Warrant, and Cowen & Company, Montgomery Securities and Prudential Securities Incorporated, as representatives of the several underwriters. We are familiar with the Company's Certificate of Incorporation and all amendments thereto, its By-Laws and all amendments thereto, records of meetings and consents of its Board of Directors and stockholders, and its stock records. We have examined such other records and documents as we deemed necessary or appropriate for purposes of rendering this opinion. Based upon the foregoing, we are of the opinion that: 1. The Company Shares have been duly authorized and, when certificates for the Company Shares have been duly executed and countersigned and delivered in accordance with the Underwriting Agreement, the Company Shares will be validly issued, fully paid and non-assessable. 2. The Outstanding Shares have been duly authorized and are validly issued, fully paid and non-assessable. 3. The Warrant Shares have been duly authorized and, when the Warrant has been exercised in accordance with its terms and a certificate for the Warrant Shares has been duly executed, countersigned and delivered, the Warrant Shares will be validly issued, fully paid and non-assessable. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the heading "Legal Matters" in the prospectus forming part of the Registration Statement. Very truly yours, FOLEY, HOAG & ELIOT LLP By /s/ Mark L. Johnson ---------------------------------- A Partner EX-10.1 7 1991 REGISTRATION RIGHTS AGREEMENT Exhibit 10.1 REGISTRATION RIGHTS AGREEMENT February 11, 1991 To each of the several Purchasers (the "Purchasers") named in Schedule I to the Series A Convertible Preferred Stock Purchase Agreement of even date herewith and to BEB Limited Partnership I and BEB Limited Partnership II Gentlemen: This will confirm that in consideration of the Purchasers' agreement on the date hereof to purchase an aggregate of 630,516 shares (the "Preferred Shares") of Series A Convertible Preferred Stock, $.01 par value ("Preferred Stock"), of Credit Technologies, Inc., a Delaware corporation (the "Company"), pursuant to the Series A Convertible Preferred Stock Purchase Agreement of even date herewith (the "Purchase Agreement") between the Company and the Purchasers and as an inducement to the Purchasers to consummate the transactions contemplated by the Purchase Agreement, the Company covenants and agrees with each of the Purchasers, BEB Limited Partnership I and BEB Limited Partnership II as follows: 1. Certain Definitions. As used in this Agreement, the following terms ------------------- shall have the following respective meanings: "Commission" shall mean the Securities and Exchange Commission, or any ---------- other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Common Stock, $.01 par value, of the ------------ Company, as constituted as of the date of this Agreement. "Conversion Shares" shall mean shares of Common Stock issued upon ----------------- conversion of the Preferred Shares. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Registration Expenses" shall mean the expenses so described in --------------------- Section 8. "Restricted Stock" shall mean (i) the 733,333 shares of Common Stock ---------------- held by BEB Limited Partnership I on the date hereof, (ii) the 244,444 shares of Common Stock held by BEB Limited Partnership II on the date hereof and (iii) the Conversion Shares, excluding, in each case, Common Stock and Conversion Shares which have been (a) registered under the Securities Act pursuant to an effective registration statement filed thereunder and disposed of in accordance with the registration statement covering them or (b) publicly sold pursuant to Rule 144 under the Securities Act. "Securities Act" shall mean the Securities Act of 1933, as amended, or -------------- any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean the expenses so described in Section 8. ---------------- 2. Restrictive Legend. Each certificate representing Preferred Shares ------------------ or Restricted Stock shall, except as otherwise provided in this Section 2 or in Section 3, be stamped or otherwise imprinted with a legend substantially in the following form: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE." A certificate shall not bear such legend if in the opinion of counsel satisfactory to the Company (it being agreed that Testa, Hurwitz & Thibeault shall be satisfactory) the securities being sold thereby may be publicly sold without registration under the Securities Act. 3. Notice of Proposed Transfer. Prior to any proposed transfer of any --------------------------- Preferred Shares or Restricted Stock (other than under the circumstances described in Sections 4, 5 or 6), the holder thereof shall give written notice to the Company of its intention to effect such transfer. Each such notice shall describe the manner of the proposed transfer and, if requested by the Company, shall be accompanied by an opinion of counsel satisfactory to the Company (it being agreed that Testa, Hurwitz & Thibeault shall be satisfactory) to the effect that the proposed transfer may be effected without registration under the Securities Act, whereupon the holder of such stock shall be entitled to transfer such stock in accordance with the terms of its notice; provided, however, that ----------------- no such opinion of counsel shall be required for a transfer to one or more partners of the transferor (in the case of a transferor that is a partnership) or to an affiliated corporation (in the case of a transferor that is a corporation). Each certificate for Preferred Shares or Restricted Stock transferred as above provided shall bear the legend set forth in Section 2, except that such certificate shall not bear such legend if (i) such transfer is in accordance with -2- the provisions of Rule 144 (or any other rule permitting public sale without registration under the Securities Act) or (ii) the opinion of counsel referred to above is to the further effect that the transferee and any subsequent transferee (other than an affiliate of the Company) would be entitled to transfer such securities in a public sale without registration under the Securities Act. The restrictions provided for in this Section 3 shall not apply to securities which are not required to bear the legend prescribed by Section 2 in accordance with the provisions of that Section. 4. Required Registration. (a) At any time after the earlier of (i) six --------------------- months after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective, and (ii) the fifth anniversary of the date of this Agreement, the holders of Restricted Stock constituting at least 40% of the total shares of Restricted Stock then outstanding may request the Company to register under the Securities Act all or any portion of the shares of Restricted Stock held by such requesting holder or holders for sale in the manner specified in such notice, provided that the -------- shares of Restricted Stock for which registration has been requested shall constitute at least 20% of the total shares of Restricted Stock originally issued (as adjusted as may be required from time to time by Section 10 hereof) if such holder or holders shall request the registration of less than all shares of Restricted Stock then held by such holder or holders (or any lesser percentage if the reasonably anticipated aggregate price to the public of such public offering would exceed $2,000,000). For purposes of this Section 4 and Sections 5, 6, 13(a) and 13(d), the term "Restricted Stock" shall be deemed to include, without limiting the definition of such term as set forth in Section 1 hereof, the number of shares of Restricted Stock which would be issuable to a holder of Preferred Shares upon conversion of all shares of Preferred Stock held by such holder at such time, provided, however, that the only securities which ----------------- the Company shall be required to register pursuant hereto shall be shares of Common Stock, and provided, further, however, that, in any underwritten public -------- ------- ------- offering contemplated by this Section 4 or Sections 5 and 6, the holders of Preferred Shares shall be entitled to sell such Preferred Shares to the underwriters for conversion and sale of the shares of Common Stock issued upon conversion thereof. Notwithstanding anything to the contrary contained herein, no request may be made under this Section 4 within 120 days after the effective date of a registration statement filed by the Company covering a firm commitment underwritten public offering in which the holders of Restricted Stock shall have been entitled to join pursuant to Sections 5 or 6 and in which there shall have been effectively registered all shares of Restricted Stock as to which registration shall have been requested. -3- (b) Following receipt of any notice under this Section 4, the Company shall immediately notify all holders of Restricted Stock from whom notice has not been received and shall use its best efforts to register under the Securities Act, for public sale in accordance with the method of disposition specified in such notice from requesting holders, the number of shares of Restricted Stock specified in such notice (and in all notices received by the Company from other holders within 30 days after the giving of such notice by the Company). If such method of disposition shall be an underwritten public offering, the holders of a majority of the shares of Restricted Stock to be sold in such offering may designate the managing underwriter of such offering, subject to the approval of the Company, which approval shall not be unreasonably withheld or delayed. The Company shall be obligated to register Restricted Stock pursuant to this Section 4 on two occasions only, provided, however, that -------- ------- such obligation shall be deemed satisfied only when a registration statement covering all shares of Restricted Stock specified in notices received as aforesaid, for sale in accordance with the method of disposition specified by the requesting holders, shall have become effective and, if such method of disposition is a firm commitment underwritten public offering, all such shares shall have been sold pursuant thereto. (c) The Company shall be entitled to include in any registration statement referred to in this Section 4, for sale in accordance with the method of disposition specified by the requesting holders, shares of Common Stock to be sold by the Company for its own account, except as and to the extent that, in the opinion of the managing underwriter (if such method of disposition shall be an underwritten public offering), such inclusion would adversely affect the marketing of the Restricted Stock to be sold. Except for registration statements on Form S-4, S-8 or any successor thereto, the Company will not file with the Commission any other registration statement with respect to its Common Stock, whether for its own account or that of other stockholders, from the date of receipt of a notice from requesting holders pursuant to this Section 4 until the completion of the period of distribution of the registration contemplated thereby. 5. Incidental Registration. If the Company at any time (other than ----------------------- pursuant to Section 4 or Section 6) proposes to register any of its securities under the Securities Act for sale to the public, whether for its own account or for the account of other security holders or both (except with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Restricted Stock for sale to the public), each such time it will give written notice to all holders of outstanding Restricted Stock of its intention so to do. Upon the written request of any such holder, received by the Company within 30 days after the giving of any such notice by the -4- Company, to register any of its Restricted Stock (which request shall state the intended method of disposition thereof), the Company will use its best efforts to cause the Restricted Stock as to which registration shall have been so requested to be included in the securities to be covered by the registration statement proposed to be filed by the Company, all to the extent requisite to permit the sale or other disposition by the holder (in accordance with its written request) of such Restricted Stock so registered. In the event that any registration pursuant to this Section 5 shall be, in whole or in part, an underwritten public offering of Common Stock, the number of shares of Restricted Stock to be included in such an underwriting may be reduced (pro rata among the requesting holders based upon the number of shares of Restricted Stock owned by such holders) if and to the extent that the managing underwriter shall be of the opinion that such inclusion would adversely affect the marketing of the securities to be sold by the Company therein, provided, however, that such -------- ------- number of shares of Restricted Stock shall not be reduced if any shares are to be included in such underwriting for the account of any person other than the Company or requesting holders of Restricted Stock, and provided, further, -------- ------- however, that in no event may less than one-third of the total number of shares - ------- of Common Stock to be included in such underwriting be made available for shares of Restricted Stock. Notwithstanding the foregoing provisions, the Company may withdraw any registration statement referred to in this Section 5 without thereby incurring any liability to the holders of Restricted Stock. 6. Registration on Form S-3. If at any time (i) a holder or holders of ------------------------ Preferred Shares or Restricted Stock request that the Company file a registration statement on Form S-3 or any successor thereto for a public offering of all or any portion of the shares of Restricted Stock held by such requesting holder or holders, the reasonably anticipated aggregate price to the public of which would exceed $500,000, and (ii) the Company is a registrant entitled to use Form S-3 or any successor thereto to register such shares, then the Company shall use its best efforts to register under the Securities Act on Form S-3 or any successor thereto, for public sale in accordance with the method of disposition specified in such notice, the number of shares of Restricted Stock specified in such notice. Whenever the Company is required by this Section 6 to use its best efforts to effect the registration of Restricted Stock, each of the procedures and requirements of Section 4 (including but not limited to the requirement that the Company notify all holders of Restricted Stock from whom notice has not been received and provide them with the opportunity to participate in the offering) shall apply to such registration, provided, -------- however, that there shall be no limitation on the number of registrations on - ------- Form S-3 which may be requested and obtained under this Section 6, and provided, further, however, that the requirements contained in the first - -------- ------- ------- -5- sentence of Section 4(a) shall not apply to any registration on Form S-3 which may be requested and obtained under this Section 6. 7. Registration Procedures. If and whenever the Company is required by ----------------------- the provisions of Sections 4, 5 or 6 to use its best efforts to effect the registration of any shares of Restricted Stock under the Securities Act, the Company will promptly: (a) prepare and file with the Commission a registration statement (which, in the case of an underwritten public offering pursuant to Section 4, shall be on Form S-1 or other form of general applicability satisfactory to the managing underwriter selected as therein provided) with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (determined as hereinafter provided); (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period specified in paragraph (a) above and comply with the provisions of the Securities Act with respect to the disposition of all Restricted Stock covered by such registration statement in accordance with the sellers' intended method of disposition set forth in such registration statement for such period; (c) furnish to each seller of Restricted Stock and to each underwriter such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons reasonably may request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such registration statement; (d) use its best efforts to register or qualify the Restricted Stock covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the sellers of Restricted Stock or, in the case of an underwritten public offering, the managing underwriter reasonably shall request, provided, however, that the Company shall not for any such purpose be required - ----------------- to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) use its best efforts to list the Restricted Stock covered by such registration statement with any securities exchange, if any, on which the Common Stock of the Company is then listed; -6- (f) immediately notify each seller of Restricted Stock and each underwriter under such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (g) if the offering is underwritten and at the request of any seller of Restricted Stock, use its best efforts to furnish on the date that Restricted Stock is delivered to the underwriters for sale pursuant to such registration: (i) an opinion dated such date of counsel representing the Company for the purposes of such registration, addressed to the underwriters and to such seller, stating that such registration statement has become effective under the Securities Act and that (A) to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act, (B) the registration statement, the related prospectus and each amendment or supplement thereof comply as to form in all material respects with the requirements of the Securities Act (except that such counsel need not express any opinion as to financial statements contained therein) and (C) to such other effects as reasonably may be requested by counsel for the underwriters or by such seller or its counsel and (ii) a letter dated such date from the independent public accountants retained by the Company, addressed to the underwriters and to such seller, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five business days prior to the date of such letter) with respect to such registration as such underwriters reasonably may request; and (h) make available for inspection by each seller of Restricted Stock, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, -7- accountant or agent in connection with such registration statement. For purposes of Section 7(a) and 7(b) and of Section 4(c), the period of distribution of Restricted Stock in a firm commitment underwritten public offering shall be deemed to extend until each underwriter has completed the distribution of all securities purchased by it, and the period of distribution of Restricted Stock in any other registration shall be deemed to extend until the earlier of the sale of all Restricted Stock covered thereby and 120 days after the effective date thereof. In connection with each registration hereunder, the sellers of Restricted Stock will furnish to the Company in writing such information with respect to themselves and the proposed distribution by them as reasonably shall be necessary in order to assure compliance with federal and applicable state securities laws. In connection with each registration pursuant to Sections 4, 5 or 6 covering an underwritten public offering, the Company and each seller agree to enter into a written agreement with the managing underwriter selected in the manner herein provided in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of the Company's size and investment stature. 8. Expenses. All expenses incurred by the Company in complying with -------- Sections 4, 5 and 6, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the National Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents and registrars, costs of insurance and fees and disbursements of one counsel for the sellers of Restricted Stock, but excluding any Selling Expenses, are called "Registration Expenses". All underwriting discounts and selling commissions applicable to the sale of Restricted Stock are called "Selling Expenses". Except as may otherwise be required by various blue sky laws, the Company will pay all Registration Expenses in connection with each registration statement under Sections 4, 5 or 6. All Selling Expenses in connection with each registration statement under Sections 4, 5 or 6 shall be borne by the participating sellers in proportion to the number of shares sold by each, or by such participating sellers other than the Company (except to the extent the Company shall be a seller) as they may agree. -8- 9. Indemnification and Contribution. (a) In the event of a registration -------------------------------- of any of the Restricted Stock under the Securities Act pursuant to Sections 4, 5 or 6, the Company will indemnify and hold harmless each seller of such Restricted Stock thereunder, each underwriter of such Restricted Stock thereunder and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Sections 4, 5 or 6, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein 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 will reimburse each such seller, each such underwriter and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that the Company will not be liable in any such case -------- ------- if and to the extent that any such loss, claim,, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by any such seller, any such underwriter or any such controlling person in writing specifically for use in such registration statement or prospectus. (b) In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Sections 4, 5 or 6, each seller of such Restricted Stock thereunder, severally and not jointly, will indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer, director, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Sections 4, 5 or 6, any preliminary prospectus or final -9- prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein 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 will reimburse the Company and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided however, that such seller will be liable hereunder -------- ------- in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to such seller, as such, furnished in writing to the Company by such seller specifically for use in such registration statement or prospectus, and provided, further, however, that the liability of -------- ------- ------- each seller hereunder shall be limited to the proportion of any such loss, claim, damage, liability or expense which is equal to the proportion that the public offering price of the shares sold by such seller under such registration statement bears to the total public offering price of all securities sold thereunder, but not in any event to exceed the proceeds received by such seller from the sale of Restricted Stock covered by such registration statement. (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to such indemnified party other than under this Section 9 and shall only relieve it from any liability which it may have to such indemnified party under this Section 9 if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 9 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected, provided, -------- however, that, if the defendants in any such action include both the indemnified - ------- party and the indemnifying party and the indemnified party shall have -10- reasonably concluded that there may be reasonable defenses available to it which are different from or in addition to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a single separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other reasonable expenses related to such participation to be reimbursed by the indemnifying party as incurred. (d) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any holder of Restricted Stock exercising rights under this Agreement, or any controlling person of any such holder, makes a claim for indemnification pursuant to this Section 9 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 9 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling holder or any such controlling person in circumstances for which indemnification is provided under this Section 9; then, and in each such case, the Company and such holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such holder is responsible for the portion represented by the percentage that the public offering price of its Restricted Stock offered by the registration statement bears to the public offering price of all securities offered by such registration statement, and the Company is responsible for the remaining portion; provided, however, that, in any such case, (A) no such holder will be -------- ------- require to contribute any amount in excess of the public offering price of all such Restricted Stock offered by it pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. 10. Changes in Common Stock or Preferred Stock. If, and as often as, ------------------------------------------ there is any change in the Common Stock or the Preferred Stock by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted hereby shall continue with respect to the Common Stock or the Preferred Stock as so changed. -11- 11. Rule 144 Reporting. With a view to making available the benefits of ------------------ certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Stock to the public without registration, at all times after 90 days after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act; (b) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) furnish to each holder of Restricted Stock forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of such Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as such holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such holder to sell any Restricted Stock without registration. 12. Representations and Warranties of the Company. The --------------------------------------------- Company represents and warrants to you as follows: (a) The execution, delivery and performance of this Agreement by the Company have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the Charter or By-laws of the Company or any provision of any indenture, agreement or other instrument to which it or any of its properties or assets is bound, conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. (b) This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms. 13. Miscellaneous. ------------- (a) All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns -12- of the parties hereto (including without limitation transferees of any Preferred Shares or Restricted Stock), whether so expressed or not, provided, however that -------- ------- registration rights conferred herein on the holders of Preferred Shares or Restricted Stock shall only inure to the benefit of a transferee of Preferred Shares or Restricted Stock if (i) there is transferred to such transferee at least 20% of the total shares of Restricted Stock originally issued (as adjusted as may be required from time to time by Section 10 hereof) pursuant to the Purchase Agreement to the direct or indirect transferor of such transferee or (ii) such transferee is a partner, shareholder or affiliate of a party hereto. (b) All notices, requests, consents and other communications hereunder shall be in writing and shall be mailed by certified or registered mail, return receipt requested, postage prepaid, or telexed or telecopied, in the case of non-U.S. residents, addressed as follows: if to the Company or any other party hereto, at the address of such party set forth in the Purchase Agreement; if to any subsequent holder of Preferred Shares or Restricted Stock, to it at such address as may have been furnished to the Company in writing by such holder; or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a holder of Preferred Shares or Restricted Stock) or to the holders of Preferred Shares or Restricted Stock (in the case of the Company) in accordance with the provisions of this paragraph. (c) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. (d) This Agreement may not be amended or modified, and no provision hereof may be waived, without the written consent of the Company and the holders of at least two-thirds of the outstanding shares of Restricted Stock. (e) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (f) The obligations of the Company to register shares of Restricted Stock under Sections 4, 5 or 6 shall terminate twelve and one-half years from the date of this Agreement. (g) If requested in writing by the underwriters for the initial underwritten public offering of securities of the Company, each holder of Restricted Stock who is a party to this Agreement shall agree not to sell publicly any shares of -13- Restricted Stock or any other shares of Common Stock (other than shares of Restricted Stock or other shares of Common Stock being registered in such offering), without the consent of such underwriters, for a period of not more than 90 days following the effective date of the registration statement relating to such offering; provided, however, that all persons entitled to registration -------- ------- rights with respect to shares of Common Stock who are not parties to this Agreement, all other persons selling shares of Common Stock in such offering and all executive officers and directors of the Company shall also have agreed not to sell publicly their Common Stock under the circumstances and pursuant to the terms set forth in this Section 13(g). (h) Notwithstanding the provisions of Section 7(a), the Company's obligation to file a registration statement, or cause such registration statement to become and remain effective, shall be suspended for a period not to exceed 90 days in any 24-month period if there exists at the time material non- public information relating to the Company which, in the reasonable opinion of the Company, should not be disclosed. (i) The Company shall not grant to any third party any registration rights more favorable than any of those contained herein without the written consent of the holders of at least ninety percent (90%) of the outstanding shares of Restricted Stock, so long as any of the registration rights under this Agreement remains in effect. (j) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. Please indicate your acceptance of the foregoing by signing and returning the enclosed counterpart of this letter, whereupon this Agreement shall be a binding agreement between the Company and you. Very truly yours, CREDIT TECHNOLOGIES, INC. By: /s/ Pamela D.A. Reeve ------------------------------------- Pamela D.A. Reeve, President AGREED TO AND ACCEPTED as of the date first above written. -14- MASSACHUSETTS CAPITAL RESOURCE COMPANY By: /s/ Joan C. McArdle ------------------------------------ Joan C. McArdle, Vice President BEB LIMITED PARTNERSHIP IV By: Entrepreneurial, Inc., its General Partner By: /s/ Torrence C. Harder ------------------------------------ Torrence C. Harder, President BEB LIMITED PARTNERSHIP I By: BEB, Inc., its General Partner By: /s/ Torrence C. Harder ------------------------------------ Torrence C. Harder, President BEB LIMITED PARTNERSHIP II By: BEB, Inc., its General Partner By: /s/ Torrence C. Harder ------------------------------------ Torrence C. Harder, President -15- AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT Agreement made as of this 19th day of December 1991 by and among Credit Technologies, Inc., a Delaware corporation (the "Company") and the persons whose names and signatures are set forth below. WHEREAS, the Company has entered into a certain Registration Rights Agreement, dated as of February 11, 1991 (the "Registration Rights Agreement"), with BEB Limited Partnership I, BEB Limited Partnership II and certain purchasers of its Series A Convertible Preferred Stock; and WHEREAS, the Company has agreed to issue and sell an aggregate of 620,000 shares of the Company's Series B Convertible Preferred Stock pursuant to a certain Series B Convertible Preferred Stock Purchase Agreement, dated the date hereof, and to grant the purchasers thereunder (the "New Purchasers") certain registration rights; and NOW THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto do hereby agree with each other as follows: 1. The Registration Rights Agreement is hereby amended by deleting therefrom the words "(the 'Preferred Shares')" in the first paragraph of the Registration Rights Agreement. 2. The Registration Rights Agreement is hereby amended by inserting in Section 1 thereof the following definitions: "Preferred Shares" shall mean those shares of the Company's: (i) Series A Convertible Preferred Stock issued and sold pursuant to a certain Series A Convertible Preferred Stock Purchase Agreement, dated as of February 11, 1991, by and among the Company and the Purchasers named in Schedule I thereto, and (ii) Series B Convertible Preferred Stock issued and sold pursuant to a certain Series B Convertible Preferred Stock Purchase Agreement, dated as of December 19, 1991, by and among the Company and the Purchasers named in Schedule I thereto. 3. Each of the New Purchasers is hereby made a party to the Registration Rights Agreement as a "Purchaser" thereunder and the New Purchasers shall be subject to and entitled to all of the rights and benefits contained in the Registration Rights Agreement. 4. The Registration Rights Agreement, as herein amended, is hereby ratified and confirmed. -16- 5. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts. 6. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, legal representatives and heirs. 7. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day, month and year first above written. CREDIT TECHNOLOGIES, INC. By: /s/ Pamela D.A. Reeve --------------------------------- Pamela D.A. Reeve, President MASSACHUSETTS CAPITAL RESOURCE COMPANY By: /s/ Joan C. McArdle --------------------------------- Joan C. McArdle, Vice President BEB LIMITED PARTNERSHIP IV By: Entrepreneurial, Inc., its General Partner By: /s/ Torrence C. Harder --------------------------------- Torrence C. Harder, President BEB LIMITED PARTNERSHIP I By: BEB, Inc., its General Partner By: /s/ Torrence C. Harder --------------------------------- Torrence C. Harder, President BEB LIMITED PARTNERSHIP II By: BEB, Inc., its General Partner By: /s/ Torrence C. Harder --------------------------------- Torrence C. Harder, President D. QUINN MILLS, INC. PENSION PLAN By: /s/ D. Quinn Mills --------------------------------- -17- D. Quinn Mills, Administrator D. QUINN MILLS, INC. PROFIT SHARING PLAN By: /s/ D. Quinn Mills ------------------------------------ D. Quinn Mills, Administrator /s/ Michael Adam Perfit --------------------------------------- Michael Adam Perfit ARTICLE VII TRUST By: /s/ Randolph P. Barton ------------------------------------ Randolph P. Barton, Trustee /s/ J. Bryan Mims --------------------------------------- J. Bryan Mims /s/ Susan Mims --------------------------------------- Susan Mims ELIE RIVOLLIER, JR., ROLLOVER IRA By: /s/ Elie Rivollier, Jr. ------------------------------------ STONMI REALTY TRUST By: /s/ Arthur J. Epstein ------------------------------------ Arthur J. Epstein, Trustee JOHN A. WHITTEMORE INSURANCE AGENCY, INC. PROFIT SHARING RETIREMENT TRUST By: /s/ John A. Whittemore, Trustee ------------------------------------ James A. Whittemore, Trustee /s/ William P. Hood --------------------------------------- William P. Hood /s/ J. Neil Benney --------------------------------------- J. Neil Benney /s/ Jonathan M. Keyes --------------------------------------- Jonathan M. Keyes -18- AMENDMENT NO. 2 TO REGISTRATION RIGHTS AGREEMENT Agreement made as of this 9th day of June 1993 by and among Credit Technologies, Inc., a Delaware corporation (the "Company") and the persons whose names and signatures are set forth below. WHEREAS, the Company has entered into a certain Registration Rights Agreement, dated as of February 11, 1991, with BEB Limited Partnership I, BEB Limited Partnership II and certain purchasers of its Series A Convertible Preferred Stock, as amended to include certain purchasers of its Series B Convertible Preferred Stock by a certain Amendment No. 1 To Registration Rights Agreement, dated as of December 19, 1991 (as so amended, the "Registration Rights Agreement"); and WHEREAS, the Company has agreed to issue and sell an aggregate of up to 225,000 shares of the Company's Series C Convertible Preferred Stock pursuant to a certain Series C Convertible Preferred Stock Purchase Agreement, dated the date hereof, and to grant the purchasers thereunder (the "New Purchasers") certain registration rights; NOW THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto do hereby agree with each other as follows: 1. The Registration Rights Agreement is hereby amended by deleting therefrom the definition of "Preferred Shares" in Section 1 thereof and substituting therefor the following definition: "Preferred Shares" shall mean those shares of the Company's: (i) Series A Convertible Preferred Stock issued and sold pursuant to a certain Series A Convertible Preferred Stock Purchase Agreement, dated as of February 11, 1991, by and among the Company and the Purchasers named in Schedule I thereto, (ii) Series B Convertible Preferred Stock issued and sold pursuant to a certain Series B Convertible Preferred Stock Purchase Agreement, dated as of December 19, 1991, by and among the Company and the Purchasers named in Schedule I thereto and (iii) Series C Convertible Preferred Stock issued and sold pursuant to a certain Series C Convertible Preferred Stock Purchase Agreement, dated as of June 9, 1993, by and among the Company and the Purchasers named in Schedule I thereto. 2. Each of the New Purchasers is hereby made a party to the Registration Rights Agreement as a "Purchaser" thereunder and the New Purchasers shall be subject to and entitled to all of the rights and benefits contained in the Registration Rights Agreement. 3. The Registration Rights Agreement, as herein amended, is hereby ratified and confirmed. 4. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts. 5. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, legal representatives and heirs. 6. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day, month and year first above written. CREDIT TECHNOLOGIES, INC. By:/s/ Pamela D.A. Reeve ------------------------------------ Pamela D.A. Reeve, President MASSACHUSETTS CAPITAL RESOURCE COMPANY By:/s/ Joan C. McArdle ------------------------------------ Joan C. McArdle, Vice President BEB LIMITED PARTNERSHIP IV By: Entrepreneurial, Inc., its General Partner By:/s/ Torrence C. Harder ------------------------------------- Torrence C. Harder, President BEB LIMITED PARTNERSHIP I By: BEB, Inc., its General Partner By:/s/ Torrence C. Harder ------------------------------------ Torrence C. Harder, President BEB LIMITED PARTNERSHIP II By: BEB, Inc., its General Partner By:/s/ Torrence C. Harder ------------------------------------ Torrence C. Harder, President D. QUINN MILLS, INC. PENSION PLAN By:/s/ D. Quinn Mills ------------------------------------ D. Quinn Mills, Administrator D. QUINN MILLS, INC. PROFIT SHARING PLAN By:/s/ D. Quinn Mills ------------------------------------ D. Quinn Mills, Administrator /s/ Michael Adam Perfit -------------------------------------- Michael Adam Perfit ARTICLE VII TRUST By:/s/ Randolph P. Barton ------------------------------------ Randolph P. Barton, Trustee /s/ J. Bryan Mims --------------------------------------- J. Bryan Mims /s/ Susan Mims --------------------------------------- Susan Mims ELIE RIVOLLIER, JR., ROLLOVER IRA By:/s/ Elie Rivollier, Jr. ----------------------------------- STONMI REALTY TRUST By:____________________________________ Arthur J. Epstein, Trustee JOHN A. WHITTEMORE INSURANCE AGENCY, INC. PROFIT SHARING RETIREMENT TRUST By:/s/ James A. Whittemore ------------------------------------ James A. Whittemore, Trustee /s/ William P. Hood --------------------------------------- William P. Hood _______________________________________ J. Neil Benney _______________________________________ Jonathan M. Keyes PENSCO PENSION SERVICES, INC. F/B/O MICHAEL A PERFIT, IRA By:/s/ Michael Adam Perfit ------------------------------------ /s/ Lisa A. Mills --------------------------------------- Lisa A. Mills /s/ Joyce S. Mills --------------------------------------- Joyce S. Mills /s/ Deborah Mills Folk --------------------------------------- Deborah Mills Folk /s/ William E. Northfield --------------------------------------- William E. Northfield /s/ John B. Pepper --------------------------------------- John B. Pepper /s/ Harold Howell --------------------------------------- Harold Howell /s/ Elie Rivollier, Jr. --------------------------------------- Elie Rivollier, Jr. /s/ Arthur J. Epstein --------------------------------------- Arthur J. Epstein AMENDMENT NO. 3 TO REGISTRATION RIGHTS AGREEMENT Agreement made as of this 29th day of August 1994 by and among Credit Technologies, Inc., a Delaware corporation (the "Company") and the persons whose names and signatures are set forth below. WHEREAS, the Company has entered into a certain Registration Rights Agreement, dated as of February 11, 1991, as amended to date, (the "Registration Rights Agreement"), with BEB Limited Partnership I, BEB Limited Partnership II and certain purchasers of its Series A, Series B and Series C Convertible Preferred Stock; and WHEREAS, the Company has agreed to issue and sell its Subordinated Notes, due June 30, 2001, in the original principal amount of $2,100,000, and Common Stock Purchase Warrants for the purchase (subject to adjustment as provided therein) of 262,500 shares of the Company's Common Stock pursuant to a certain Subordinated Note and Warrant Purchase Agreement, dated the date hereof, and to grant the purchasers thereunder (the "New Purchasers") certain registration rights; and NOW THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto do hereby agree with each other as follows: 1. The Registration Rights Agreement is hereby amended by deleting therefrom the definition of "Conversion Shares" in Section 1 thereof and substituting therefor the following definition: "`Conversion Shares' shall mean the shares of Common Stock issued upon ----------------- conversion of the Preferred Shares and the Warrants." 2. The Registration Rights Agreement is hereby amended by adding to Section 1 thereof the following definitions: "`1994 Purchase Agreement' shall mean that certain Subordinated Note ----------------------- and Warrant Purchase Agreement, dated on or about August 29, 1994, between the Company and the Persons listed in the Schedule of Purchasers attached thereto. `Warrants' shall mean those Common Stock Purchase Warrants issued and -------- sold pursuant to a certain Subordinated Note and Warrant Purchase Agreement, dated as of August 29, 1994, by and between the Company and the Persons listed in the Schedule of Purchasers attached thereto. 3. The Registration Rights Agreement is hereby amended by deleting therefrom the second sentence of Section 4 and substituting therefor the following: "For purposes of this Section 4 and Sections 5, 6, 13(a) and 13(d), the term 'Restricted Stock' shall be deemed to include, without limiting the definition of such term as set forth in Section 1 hereof, the number of shares of Restricted Stock which would be issuable to a holder of Preferred Shares upon conversion of all shares of Preferred Stock held by such holder at such time and the number of shares of Restricted Stock which would be issuable to a holder of Warrants upon exercise of all Warrants held by such holder at such time; provided, however, that the only securities which the -------- ------- Company shall be required to register pursuant hereto shall be shares of Common Stock, and provided, further, however, that, in any underwritten -------- ------- ------- public offering contemplated by this Section 4 or Sections 5 and 6, the holders of Preferred Shares shall be entitled to sell such Preferred Shares to the underwriters for conversion and sale of the shares of Common Stock issued upon conversion thereof and the holders of Warrants shall be entitled to sell such Warrants to the underwriters for exercise and sale of the shares of Common Stock issued upon exercise thereof." 4. The Registration Rights Agreement is hereby amended by deleting clause (i) of the first sentence of Section 6 and substituting therefor the following: "(i) a holder or holders of Preferred Shares or Restricted Stock or Warrants request that the Company file a registration statement on Form S-3 or any successor thereto for a public offering of all or any portion of the shares of Restricted Stock held by such requesting holder or holders, the reasonably anticipated aggregate price to the public of which would exceed $500,000, and" 5. The Registration Rights Agreement is hereby amended by deleting clauses (a) and (b) of Section 13 and substituting therefor the following: "(a) All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including without limitation transferees of any Preferred Shares or Restricted Stock or Warrants), whether so expressed or not, provided, however, that -------- ------- registration rights conferred herein on the holders of Preferred Shares or Restricted Stock or Warrants shall only inure to the benefit of a transferee of Preferred Shares or Restricted Stock or Warrants if (i) there is transferred to such transferee at least 20% of the total shares of Restricted Stock originally issued (as adjusted as may be required from time to time by Section 10 hereof) pursuant to the Purchase Agreement or the 1994 Purchase Agreement, as the case may be, to the direct or indirect transferor of such transferee or (ii) such transferee is a partner, shareholder or affiliate of a party hereto. (b) All notices, requests, consents and other communications hereunder shall be in writing and shall be mailed by certified or registered mail, return receipt requested, postage prepaid, or telexed or telecopied, in the case of non-U.S. residents, addressed as follows: if to the Company or any other party to the Purchase Agreement or the 1994 Purchase Agreement, at the address of such party set forth in the Purchase Agreement or the 1994 Purchase Agreement, as the case may be; if to any subsequent holder of Preferred Shares or Restricted Stock or Warrants, to it at such address as may have been furnished to the Company in writing by such holder; or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a holder of Preferred Shares or Restricted Stock or Warrants) or to the holders of Preferred Shares or Restricted Stock or Warrant (in the case of the Company) in accordance with the provisions of this paragraph." 6. The Registration Rights Agreement, as herein amended, is hereby ratified and confirmed. 7. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts. 8. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, legal representatives and heirs. 9. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day, month and year first above written. CREDIT TECHNOLOGIES, INC. By:/s/ Pamela D.A. Reeve --------------------------------- Pamela D.A. Reeve, President MASSACHUSETTS CAPITAL RESOURCE COMPANY By:/s/ Joan C. McArdle --------------------------------- Joan C. McArdle, Vice President BEB LIMITED PARTNERSHIP IV By: Entrepreneurial, Inc., its General Partner By:/s/ Torrence C. Harder ------------------------------------ Torrence C. Harder, President BEB LIMITED PARTNERSHIP I By: BEB, Inc., its General Partner By:/s/ Torrence C. Harder ------------------------------------ Torrence C. Harder, President BEB LIMITED PARTNERSHIP II By: BEB, Inc., its General Partner By:/s/ Torrence C. Harder ------------------------------------ Torrence C. Harder, President D. QUINN MILLS, INC. PENSION PLAN By:/s/ D. Quinn Mills ------------------------------------ D. Quinn Mills, Administrator D. QUINN MILLS, INC. PROFIT SHARING PLAN By:/s/ D. Quinn Mills ------------------------------------ D. Quinn Mills, Administrator _______________________________________ Michael Adam Perfit ARTICLE VII TRUST By:/s/ Randolph P. Barton ------------------------------------ Randolph P. Barton, Trustee /s/ J. Bryan Mims --------------------------------------- J. Bryan Mims /s/ Susan Mims ---------------------------------------- Susan Mims ELIE RIVOLLIER, JR., ROLLOVER IRA By:/s/ Elie Rivollier, Jr. ------------------------------------- STONMI REALTY TRUST By:/s/ Arthur J. Epstein ----------------------------------- Arthur J. Epstein, Trustee JOHN A. WHITTEMORE INSURANCE AGENCY, INC. PROFIT SHARING RETIREMENT TRUST By:/s/ John A. Whittemore ------------------------------------ John A. Whittemore, Trustee /s/ William P. Hood --------------------------------------- William P. Hood /s/ J. Neil Benney --------------------------------------- J. Neil Benney /s/ Jonathan M. Keyes ---------------------------------------- Jonathan M. Keyes PENSCO PENSION SERVICES, INC. F/B/O MICHAEL A PERFIT, IRA By:____________________________________ /s/ Lisa A. Mills --------------------------------------- Lisa A. Mills /s/ Joyce S. Mills --------------------------------------- Joyce S. Mills /s/ Deborah Mills Folk --------------------------------------- Deborah Mills Folk /s/ William E. Northfield --------------------------------------- William E. Northfield /s/ John B. Pepper --------------------------------------- John B. Pepper /s/ A. Harold Howell --------------------------------------- A. Harold Howell /s/ Elie Rivollier, Jr. --------------------------------------- Elie Rivollier, Jr. /s/ D. Quinn Mills --------------------------------------- D. Quinn Mills, As Custodian for Shirley E. Mills Under the Massachusetts Uniform Transfers to Minors Act AMENDMENT NO. 4 TO REGISTRATION RIGHTS AGREEMENT Agreement made as of this 3rd day of April 1996 by and among Lightbridge, Inc. (formerly known as Credit Technologies, Inc.), a Delaware corporation (the "Company"), and the persons whose names and signatures are set forth below. WHEREAS, the Company has entered into a certain Registration Rights Agreement, dated as of February 11, 1991, as amended by Amendment No. 1 To Registration Rights Agreement dated as of December 19, 1991, Amendment No. 2 To Registration Rights Agreement dated as of June 9, 1993 and Amendment No. 3 To Registration Rights Agreement dated as of August 29, 1994 (as so amended, the "Registration Rights Agreement") with Entrepreneurial Limited Partnership I (formerly known as BEB Limited Partnership I), Entrepreneurial Limited Partnership II (formerly known as BEB Limited Partnership II), certain purchasers of its Series A, Series B and Series C Convertible Preferred Stock and certain purchasers of subordinated notes and common stock purchase warrants issued by the Company; and WHEREAS, the Company has agreed to issue and sell an aggregate of 1,000,000 shares of the Company's Series D Convertible Preferred Stock pursuant to a certain Series D Convertible Preferred Stock Purchase Agreement, dated the date hereof, and to grant the purchasers thereunder (the "New Purchasers") certain registration rights; NOW THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto do hereby agree with each other as follows: 1. The Registration Rights Agreement is hereby amended by deleting therefrom the definition of "Preferred Shares" in Section 1 thereof and substituting therefor the following definition: "Preferred Shares" shall mean those shares of the Company's: (i) Series A Convertible Preferred Stock issued and sold pursuant to a certain Series A Convertible Preferred Stock Purchase Agreement, dated as of February 11, 1991, by and among the Company and the Purchasers named in Schedule I thereto, (ii) Series B Convertible Preferred Stock issued and sold pursuant to a certain Series B Convertible Preferred Stock Purchase Agreement, dated as of December 19, 1991, by and among the Company and the Purchasers named in Schedule I thereto, (iii) Series C Convertible Preferred Stock issued and sold pursuant to a certain Series C Convertible Preferred Stock Purchase Agreement, dated as of June 9, 1993, by and among the Company and the Purchasers named in Schedule I thereto, and (iv) Series D Convertible Preferred Stock issued and sold pursuant to a certain Series D Convertible Preferred Stock Purchase Agreement, dated as of April 3, 1996, by and among the Company and the Purchasers named in Schedule I thereto. 2. Each of the New Purchasers is hereby made a party to the Registration Rights Agreement as a "Purchaser" thereunder and the New Purchasers shall be subject to and entitled to all of the rights and benefits contained in the Registration Rights Agreement. 3. The Registration Rights Agreement is hereby further amended by deleting the reference to "40%" in clause (ii) of Section 4(a) and substituting therefor "25%". 4. The Registration Rights Agreement is hereby further amended by deleting the reference to "two-thirds" in Section 13(d) and substituting therefor "75%". 5. The Registration Rights Agreement, as herein amended, is hereby ratified and confirmed. 6. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts. 7. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, legal representatives and heirs. 8. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day, month and year first above written. LIGHTBRIDGE, INC. By:/s/ Pamela D.A. Reeve -------------------------------- Pamela D.A. Reeve, President and Chief Executive Officer LIGHTBRIDGE, INC. SIGNATURE PAGE TO AMENDMENT NO. 4 TO RESTRICTION RIGHTS AGREEMENT The undersigned hereby executes and delivers the Amendment No. 4 to Registration Rights Agreement (the "Agreement") to which this Signature Page is attached, which Agreement and Signature Page, together with all counterparts of said Agreement and Signature Pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of said Agreement. GLOBAL PRIVATE EQUITY II LIMITED PARTNERSHIP By: Advent International Limited Partnership, General Partner By: Advent International Corp., General Partner By: Andrew Fillat, Senior Vice President ADVENT INTERNATIONAL INVESTORS II LIMITED PARTNERSHIP ADVENT PARTNERS LIMITED PARTNERSHIP By: Advent International Corp., General Partner By: Andrew Fillat, Senior Vice President /s/ Andrew Fillat - -------------------------------------------- Andrew Fillat, for all of the above LIGHTBRIDGE, INC. SIGNATURE PAGE TO AMENDMENT NO. 4 TO REGISTRATION RIGHTS AGREEMENT The undersigned hereby executes and delivers the Amendment No. 4 to Registration Rights Agreement (the "Agreement") to which this Signature Page is attached, which Agreement and Signature Page, together with all counterparts of said Agreement and Signature Pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of said Agreement. Massachusetts Capital Resource Company ----------------------------- Name of Securityholder By:/s/ Joan C. McArdle -------------------------- Print Name:Joan C. McArdle ------------------ Title:Vice President ----------------------- Date:April 3, 1996 ------------------------ LIGHTBRIDGE, INC. SIGNATURE PAGE TO AMENDMENT NO. 4 TO REGISTRATION RIGHTS AGREEMENT The undersigned hereby executes and delivers the Amendment No. 4 to Registration Rights Agreement (the "Agreement") to which this Signature Page is attached, which Agreement and Signature Page, together with all counterparts of said Agreement and Signature Pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of said Agreement. ---------------------------------------------- Name of Securityholder By:/s/ Torrence C. Harder, General Partner ------------------------------------------- Print Name: ---------------------------------------------- Title:________________________________________ Date: April 3, 1996 ----------------------------------------- Entrepreneurial Limited Partnership I Entrepreneurial Limited Partnership II Entrepreneurial Limited Partnership IV By: Entrepreneurial Ventures, Inc. By: Torrence C. Harder, President General Partner, Entrepreneurial LP - I LIGHTBRIDGE, INC. SIGNATURE PAGE TO AMENDMENT NO. 4 TO REGISTRATION RIGHTS AGREEMENT The undersigned hereby executes and delivers the Amendment No. 4 to Registration Rights Agreement (the "Agreement") to which this Signature Page is attached, which Agreement and Signature Page, together with all counterparts of said Agreement and Signature Pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of said Agreement. Spindle Limited Partnership ----------------------------- Name of Securityholder By:/s/ Randolph P. Barton -------------------------- Print Name:__________________ Title:General Partner ----------------------- Date:April 1, 1996 ------------------------ LIGHTBRIDGE, INC. SIGNATURE PAGE TO AMENDMENT NO. 4 TO REGISTRATION RIGHTS AGREEMENT The undersigned hereby executes and delivers the Amendment No. 4 to Registration Rights Agreement (the "Agreement") to which this Signature Page is attached, which Agreement and Signature Page, together with all counterparts of said Agreement and Signature Pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of said Agreement. D. Quinns Mills, Inc. Profit Sharing Plan ---------------------------- Name of Securityholder By:/s/ D. Quinn Mills --------------------------- Print Name:___________________ Title:________________________ Date:April 3, 1996 ------------------------- LIGHTBRIDGE, INC. SIGNATURE PAGE TO AMENDMENT NO. 4 TO REGISTRATION RIGHTS AGREEMENT The undersigned hereby executes and delivers the Amendment No. 4 to Registration Rights Agreement (the "Agreement") to which this Signature Page is attached, which Agreement and Signature Page, together with all counterparts of said Agreement and Signature Pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of said Agreement. Michael Adam Perfit 8/27/93 Trust ------------------------------ Name of Securityholder By:/s/ Michael Adam Perfit --------------------------- Print Name:Michael Adam Perfit ------------------- Title:Trustee ------------------------ Date:March 29, 1996 ------------------------- LIGHTBRIDGE, INC. SIGNATURE PAGE TO AMENDMENT NO. 4 TO REGISTRATION RIGHTS AGREEMENT The undersigned hereby executes and delivers the Amendment No. 4 to Registration Rights Agreement (the "Agreement") to which this Signature Page is attached, which Agreement and Signature Page, together with all counterparts of said Agreement and Signature Pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of said Agreement. John A. Whittemore ----------------------------- Name of Securityholder By:/s/ John A. Whittemore --------------------------- Print Name:John A. Whittemore ------------------- Title: N/A ------------------------ Date:4-1-96 ------------------------- EX-10.2 8 SUB. NOTE & WARRANT PURCHASE AGREEMENT EXHIBIT 10.2 CREDIT TECHNOLOGIES, INC. Subordinated Note and Warrant Purchase Agreement Dated as of August 29, 1994 CREDIT TECHNOLOGIES , INC. Subordinated Note and Warrant Purchase Agreement Dated as of August 29, 1994 INDEX -----
Page ---- ARTICLE I - --------- Purchase, Sale and Terms of Notes and Warrants ---------------------------------------------- 1.01 The Notes........................................................ 1 1.02 The Warrants..................................................... 1 1.03 Purchase and Sale of Notes and Warrants.......................... 1 (a) The Closing................................................. 1 (b) Use of Proceeds............................................. 2 1.04 Payments and Endorsements........................................ 2 1.05 Redemptions...................................................... 3 (a) Required Redemptions........................................ 3 (b) Optional Redemptions With Premium........................... 3 (c) Notice of Redemptions; Pro rata Redemptions................. 3 1.06 Payment on Non-Business Days..................................... 3 1.07 Registration, etc................................................ 4 1.08 Transfer and Exchange of Notes................................... 4 1.09 Replacement of Notes............................................. 4 1.10 Subordination.................................................... 5 (a) Payment of Senior Debt...................................... 5 (b) No Payment on Notes Under Certain Conditions................ 6 (c) Payments Held in Trust...................................... 6 (d) Subrogation................................................. 6 (e) Scope of Section............................................ 7 (f) Survival of Rights.......................................... 7 (g) Amendment or Waiver......................................... 7 (h) Senior Debt Defined......................................... 8 1.11 Representations by the Purchasers; Legend........................ 8 (a) Representations by the Purchasers........................... 8 (b) Legend...................................................... 9 1.12 Disclosure of Information by MCRC................................ 9 ARTICLE II - ---------- Conditions to Purchasers' Obligation ------------------------------------ 2.01 Representations and Warranties.................................. 10 2.02 Documentation at Closing........................................ 10 2.03 Other Transactions.............................................. 11
-i- ARTICLE III - ----------- Representations and Warranties ------------------------------ 3.01 Organization and Standing of the Company................................................................. 12 3.02 Corporate Action......................................................................................... 12 3.03 Governmental Approvals................................................................................... 12 3.04 Litigation............................................................................................... 13 3.05 Compliance with Other Instruments........................................................................ 13 3.06 Federal Reserve Regulations.............................................................................. 14 3.07 Title to Assets, Patents................................................................................. 14 3.08 Financial Information.................................................................................... 14 3.09 Taxes.................................................................................................... 15 3.10 ERISA.................................................................................................... 15 3.11 Transactions with Affiliates............................................................................. 15 3.12 Assumptions or Guaranties of Indebtedness of Other Persons............................................... 15 3.13 Investments in Other Persons............................................................................. 16 3.14 Equal Employment Opportunity............................................................................. 16 3.15 Status of Notes and Warrants as Qualified Investments.................................................... 16 3.16 Securities Act........................................................................................... 17 3.17 Disclosure............................................................................................... 17 3.18 No Brokers or Finders.................................................................................... 17 3.19 Other Agreements of Officers............................................................................. 17 3.20 Capitalization; Status of Capital Stock.................................................................. 18 3.21 Labor Relations.......................................................................................... 18 3.22 Insurance................................................................................................ 19 3.23 Key Man Insurance........................................................................................ 19 3.24 Books and Records........................................................................................ 19 3.25 Foreign Corrupt Practices Act............................................................................ 19 3.26 Registration Rights...................................................................................... 19 ARTICLE IV - ---------- Covenants of the Company ------------------------ 4.01 Affirmative Covenants of the Company Other Than Reporting Requirements................................... 19 (a) Punctual Payment.................................................................................... 19 (b) Payment of Taxes and Trade Debt..................................................................... 20 (c) Maintenance of Insurance............................................................................ 20 (d) Preservation of Corporate Existence................................................................. 20 (e) Compliance with Laws................................................................................ 20 (f) Visitation Rights................................................................................... 21 (g) Keeping of Records and Books of Account............................................................. 21 (h) Maintenance of Properties, etc...................................................................... 21 (i) Compliance with ERISA............................................................................... 21 (j) Maintenance of Debt to Equity Ratio................................................................. 21 (k) Interest Coverage................................................................................... 21 (l) Foreign Corrupt Practices Act....................................................................... 22 (m) Equal Employment Opportunity........................................................................ 22
-ii- (n) Status of Notes and Warrants as Qualified Investments............................................... 22 (o) Key Man Life Insurance.............................................................................. 22 (p) Attendance at Board Meetings........................................................................ 23 (q) Compensation........................................................................................ 23 4.02 Negative Covenants of the Company........................................................................ 23 (a) Liens............................................................................................... 23 (b) Indebtedness........................................................................................ 24 (c) Lease Obligations................................................................................... 25 (d) Assumptions or Guaranties of Indebtedness of Other Persons.......................................... 25 (e) Mergers, Sale of Assets, etc........................................................................ 25 (f) Investments in Other Persons........................................................................ 26 (g) Distributions....................................................................................... 26 (h) Dealings with Affiliates............................................................................ 27 (i) Maintenance of Ownership of Subsidiaries............................................................ 27 (j) Change in Nature of Business........................................................................ 28 4.03 Reporting Requirements................................................................................... 28 4.04 Termination of Certain Covenants of the Company.......................................................... 30 ARTICLE V - --------- Events of Default ----------------- 5.01 Events of Default........................................................................................ 30 5.02 Annulment of Defaults.................................................................................... 32 ARTICLE VI - ---------- Definitions and Accounting Terms -------------------------------- 6.01 Certain Defined Terms.................................................................................... 32 6.02 Accounting Terms......................................................................................... 35 ARTICLE VII - ----------- Miscellaneous ------------- 7.01 No Waiver; Cumulative Remedies........................................................................... 36 7.02 Amendments, Waivers and Consents......................................................................... 36 7.03 Addresses for Notices, etc............................................................................... 36 7.04 Costs, Expenses and Taxes................................................................................ 37 7.05 Binding Effect; Assignment............................................................................... 38 7.06 Survival of Representations and Warranties............................................................... 38 7.07 Prior Agreements......................................................................................... 38 7.08 Severability............................................................................................. 38 7.09 Governing Law............................................................................................ 38 7.10 Headings................................................................................................. 38 7.11 Sealed Instrument........................................................................................ 38 7.12 Counterparts............................................................................................. 38 7.13 Further Assurances....................................................................................... 38 7.14 Acknowledgment........................................................................................... 38 SCHEDULE Schedule of Purchasers EXHIBITS 1.01 Form of Subordinated Notes 1.02 Form of Common Stock Purchase Warrants 2.02(b) Matters to be Covered by Opinion Letter 2.03(a) Form of Amendment No.3 to Registration Rights Agreement 3.04 Schedule of Litigation 3.05 Schedule of Indebtedness 3.07 Schedule of Mortgages, Pledges, etc. 3.08 Financial Statements 3.11 Schedule of Transactions with Affiliates 3.13 Schedule of Investments in Other Persons 3.15 Certificate re "Qualified Investments" 3.20 Schedule of Capital Stock, Options and Other Rights
-iii- CREDIT TECHNOLOGIES, INC. 281 Winter Street Waltham, Massachusetts 02154 As of August 29, 1994 To the Persons Listed in the Schedule of Purchasers Attached Hereto Re: Subordinated Notes due 2001 and Common Stock Purchase Warrants Gentlemen: Credit Technologies, Inc., a Delaware corporation (the "Company"), hereby agrees with each person listed in the Schedule of Purchasers attached hereto (individually a "Purchaser" and collectively the "Purchasers") as follows: ARTICLE I PURCHASE, SALE AND TERMS OF NOTES AND WARRANTS 1.01 The Notes. The Company has authorized the issuance and sale to the --------- Purchasers, in the respective amounts set forth in the Schedule of Purchasers attached hereto, of the Company's Subordinated Notes, due June 30, 2001, in the original aggregate principal amount of $2,100,000. The Subordinated Notes shall be substantially in the form set forth in Exhibit 1.01 hereto and are herein ------------ referred to individually as a "Note" and collectively as the "Notes", which terms shall also include any notes delivered in exchange or replacement therefor. 1.02 The Warrants. The Company has also authorized the issuance and sale ------------ to the Purchasers, in the respective amounts set forth in the Schedule of Purchasers attached hereto, of the Company's Common Stock Purchase Warrants for the purchase (subject to adjustment as provided therein) of an aggregate of 262,500 shares of the Company's Common Stock. The Common Stock Purchase Warrants shall be substantially in the form set forth in Exhibit 1.02 hereto and ------------ are herein referred to individually as a "Warrant" and collectively as the "Warrants", which terms shall also include any warrants delivered in exchange or replacement therefor. 1.03 Purchase and Sale of Notes and Warrants. --------------------------------------- (a) The Closing. The Company agrees to issue and sell to the ----------- Purchasers, and, subject to and in reliance upon the representations, warranties, terms and conditions of this Agreement, the Purchasers agree to purchase, the Notes and the Warrants set forth opposite their respective names in the Schedule of Purchasers attached hereto for the aggregate purchase price set forth therein. Such purchase and sale shall take place at a closing (the "Closing") to be held at the office of Messrs. Testa, Hurwitz & Thibeault, Exchange Place, 53 State Street, Boston, Massachusetts, on August 29, 1994 at 2:00 P.M., or on such other date and at such time as may be mutually agreed upon. At the Closing, the Company will issue and deliver to each Purchaser (i) one Note, payable to the order of such Purchaser, in the principal amount of set forth opposite such Purchaser's name in the Schedule of Purchasers attached hereto, and (ii) one Warrant, registered in the name of such Purchaser, exercisable for that number of shares of Common Stock which is set forth opposite such Purchaser's name in the Schedule of Purchasers attached hereto, against delivery of a check or a receipt of a wire transfer in payment of the purchase price for the Notes and Warrants to be purchased by such Purchaser. (b) Allocation of Purchase Price. The Company and the Purchasers, ---------------------------- having adverse interests and as a result of arm's length bargaining, agree that (i) none of the Purchasers or any of their partners has rendered or has agreed to render any services to the Company in connection with this Agreement or the issuance of the Notes and Warrants; (ii) the Warrants are not being issued as compensation; and (iii) for the purpose, and within the meaning, of Section 1273(c)(2) of the Internal Revenue Code of 1986, as amended, the issue price of the Warrants is $21,000 and the issue price of the Notes is $2,079,000. The Company and the Purchasers acknowledge that this allocation is based on the relative fair market values of the Notes and Warrants. The Company and the Purchasers recognize that this Agreement determines the original issue discount to be taken into account by the Company and the Purchaser for federal income tax purposes on the Notes and they agree to adhere to this Agreement for such purposes. (c) Use of Proceeds. The Company agrees to use the full proceeds from --------------- the sale of the Notes and Warrants solely for working capital and agrees that full proceeds from the sale of the Notes and Warrants will be utilized for purposes which increase or maintain equal opportunity employment in the Commonwealth of Massachusetts. 1.04 Payments and Endorsements. Payments of principal, interest and ------------------------- premium, if any, on the Notes, shall be made directly by check duly mailed or delivered to each Purchaser at its address referred to in Section 7.03 hereof, without any presentment or notation of payment, except that prior to any transfer of any Note, the holder of record shall endorse on such Note a record of the date to which interest has been paid and all payments made on account of principal of such Note. 2 1.05 Redemptions. ----------- (a) Required Redemptions. Beginning on and with September 30, 1997, -------------------- and on the last day of December, March, June and September in each year thereafter through and including June 30, 2001, the Company will redeem, without premium, $131,250 in principal amount of the Notes, or such lesser amount as may be then outstanding, together with all accrued and unpaid interest then due on the amount so redeemed. On the stated or accelerated maturity of the Notes, the Company will pay the principal amount of the Notes then outstanding together with all accrued and unpaid interest then due thereon. No optional redemption of less than all of the Notes shall affect the obligation of the Company to make the redemptions required by this subsection. (b) Optional Redemptions With Premium. Except as provided in --------------------------------- subsection 1.05(a), the Company may at any time redeem the Notes in whole or in part (in integral multiples of $10,000) together with interest due on the amount so redeemed through the date of redemption, and a premium equal to the percentage of the principal amount of the Notes redeemed under this subsection applicable to the period in which such redemption is made, as follows:
Period Starting - Ending Premium ----------------- ------- Date of Agreement - June 30, 1996 8% July 1, 1996 - June 30, 1998 6% July 1, 1998 - June 30, 2000 4% July 1, 2000 and thereafter 2%
provided that no premium shall be due in connection with any surrender to the - -------- Company of any Notes in payment of all or part of the exercise price due upon exercise of any Warrants. (c) Notice of Redemptions; Pro rata Redemptions. Notice of any ------------------------------------------- optional redemptions pursuant to Subsection 1.05(b) shall be given to all registered holders of the Notes at least ten (10) business days prior to the date of such redemption. Each redemption of Notes pursuant to subsections 1.05(a) or (b) shall be made so that the Notes then held by each holder shall be redeemed in a principal amount which shall bear the same ratio to the total principal amount of Notes being redeemed as the principal amount of Notes then held by such holder bears to the aggregate principal amount of the Notes then outstanding. 1.06 Payment on Non-Business Days. Whenever any payment to be made shall ---------------------------- be due on a Saturday, Sunday or a public holiday under the laws of the Commonwealth of Massachusetts, such payment may be made on the next succeeding business day, and such 3 extension of time shall in such case be included in the computation of payment of interest due. 1.07 Registration, etc. The Company shall maintain at its principal office ------------------ a register of the Notes and shall record therein the names and addresses of the registered holders of the Notes, the address to which notices are to be sent and the address to which payments are to be made as designated by the registered holder if other than the address of the holder, and the particulars of all transfers, exchanges and replacements of Notes. No transfer of a Note shall be valid unless made on such register for the registered holder or his executors or administrators or his or their duly appointed attorney, upon surrender therefor for exchange as hereinafter provided, accompanied by an instrument in writing, in form and execution reasonably satisfactory to the Company. Each Note issued hereunder, whether originally or upon transfer, exchange or replacement of a Note or Notes, shall be registered on the date of execution thereof by the Company and shall be dated the date to which interest has been paid on such Notes or Note. The registered holder of a Note shall be that Person in whose name the Note has been so registered by the Company. A registered holder shall be deemed the owner of a Note for all purposes of this Agreement and, subject to the provisions hereof, shall be entitled to the principal, premium, if any, and interest evidenced by such Note free from all equities or rights of setoff or counterclaim between the Company and the transferor of such registered holder or any previous registered holder of such Note. 1.08 Transfer and Exchange of Notes. Subject to compliance with federal ------------------------------ and applicable state securities laws, the registered holder of any Note or Notes may, prior to maturity or prepayment thereof, surrender such Note or Notes at the principal office of the Company for transfer or exchange. within a reasonable time after notice to the Company from a registered holder of its intention to make such exchange and without expense (other than transfer taxes, if any) to such registered holder, the Company shall issue in exchange therefor another Note or Notes, in such denominations as requested by the registered holder, for the same aggregate principal amount as the unpaid principal amount of the Note or Notes so surrendered and having the same maturity and rate of interest, containing the same provisions and subject to the same terms and conditions as the Note or Notes so surrendered. Each new Note shall be made payable to such Person or Persons, or registered assigns, as the registered holder of such surrendered Note or Notes may designate, and such transfer or exchange shall be made in such a manner that no gain or loss of principal or interest shall result therefrom. 1.09 Replacement of Notes. Upon receipt of evidence satisfactory to the -------------------- Company of the loss, theft, destruction or mutilation of any Note and, if requested in the case of any such 4 loss, theft or destruction, upon delivery of an indemnity bond or other agreement or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of such Note, the Company will issue a new Note, of like tenor and amount and dated the date to which interest has been paid, in lieu of such lost, stolen, destroyed or mutilated Note; provided, however, if any Note of which Massachusetts Capital Resource -------- ------- Company, its nominee, or any of its partners is the registered holder is lost, stolen or destroyed, the affidavit of the President, Treasurer or any Assistant Treasurer of the registered holder setting forth the circumstances with respect to such loss, theft or destruction shall be accepted as satisfactory evidence thereof, and no indemnification bond or other security shall be required as a condition to the execution and delivery by the Company of a new Note in replacement of such lost, stolen or destroyed Note other than the registered holder's written agreement to indemnify the Company. 1.10 Subordination. The Company, for itself, its successors and assigns, ------------- covenants and agrees, and each Purchaser and each successor holder of the Notes by his or its acceptance thereof, likewise covenants and agrees, that notwithstanding any other provision of this Agreement or the Notes, the payment of the principal of and interest on each and all of the Notes shall be subordinated in right of payment, to the extent and in the manner hereinafter set forth, to the prior payment in full of all Senior Debt (as hereinafter defined) at any time outstanding. The provisions of this Section 1.10 shall constitute a continuing representation to all Persons who, in reliance upon such provisions, become the holders of or continue to hold Senior Debt, and such provisions are made for the benefit of the holders of Senior Debt, and such holders are hereby made obligees hereunder the same as if their names were written herein as such, and they or any of them may proceed to enforce such provisions against the Company or against the holder of any Note without the necessity of joining the Company as a party. (a) Payment of Senior Debt. In the event of any insolvency or ---------------------- bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings in connection therewith, relative to the Company or to its property, or, in the event of any proceedings for voluntary liquidation, dissolution or other winding up of the Company or distribution or marshaling of its assets or any composition with creditors of the Company, whether or not involving insolvency or bankruptcy, then and in any such event all Senior Debt shall be paid in full before any payment or distribution of any character, whether in cash, securities or other property, shall be made on account of the Notes; and any such payment or distribution, except securities which are subordinated and junior in right of payment to the payment of all Senior Debt then outstanding in terms of substantially the same tenor as this Section 1.10, which would, 5 but for the provisions hereof, be payable or deliverable in respect of the Notes shall be paid or delivered directly to the holders of Senior Debt (or their duly authorized representatives), in the proportions in which they hold the same, until all Senior Debt shall have been paid in full, and every holder of the Notes by becoming a holder thereof shall have designated and appointed the holder or holders of Senior Debt (and their duly authorized representatives) as his or its agents and attorney-in-fact to demand, sue for, collect and receive such Senior Debt holder's ratable share of all such payments and distributions and to file any necessary proof of claim therefor and to take all such other action in the name of the holders of the Notes or otherwise, as such Senior Debt holders (or their authorized representatives) may determine to be necessary or appropriate for the enforcement of this Section 1.10. Each Purchaser and each successor holder of the Notes by its or his acceptance thereof agrees to execute, at the request of the Company, a separate agreement with any holder of Senior Debt on the terms set forth in this Section 1.10, and to take all such other action as such holder or such holder's representative may request in order to enable such holder to enforce all claims upon or in respect of such holder's ratable share of the Notes. (b) No Payment on Notes Under Certain Conditions. In the event that -------------------------------------------- any default occurs in the payment of the principal of or interest on any Senior Debt (whether as a result of the acceleration thereof by the holders of such Senior Debt or otherwise) and during the continuance of such default for a period up to ninety (90) days and thereafter if judicial proceedings shall have been instituted with respect to such defaulted payment, or (if a shorter period) until such payment has been made or such default has been cured or waived in writing by such holder of Senior Debt then and during the continuance of such event no payment of principal or interest on the Notes shall be made by the Company or accepted by any holder of the Notes who has received notice from the Company or from a holder of Senior Debt of such events. (c) Payments Held in Trust. In case any payment or distribution shall ---------------------- be paid or delivered to any holder of the Notes before all Senior Debt shall have been paid in full, despite or in violation or contravention of the terms of this subordination, such payment or distribution shall be held in trust for and paid and delivered ratably to the holders of Senior Debt (or their duly authorized representatives), until all Senior Debt shall have been paid in full. (d) Subrogation. Subject to the payment in full of all Senior Debt ----------- and until the Notes shall be paid in full, the holders of the Notes shall be subrogated to the rights of the holders of Senior Debt (to the extent of payments or distributions previously made to such holders of Senior Debt pursuant to the provisions of 6 subsections (a) and (c) of this Section 1.10) to receive payments or distributions of assets of the Company applicable to the Senior Debt. No such payments or distributions applicable to the Senior Debt shall, as between the Company and its creditors, other than the holders of Senior Debt and the holders of the Notes, be deemed to be a payment by the Company to or on account of the Notes; and for the purposes of such subrogation, no payments or distributions to the holders of Senior Debt to which the holders of the Notes would be entitled except for the provisions of this Section 1.10 shall, as between the Company and its creditors, other than the holders of Senior Debt and the holders of the Notes, be deemed to be a payment by the Company to or on account of the Senior Debt. (e) Scope of Section. The provisions of this Section 1.10 are ---------------- intended solely for the purpose of defining the relative rights of the holders of the Notes, on the one hand, and the holders of the Senior Debt, on the other hand. Nothing contained in this Section 1.10 or elsewhere in this Agreement or the Notes is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Debt, and the holders of the Notes, the obligation of the Company, which is unconditional and absolute, to pay to the holders of the Notes the principal of and interest on the Notes as and when the same shall become due and payable in accordance with the terms thereof, or to affect the relative rights of the holders of the Notes and creditors of the Company other than the holders of the Senior Debt, nor shall anything herein or therein prevent the holder of any Note from accepting any payment with respect to such Note or exercising all remedies otherwise permitted by applicable law upon default under such Note, subject to the rights, if any, under this Section 1.10 of the holders of Senior Debt in respect of cash, property or securities of the Company received by the holders of the Notes. (f) Survival of Rights. The right of any present or future holder of ------------------ Senior Debt to enforce subordination of the Notes pursuant to the provisions of this Section 1.10 shall not at any time be prejudiced or impaired by any act or failure to act on the part of the Company or any such holder of Senior Debt, including, without limitation, any forbearance, waiver, consent, compromise, amendment, extension, renewal, or taking or release of security of or in respect of any Senior Debt or by noncompliance by the Company with the terms of such subordination regardless of any knowledge thereof such holder may have or otherwise be charged with. (g) Amendment or Waiver. The provisions of this Section 1.10 may not ------------------- be amended or waived in any manner which is detrimental to any Senior Debt without the consent of the holders of all then existing Senior Debt. 7 (h) Senior Debt Defined. The term "Senior Debt" shall mean (i) all ------------------- Indebtedness of the Company for money borrowed from banks or other institutional lenders, including any extension or renewals thereof, whether outstanding on the date hereof or thereafter created or incurred, which is not by its terms subordinate and junior to or on a parity with the Notes and which is permitted hereby at the time it is created or incurred, and (ii) all guaranties by the Company which are not by their terms subordinate and junior to or on a parity with the Notes and which are permitted hereby at the time they are made, of Indebtedness of any Subsidiary if such Indebtedness would have been Senior Debt pursuant to the provisions of clause (i) of this sentence had it been Indebtedness of the Company. In making any loans which are (or the guaranties of which are) intended to be Senior Debt, the lenders or purchasers shall be entitled to rely as to the fact that such Indebtedness or guaranty is permitted hereby upon a certificate by the Company's chief financial officer purporting to show such Indebtedness or guaranty will not result in the Company's failure to comply with the provisions of Article IV hereof as of the date of the loan or guarantee. 1.11 Representations by the Purchasers; Legend. ----------------------------------------- (a) Representations by the Purchasers. Each Purchaser (whether such --------------------------------- Purchaser is a natural person, partnership, trust or employee benefit plan) severally represents and warrants to the Company that: (i) it was not organized for the specific purpose of acquiring the Notes or Warrants and that it, and each person who made this investment decision for the Purchaser, if such Purchaser is a trust or an employee benefit plan, is an "accredited investor" within the meaning of Rule 501 under the Securities Act and; (ii) it has sufficient knowledge and experience in investing in companies similar to the Company in terms of the Company's stage of development so as to be able to evaluate the risks and merits of its investment in the Company and it is able financially to bear the risks thereof, including complete loss of its investment; (iii) it has had an opportunity to discuss the Company's business, management and financial affairs with the Company's management and it has had the opportunity to ask questions and receive answers from officers and representatives of the Company concerning the terms and conditions of the transactions contemplated by this Agreement and obtain any additional information which the Company possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy of information regarding the Company set forth herein or 8 otherwise delivered to such Purchaser in connection with its purchase of Notes and Warrants; (iv) the Notes and Warrants being purchased by it are being acquired for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof; and (v) it understands that (1) the Notes and Warrants and the shares of Common Stock issuable upon exercise of the Warrants have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act, (2) the Notes and Warrants and, upon exercise thereof, the shares of Common Stock issued upon exercise of the Warrants must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration, (3) the Notes and Warrants and the shares of Common Stock issued upon exercise of the Warrants will bear a legend to such effect and (4) the Company will make a notation on its transfer books to such effect. (b) Legend. The Notes, the Warrants and any certificates for shares ------ of Common Stock issued upon exercise of the Warrants shall bear the following legend or a legend substantially similar thereto: "The securities represented hereby have not been registered under the Securities Act of 1933. These securities have been acquired for investment and not with a view to distribution or resale and may not be sold, mortgaged, pledged, hypothecated or otherwise transferred without an effective registration statement for such securities under the Securities Act of 1933, or an opinion of counsel reasonably satisfactory to the Company that registration is not required under such Act." The Company hereby agrees that Messrs. Testa, Hurwitz & Thibeault shall be deemed to be counsel reasonably satisfactory to the Company. 1.12 Disclosure of Information by MCRC. The Company understands that --------------------------------- Massachusetts Capital Resource Company ("MCRC") is a special purpose limited partnership organized under Chapter 109 of the General Laws of the Commonwealth of Massachusetts and Chapter 816 of the Acts and Resolves of 1977 of the Commonwealth of Massachusetts (the "Capital Resource Company Act"), and as such, in accordance with such provisions, MCRC, in order to obtain certain benefits for itself and its partners, is required to file 9 certain reports and otherwise disclose information relating to the business, financial affairs, and future prospects of the Company and its affiliates (as defined in the aforesaid legislation) with the Clerk of the Senate and the Clerk of the House of Representatives of the General Court of the Commonwealth of Massachusetts, the Secretary of Manpower Affairs, the Commissioner of Insurance and the Department of Revenue of the Commonwealth of Massachusetts, and that such reports and other information may constitute "public records" within the purview of Section 7 of Chapter 4 of the General Laws of the Commonwealth of Massachusetts. In addition, information relating to the business, financial affairs and future prospects of the Company and its affiliates must be disclosed to others in order to obtain independent confirmation that financing on substantially similar terms to financing provided pursuant to this Agreement was not elsewhere available to the Company. The Company hereby authorizes MCRC to disclose all such information relating to the business, financial affairs and future prospects of the Company and its affiliates as has been or may in the future be presented to MCRC to all such persons as MCRC in good faith deems necessary or appropriate in order to fulfill its obligations under the Capital Resource Company Act. ARTICLE II CONDITIONS TO PURCHASERS' OBLIGATION The obligation of the Purchasers to purchase and pay for the Notes and Warrants at the Closing is subject to the following conditions: 2.01 Representations and Warranties. Each of the representations and ------------------------------ warranties of the Company set forth in Article III hereof shall be true on the date of the Closing. 2.02 Documentation at Closing. The Purchasers shall have received prior to ------------------------ or at the Closing all of the following, each in form and substance satisfactory to the Purchasers and their special counsel: (a) A certified copy of all charter documents of the Company; a certified copy of the resolutions of the Board of Directors and, to the extent required, the stockholders of the Company evidencing approval of this Agreement, the Notes, the Warrants, the Registration Rights Amendment (as hereinafter defined) and other matters contemplated hereby; a certified copy of the By-laws of the Company; and certified copies of all documents evidencing other necessary corporate or other action and governmental approvals, if any, with respect to this Agreement, the Notes, the Warrants and the Registration Rights Amendment. 10 (b) A favorable opinion of Messrs. Foley, Hoag & Eliot, counsel for the Company, as to matters set forth in Exhibit 2.02(b), and as to such other --------------- matters as the Purchasers, or their special counsel, may reasonably request. (c) A certificate of the Secretary or an Assistant Secretary of the Company which shall certify the names of the officers of the Company, authorized to sign this Agreement, the Notes, the Warrants, the Registration Rights Amendment and the other documents or certificates to be delivered pursuant to this Agreement by the Company, or any of its officers, together with the true signatures of such officers. The Purchasers may conclusively rely on such certificates until it shall receive a further certificate of the Secretary or an Assistant Secretary of the Company cancelling or amending the prior certificate and submitting the signatures of the officers named in such further certificate. (d) A certificate from a duly authorized officer of the Company stating that: (i) the representations and warranties of the Company contained in Article III hereof and otherwise made by the Company in writing in connection with the transactions contemplated hereby are true and correct; (ii) the transactions described in Section 2.03 have been consummated; and (iii) no condition or event has occurred or is continuing or will result from execution and delivery of this Agreement, the Notes, the Warrants or the Registration Rights Amendment which constitute an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both. (e) A certificate, in the form attached as Exhibit 3.15 hereto, shall ------------ have been executed and delivered to MCRC by a duly authorized officer of the Company. (f) Payment for the costs, expenses, taxes and filing fees identified in Section 7.04 as to which the Purchasers give the Company notice prior to the Closing. 2.03 Other Transactions. Prior to or simultaneous with the Closing: ------------------ (a) That certain Registration Rights Agreement, dated February 11, 1991 and as amended to date, shall have been amended (the "Registration Rights Amendment") so as to provide that the Warrants and the shares of Common Stock issued and issuable upon exercise of the Warrants shall be entitled to all of the rights, benefits and obligations of said Registration Rights Agreement, said Registration Rights Amendment to be substantially in the form of Exhibit 2.03(a) --------------- hereto (said Registration Rights Agreement as so amended being herein referred to as the "Registration Rights Agreement"). 11 (b) All rights of first refusal, including, without limitation, those contained in Section 5.02 of that certain Series C Convertible Preferred Stock Purchase Agreement, dated June 4, 1993, shall have been duly waived with respect to the issuance of the Notes, the Warrants and the shares of Common Stock issued or issuable upon exercise of the Warrants. ARTICLE III REPRESENTATIONS AND WARRANTIES The Company represents and warrants as follows: 3.01 Organization and Standing of the Company. The Company is a duly ---------------------------------------- organized and validly existing corporation in good standing under the laws of the jurisdiction in which it was organized and has all requisite corporate power and authority for the ownership and operation of its properties and for the carrying on of its business as now conducted and as now proposed to be conducted. The Company is duly licensed or qualified and in good standing as a foreign corporation authorized to do business in all jurisdictions wherein the character of the property owned or leased, or the nature of the activities conducted, by it makes such licensing or qualification necessary and where the failure to be so licensed or qualified would have a material adverse effect on the Company. The Company has no Subsidiaries. 3.02 Corporate Action. The Company has all necessary corporate power and ---------------- has taken all corporate action required to make all the provisions of this Agreement, the Notes, the Warrants, the Registration Rights Amendment and any other agreements and instruments executed in connection herewith and therewith the valid and enforceable obligations they purport to be. Sufficient shares of authorized but unissued Common Stock of the Company have been reserved by appropriate corporate action in connection with the prospective exercise of the Warrants (assuming no adjustment in the number of shares of Common Stock purchasable thereunder). Neither the issuance of the Notes or Warrants, nor the issuance of shares of Common Stock upon the exercise of the Warrants, is subject to preemptive or other similar statutory or contractual rights and will not conflict with any provisions of any agreement or instrument to which the Company is a party or by which it is bound. 3.03 Governmental Approvals. Subject to the accuracy of the ---------------------- representations and warranties of the Purchasers set forth in Section 1.11, and other than exemptions available under federal and applicable state securities laws and filings pursuant to federal and applicable state securities laws (all of which filings have been made by the Company, other than those which are required to be made after the Closing and which will be duly made on a timely basis), including, with respect to the Registration Rights 12 Agreement, the registration of shares covered thereby with the Securities and Exchange Commission, no authorization, consent, approval, license, exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is or will be necessary for, or in connection with, the offer, issuance, sale, execution or delivery by the Company of, or for the performance by it of its obligations under, this Agreement, the Notes, the Warrants or the Registration Rights Amendment. 3.04 Litigation. Except as is set forth in Exhibit 3.04, there is no ---------- ------------ litigation or governmental proceeding or investigation pending or, to the best of the knowledge of the Company, threatened against the Company affecting any of its properties or assets, or against any officer, key employee or principal stockholder of the Company where such litigation, proceeding or investigation, either individually or in the aggregate, would have a material adverse effect on the Company, nor, to the best of the knowledge of the Company, has there occurred any event or does there exist any condition on the basis of which any litigation, proceeding or investigation might properly be instituted. Neither the Company, nor, to the best of the knowledge of the Company, any officer or key employee of the Company, or principal stockholder of the Company, is in default with respect to any order, writ, injunction, decree, ruling or decision of any court, commission, board or other government agency affecting the Company. There are no actions or proceedings pending or threatened (or any basis therefor known to the Company) which might result, either in any case or in the aggregate, in any material adverse change in the business, operations, affairs or condition of the Company or in any of its properties or assets, or which might call into question the validity of this Agreement, the Notes, the Warrants, the Registration Rights Agreement or any action taken or to be taken pursuant hereto or thereto. 3.05 Compliance with Other Instruments. The Company is in compliance in --------------------------------- all respects with the terms and provisions of this Agreement and of its charter and by-laws and in all material respects with the terms and provisions of the mortgages, indentures, leases, agreements and other instruments and of all judgments, decrees, governmental orders, statutes, rules and regulations by which it is bound or to which its properties or assets are subject, the failure to comply with which would have a material adverse effect on the Company. Neither the execution and delivery of this Agreement, the Notes, the Warrants or the Registration Rights Amendment, nor the consummation of any transactions contemplated hereby or thereby has constituted or resulted in or will constitute or result in a default or violation of any term or provision in any of the foregoing documents or instruments. A schedule of Indebtedness of the Company (including lease obligations required to be capitalized in accordance with 13 applicable Statements of Financial Accounting Standards) is attached as Exhibit ------- 3.05. - ---- 3.06 Federal Reserve Regulations. The Company is not engaged in the --------------------------- business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation G of the Board of Governors of the Federal Reserve System), and no part of the proceeds of the Notes or Warrants will be used to purchase or carry any margin security or to extend credit to others for the purpose of purchasing or carrying any margin security or in any other manner which would involve a violation of any of the regulations of the Board of Governors of the Federal Reserve System. 3.07 Title to Assets, Patents. Except as is set forth in Exhibit 3.07, the ------------------------ ------------ Company has good and clear record and marketable title in fee to such of its fixed assets as are real property, and good and merchantable title to, or the valid right or license to use, all of its other assets, now carried on its books including those reflected in the most recent balance sheet of the Company which forms a part of Exhibit 3.08 attached hereto, or acquired since the date of such ------------ balance sheet (except personal property disposed of since said date in the ordinary course of business) free of any mortgages, pledges, charges, liens, security interests or other similar encumbrances. The Company enjoys peaceful and undisturbed possession under all leases under which it is operating, and all said leases are valid and subsisting and in full force and effect. The Company owns or has a valid right to use the patents, patent rights, licenses, permits, trade secrets, trademarks, trademark rights, trade names or trade name rights or franchises, copyrights, inventions and intellectual property rights being used to conduct its business as now operated and as now proposed to be operated; and the conduct of its business as now operated and as now proposed to be operated does not and will not conflict with valid patents, patent rights, licenses, permits, trade secrets, trademarks, trademark rights, trade names or trade name rights or franchises, copyrights, inventions and intellectual property rights of others. The Company has no obligation to compensate any Person for the use of any such patents or such rights nor has the Company granted to any Person any license or other rights to use in any manner any of such patents or such rights of the Company, other than in the ordinary course of business or as set forth in Exhibit 3.07. - ------------ 3.08 Financial Information. The financial statements of the Company --------------------- attached as Exhibit 3.08 present fairly the financial position of the Company as ------------ at the dates thereof and its results of operations for the periods covered thereby and have been prepared in accordance with generally accepted accounting principles consistently applied. The financial statements so attached are: (1) for the two years ended September 30, 1992 and September 30, 1993, certified by Deloitte & Touche and (ii) for the eight-month 14 period ended May 31, 1994, being unaudited and subject to year-end adjustments consisting of normal recurring items which will not be material in the aggregate (except that such unaudited financial statements may not contain footnotes required by generally accepted accounting principles). The Company has no liability contingent or otherwise not disclosed in the aforesaid financial statements or in the notes thereto that could, together with all such other liabilities, materially affect the financial condition of the Company, nor does the Company have any reasonable grounds to know of any such liability. Since the date of said certified financial statements, (i) there has been no adverse change in the business, assets or condition, financial or otherwise, operations or prospects, of the Company; (ii) neither the business, condition, operations or prospects of the Company nor any of its properties or assets has been adversely affected as a result of any legislative or regulatory change (other than those affecting businesses generally), any revocation or change in any franchise, license or right to do business, or any other event or occurrence, whether or not insured against; and (iii) the Company has not entered into any material transaction or made any distribution on its capital stock. 3.09 Taxes. The Company has accurately prepared and timely filed all ----- federal, state and other tax returns required by law to be filed by it, and all taxes shown to be due and all additional assessments have been paid or provision made therefor. The Company knows of no additional assessments or adjustments pending or threatened against the Company for any period, nor of any basis for any such assessment or adjustment. 3.10 ERISA. No employee benefit plan established or maintained, or to ----- which contributions have been made, by the Company, which is subject to part 3 of Subtitle B of Title I of The Employee Retirement Income Security Act of 1974, as amended ("ERISA") had an accumulated funding deficiency (as such term is defined in Section 302 of ERISA) as of the last day of the most recent fiscal year of such plan ended prior to the date hereof, and no material liability to the Pension Benefit Guaranty Corporation has been incurred with respect to any such plan by the Company. 3.11 Transactions with Affiliates. Except as is set forth in Exhibit 3.11, ---------------------------- ------------ there are no loans, leases, royalty agreements or other continuing transactions between the Company and any Person owning five percent (5%) or more of any class of capital stock of the Company or other entity controlled by such stockholder or a member of such stockholder's family. 3.12 Assumptions or Guaranties of Indebtedness of Other Persons. The ---------------------------------------------------------- Company has not assumed, guaranteed, endorsed or otherwise become directly or contingently liable on (including, without limitation, liability by way of agreement, contingent or 15 otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor or otherwise to assure the creditor against loss) any Indebtedness of any other Person. 3.13 Investments in Other Persons. Except as set forth in Exhibit 3.3, the ---------------------------- ----------- Company has not made any loan or advance to any Person which is outstanding on the date of this Agreement, nor is the Company obligated or committed to make any such loan or advance, nor does the Company own any capital stock or assets comprising the business of, obligations of, or any interest in, any Person. 3.14 Equal Employment Opportunity. The Company has reviewed its employment ---------------------------- practices and policies and, to the best of its knowledge, the Company is in full compliance with (a) all applicable laws of the United States, of the Commonwealth of Massachusetts and of each other applicable jurisdiction, relating to equal employment opportunity (including, without limitation, Title VII of the Civil Rights Act of 1964, as amended (42 U.S.C. (S)20OOe-17), the Age Discrimination in Employment Act of 1967, as amended (29 U.S.C. (S)(S)621-634), the Equal Pay Act of 1963 (29 U.S.C. (S)206(d)), and any rules, regulations and administrative orders and Executive Orders relating thereto; Mass. Gen. Laws. c. 151B, Mass. Gen. Laws c. 149 (S)24A et seq. and (S)105A et seq., and any rules or regulations relating thereto; and (b) the applicable terms, relating to equal employment opportunity, of any contract, agreement or grant the Company has with, from, or relating (by way of subcontract or otherwise) to any other contract, agreement or grant of, any federal or state governmental unit ("Government Contract"), including, without limitation, any terms required pursuant to Federal Executive Order No. 11246 and Massachusetts Executive Order No. 74 (both as amended). To the best of the Company's knowledge, it has kept all records required to be kept, and has filed all reports, affirmative action plans and forms (including, without limitation and where applicable, Form EEO-1) required to be filed pursuant to any such applicable law or the terms of any such Government Contract. The Company has not been subject to any adverse final determination or order, with respect to any charge of employment discrimination made against it, by the United States Equal Employment Opportunity Commission, the Massachusetts Commission Against Discrimination or any other governmental unit (including, without limitation, any such governmental unit with which it has a Government Contract), and the Company is not presently, to the best of its knowledge, subject to any formal proceedings before, or investigations by, such commissions or governmental units. 3.15 Status of Notes and Warrants as Qualified Investments. The Company ----------------------------------------------------- has duly authorized the execution and delivery to MCRC on behalf of the Company of the certificate attached as Exhibit 3.15 hereto, setting forth such ------------ statements, information and related data as are necessary to permit MCRC to determine and 16 demonstrate that the Notes and Warrants issued pursuant to this Agreement will constitute "qualified investments" within the meaning of that term as set forth in the Capital Resource Company Act and that the full proceeds of the Notes and Warrants will be used for purposes which will materially increase or maintain equal opportunity employment in the Commonwealth of Massachusetts. All such statements, information and related data presented in such certificate as are not based on estimates and projections of future events are true and correct as of the date of such certificate and all such statements, information and related data based upon estimates or projections of future events have been carefully considered and prepared on behalf of the Company. 3.16 Securities Act. Neither the Company nor anyone acting on its behalf -------------- has offered any of the Notes, Warrants or similar securities, or solicited any offers to purchase or made any attempt by preliminary conversation or negotiations to dispose of the Notes, Warrants or similar securities, to any Person other than the Purchasers or the institutions described in Exhibit 3.15. ------------ Neither the Company nor anyone acting on its behalf has offered or will offer to sell the Notes, Warrants or similar securities to, or solicit offers with respect thereto from, or enter into any preliminary conversations or negotiations relating thereto with, any Person, so as to bring the issuance and sale of the Notes and Warrants under the registration provisions of the Securities Act. 3.17 Disclosure. Neither this Agreement, the financial statements ---------- incorporated herein as Exhibit 3.08, the Certificate set forth as Exhibit 3.15 ------------ ------------ hereof, nor any other agreement, document, certificate or written statement furnished to the Purchasers or their special counsel by or on behalf of the Company in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading; provided, however, that any estimates or projections of future events contained in any business plan of the Company provided to any Purchaser represent only the reasonable expectations and beliefs of the Company as of the date of such business plan. 3.18 No Brokers or Finders. No Person has or will have, as a result of the --------------------- transactions contemplated by this Agreement, any right, interest or valid claim against or upon the Company for any commission, fee or other compensation as a finder or broker because of any act or omission by the Company or any agent of the Company. 3.19 Other Agreements of Officers. To the best of the knowledge of the ---------------------------- Company, no officer or key employee of the Company is a party to or bound by any agreement, contract or commitment, or subject to any restrictions, particularly but without limitation in connection with any previous employment of 17 any such person, which materially and adversely affects, or in the future may (so far as the Company can reasonably foresee) materially and adversely affect, the business or operations of the Company or the right of any such person to participate in the affairs of the Company. To the best of the knowledge of the Company, no officer or key employee has any present intention of terminating his employment with the Company and the Company has no present intention of terminating any such agreement. 3.20 Capitalization; Status of Capital Stock. The Company has a total --------------------------------------- authorized capitalization consisting of: (i) 7,000,000 shares of Common Stock, of which 3,249,115 shares are issued and outstanding; (ii) 630,516 shares of Series A Convertible Preferred Stock, $.01 par value per share, all of which shares are issued and outstanding; (iii) 620,000 shares of Series B Convertible Preferred Stock, $.01 par value per share, all of which shares are issued and outstanding; and (iv) 225,000 shares of Series C Convertible Preferred Stock, $.01 par value per share, of which 200,789 shares are issued and outstanding. A complete list of the outstanding capital stock of the Company and the names in which such capital stock is registered is set forth in Exhibit 3.20 hereto. All ------------ the outstanding shares of capital stock of the Company have been duly authorized, are validly issued and are fully paid and nonassessable. The shares of Common Stock issuable upon exercise of the Warrants, when so issued, will be duly authorized, validly issued and fully paid and nonassessable. Except as otherwise indicated on Exhibit 3.20, there are no options, warrants or rights to ------------ purchase shares of capital stock or other securities of the Company authorized, issued or outstanding, nor is the Company obligated in any other manner to issue shares of its capital stock or other securities. Except as is set forth in Exhibit 3.20, there are no restrictions on the transfer of shares of capital - ------------ stock of the Company other than those imposed by relevant state and federal securities laws. Except as is set forth in Exhibit 3.20, no holder of any ------------ security of the Company is entitled to preemptive or similar statutory or contractual rights, either arising pursuant to any agreement or instrument to which the Company is a party, or which are otherwise binding upon the Company. Neither the issuance of the Notes or the Warrants nor the shares of Common Stock issued upon exercise of the Warrants will result in an adjustment under the antidilution or exercise rights of any holders of any outstanding shares of capital stock options, warrants or other rights to acquire any securities of the Company. The offer and sale of all shares of capital stock and other securities of the Company issued before the Closing complied with or were exempt from all federal and state securities laws. 3.21 Labor Relations. To the best of the knowledge of the Company, no --------------- labor union or any representative thereof has made any attempt to organize or represent employees of the Company. There are no unfair labor practice charges, pending trials with respect to unfair labor practice charges, pending material grievance 18 proceedings or adverse decisions of a Trial Examiner of the National Labor Relations Board against the Company. Furthermore, to the best of the knowledge of the Company, relations with employees of the Company are good. 3.22 Insurance. The Company carries insurance covering its properties and --------- business adequate and customary for the type and scope of the properties and business, but in any event in amounts sufficient to prevent the Company from becoming a co-insurer. 3.23 Key Man Insurance. The Company carries life insurance policies from ----------------- financially sound and reputable insurance companies on the lives of each of Pamela D.A. Reeve and Michael A. Perfit, in the face amount of $1,000,000 each, with the proceeds thereof being payable to the Company. 3.24 Books and Records. The books of account, ledgers, order books, ----------------- records and documents of the Company accurately reflect all material information relating to the business of the Company, the nature, acquisition, maintenance, location and collection of the assets of the Company, and the nature of all transactions giving rise to the obligations or accounts receivable of the Company. 3.25 Foreign Corrupt Practices Act. The Company has reviewed its practices ----------------------------- and policies and to the best of its knowledge and belief it is not engaged, nor has any officer, director, employee or agent of the Company engaged, in any act or practice which would constitute a violation of the Foreign Corrupt Practices Act of 1977, or any rules or regulations promulgated thereunder. 3.26 Registration Rights. Other than pursuant to the Registration Rights ------------------- Agreement, no Person has demand or other rights to cause the Company to file any registration statement under the Securities Act relating to any securities of the Company or any right to participate in any such registration statement. ARTICLE IV COVENANTS OF THE COMPANY 4.01 Affirmative Covenants of the Company Other Than Reporting --------------------------------------------------------- Requirements. Without limiting any other covenants and provisions hereof, the - ------------ Company covenants and agrees that, as long as any of the Notes or Warrants are outstanding, it will perform and observe the following covenants and provisions and will cause each Subsidiary to perform and observe such of the following covenants and provisions as are applicable to such Subsidiary: (a) Punctual Payment. Pay the principal of, premium, if any, and ---------------- interest on each of the Notes at the times and place and in the manner provided in the Notes and herein. 19 (b) Payment of Taxes and Trade Debt. Pay and discharge, and cause ------------------------------- each Subsidiary to pay and discharge, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or business, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a lien or charge upon any properties of the Company or any Subsidiary, provided that neither the Company nor the Subsidiary shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by appropriate proceedings if the Company or Subsidiary concerned shall have set aside on its books adequate reserves with respect thereto. Pay and cause each Subsidiary to pay, when due, or in conformity with customary trade terms, all lease obligations, all trade debt, and all other Indebtedness incident to the operations of the Company or its Subsidiaries, except such as are being contested in good faith and by appropriate proceedings if the Company or Subsidiary concerned shall have set aside on its books adequate reserves with respect thereto. (c) Maintenance of Insurance. Maintain, and cause each Subsidiary to ------------------------ maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Company or such Subsidiary operates, but in any event in amounts sufficient to prevent the Company or such Subsidiary from becoming a co-insurer. (d) Preservation of Corporate Existence. Preserve and maintain, and ----------------------------------- cause each Subsidiary to preserve and maintain, its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified, and cause each Subsidiary to qualify and remain qualified, as a foreign corporation in each jurisdiction in which such qualification is necessary or desirable in view of its business and operations or the ownership of its properties; provided, however, that nothing herein contained shall -------- ------- prevent any merger, consolidation or transfer of assets permitted by subsection 4.02(e). Preserve and maintain, and cause each Subsidiary to preserve and maintain, all licenses and other rights to use patents, processes, licenses, trademarks, trade names, inventions, intellectual property rights or copyrights owned or possessed by it and necessary to the conduct of its business. (e) Compliance with Laws. Comply, and cause each Subsidiary to -------------------- comply, with all applicable laws, rules, regulations and orders of any governmental authority, noncompliance with which could materially adversely affect its business or condition, financial or other. 20 (f) Visitation Rights. From time to time during normal business hours ----------------- and upon reasonable notice, permit any Purchaser or any agents or representatives thereof, to examine and make copies of and extracts from the records and books of account of, and visit and inspect the properties of, the Company and any Subsidiary, and to discuss the affairs, finances and accounts of the Company and any Subsidiary with any of their officers or directors and independent accountants. (g) Keeping of Records and Books of Account. Keep, and cause each --------------------------------------- Subsidiary to keep, adequate records and books of account, in which complete entries will be made in accordance with generally accepted accounting principles consistently applied, reflecting all financial transactions of the Company and such Subsidiary, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made. (h) Maintenance of Properties, etc. Maintain and preserve, and cause ------------------------------ each Subsidiary to maintain and preserve, all of its properties, necessary or useful in the proper conduct of its business, in good repair, working order and condition, ordinary wear and tear excepted and except that the Company and any Subsidiary may dispose of obsolete or worn out equipment and may replace equipment with other similar equipment. (i) Compliance with ERISA. Comply, and cause each Subsidiary to --------------------- comply, with all minimum funding requirements applicable to any pension or other employee benefit or employee contribution plans which are subject to ERISA or to the Internal Revenue Code of 1986, as amended (the "Code"), and comply, and cause each Subsidiary to comply, in all other material respects with the provisions of ERISA and the Code, and the rules and regulations thereunder, which are applicable to any such plan. Neither the Company nor any Subsidiary will permit any event or condition to exist which could permit any such plan to be terminated under circumstances which would cause the lien provided for in Section 4068 of ERISA to attach to the assets of the Company or any Subsidiary. (j) Maintenance of Debt to Equity Ratio. Maintain a ratio of ----------------------------------- Consolidated Indebtedness, less Indebtedness represented by the Notes, to Consolidated Net Worth, plus Indebtedness represented by the Notes, of not more than 2.0 to 1.0, such ratio to be measured at the end of each fiscal quarter of the Company. (k) Interest Coverage. Maintain a ratio of Consolidated Net Earnings ----------------- Available for Interest Charges to Interest Charges of not less than 2.0 to 1.0, such ratio to be measured at the end of each fiscal quarter of the Company as an average of the four most recent fiscal quarters of the Company. 21 (l) Foreign Corrupt Practices Act. Comply, and cause each Subsidiary ----------------------------- to comply, and cause each officer, director, employee and agent of the Company and each Subsidiary to comply, at all times with the prohibitions on certain acts and practices set forth in the Foreign Corrupt Practices Act Of 1977, and any rules or regulations promulgated thereunder. (m) Equal Employment Opportunity. Comply, and cause each Subsidiary ---------------------------- to comply, with all applicable laws of the United States, the Commonwealth of Massachusetts, and of each other applicable jurisdiction relating to equal employment opportunity, any rules, regulations, administrative orders and Executive Orders relating thereto and the applicable terms, relating to equal employment opportunity, of any Government Contract; and keep, and cause each Subsidiary to file, all reports, affirmative action plans and forms required to be filed, pursuant to any such applicable law or the terms of any such Government Contract; provided, however, the Company or any Subsidiary shall not -------- ------- be considered to have failed to comply with the foregoing during any period that any matter relating to the Company's or such Subsidiary's employment practices is being contested by the Company or such Subsidiary in appropriate proceedings, or thereafter, if the Company or such Subsidiary complies with any final determination issued in such proceedings. (n) Status of Notes and Warrants as Qualified Investments. In the ----------------------------------------------------- event that any of the statements, information and related data provided by or on behalf of the Company or any Subsidiary and relied upon by MCRC in determining that the Notes and Warrants constitute "qualified investments" within the meaning of that term in the Capital Resource Company Act shall be put in issue in any formal or informal proceedings initiated or conducted by or on behalf of the Commonwealth of Massachusetts, the Company shall, upon reasonable notice and at its expense, provide, and, cause each Subsidiary to provide, such additional information, witnesses and related data as may be reasonably necessary or appropriate to support the representations and warranties set forth in Article III. (o) Key Man Life Insurance. Maintain, with financially sound and ---------------------- reputable insurance companies, term life insurance on the lives of each of Pamela D.A. Reeve and Michael A. Perfit, in the amount of at least $1,000,000 each, which proceeds shall be payable to the order of the Company. The Company will not cause or permit any assignment of the proceeds of said policies, and will not borrow against such policies. The Company will add one designee of the Purchasers as a notice party to each such policy, and will request that the issuer of such policy provide such designee with ten (10) days' notice before such policy is terminated (for failure to pay premium or otherwise) or assigned, or before any change is made in the designation of the beneficiary thereof. 22 (p) Attendance at Board Meetings. The Company shall permit any ---------------------------- Purchaser or its designee to have one observer attend each meeting of its Board of Directors and each meeting of any committee thereof. The Company shall send to each Purchaser and such designee the notice of the time and place of such meeting in the same manner and at the same time as it shall send such notice to its directors or committee members, as the case may be. The Company shall also provide to each Purchaser copies of all notices, reports, minutes and consents at the time and in the manner as they are provided to the Board of Directors or committee. (q) Compensation. The Company shall pay to its management or ------------ management of any Subsidiary compensation at a rate of compensation which is not in excess of that commonly paid to management in companies of similar size, of similar maturity and in similar businesses and all management compensation and all policies relating thereto shall be approved in advance by a majority of the members of that Company's Board of Directors. 4.02 Negative Covenants of the Company. Without limiting any other --------------------------------- covenants and provisions hereof, the Company covenants and agrees that, as long as any of the Notes or Warrants are outstanding, it will comply with and observe the following covenants and provisions, and will cause each Subsidiary to comply with and observe such of the following covenants and provisions as are applicable to such Subsidiary, and will not: (a) Liens. Create, incur, assume or suffer to exist, or permit any ----- Subsidiary to create, incur, assume or suffer to exist, any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance (including the lien or retained security title of a conditional vendor) of any nature, upon or with respect to any of its properties, now owned or hereinafter acquired, or assign or otherwise convey any right to receive income, except that the foregoing restrictions shall not apply to mortgages, deeds of trust, pledges, liens, security interests or other charges or encumbrances: (i) for taxes, assessments or governmental charges or levies on property of the Company or any Subsidiary if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings; (ii) imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business; (iii) arising out of pledges or deposits under workmen's compensation laws, unemployment insurance, old age 23 pensions, or other social security or retirement benefits, or similar legislation; (iv) securing the performance of bids, tenders, contracts (other than for the repayment of borrowed money), statutory obligations and surety bonds; (v) in the nature of zoning restrictions, easements and rights or restrictions of record on the use of real property which do not materially detract from its value or impair its use; (vi) arising by operation of law in favor of the owner or sublessor of leased premises and confined to the property rented or arising out of any lease agreement relating to fixtures located on the premises so leased; (vii) arising from any litigation or proceeding which is being contested in good faith by appropriate proceedings, provided, however, that no execution or levy has been made; (viii) described in Exhibit 3.07 which secure the Indebtedness ------------ set forth in Exhibit 3.05, provided that no such lien is extended to cover ------------ other or different property of the Company or any Subsidiary; (ix) arising out of a capitalized lease or out of a purchase money mortgage or security interest on personal property to secure the purchase price of such property (or to secure Indebtedness incurred solely for the purpose of financing the acquisition of any such property), provided that such capitalized lease or purchase money mortgage or security interest does not extend to any other or different property of the Company or any Subsidiary; and (x) granted to secure any Senior Debt. (b) Indebtedness. Create, incur, assume or suffer to exist, or ------------ permit any Subsidiary to create, incur, assume or suffer to exist, any liability with respect to Indebtedness except for: (i) the Notes; (ii) Indebtedness for money borrowed, provided that such Indebtedness for money borrowed does not result in the Company's failure to comply with all of the provisions of Article IV hereof; (iii) Current Liabilities, other than for borrowed money, which are incurred in the ordinary course of business; 24 (iv) Indebtedness with respect to lease obligations, provided that such lease obligations do not violate subsection 4.02(c); (v) the existing Indebtedness set forth in Exhibit 3.05; and ------------ (vi) Indebtedness referred to in subsection 4.02(a)(ix). (c) Lease Obligations. Create, incur, assume or suffer to exist, or ----------------- permit any Subsidiary to create, incur, assume or suffer to exist, any obligations as lessee for the rental or hire of real or personal property in connection with any sale and leaseback transaction. (d) Assumptions or Guaranties of Indebtedness of Other Persons. ---------------------------------------------------------- Assume, guarantee, endorse or otherwise become directly or contingently liable on, or permit any Subsidiary to assume, guarantee, endorse or otherwise become directly or contingently liable on (including, without limitation, liability by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor or otherwise to assure the creditor against loss) any Indebtedness of any other Person, except for guaranties by endorsement of negotiable instruments for deposit or collection in the ordinary course of business. (e) Mergers, Sale of Assets, etc. Merge or consolidate with, or ---------------------------- sell, assign, lease or otherwise dispose of or voluntarily part with the control of (whether in one transaction or in a series of transactions) a material portion of its assets (whether now owned or hereinafter acquired) or sell, assign or otherwise dispose of (whether in one transaction or in a series of transactions) any of its accounts receivable (whether now in existence or hereinafter created) at a discount or with recourse (which terms shall not prohibit the grant of a security interest permitted by Section 4.02(a) of this Agreement), to, any Person, or permit any Subsidiary to do any of the foregoing, except for sales or other dispositions of assets in the ordinary course of business and except that (1) any Subsidiary may merge into or consolidate with or transfer assets to any other Subsidiary, (2) any Subsidiary may merge into or transfer assets to the Company, and (3) the Company may merge any Person into it or otherwise acquire such Person as long as the Company is the surviving entity, such merger or acquisition does not result in the violation of any of the provisions of this Agreement and no such violation exists at the time of such merger or acquisition, and, provided that such merger or acquisition does not result in the issuance (in one or more transactions) of shares of the voting stock of the Company representing in the aggregate more than twenty percent (20%) of the total outstanding voting stock of the 25 Company, on a fully diluted basis, immediately following the issuance thereof. (f) Investments in Other Persons. Make or permit any Subsidiary to ---------------------------- make, any loan (which term shall not be deemed to include any operating account maintained at any bank organized in the United States) or advance to any person, or purchase, otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire, the capital stock, assets comprising the business of, obligations of, or any interest in, any Person, except: (i) investments by the Company or a Subsidiary in evidences of indebtedness issued or fully guaranteed by the United States of America and having a maturity of not more than one year from the date of acquisition; (ii) investments by the Company or a Subsidiary in certificates of deposit, notes, acceptances and repurchase agreements having a maturity of not more than one year from the date of acquisition issued by a bank organized in the United States having capital, surplus and undivided profits of at least $100,000,000 and whose parent holding company, if any, has long-term debt rated Aal or higher, and whose commercial paper (if rated) is rated Prime 1, by Moody's Investors Service, Inc. or Silicon Valley Bank; (iii) loans or advances from a Subsidiary to the Company; (iv) investments by the Company or a Subsidiary in the highest- rated commercial paper having a maturity of not more than one year from the date of acquisition; (v) investments by the Company or a Subsidiary in money market instruments or money market fund shares; provided that such instruments are, or such fund's investments consist principally in, the types of investments described in clauses (i), (ii) or (iv) of this subsection 4.02(f); and (vi) loans, advances and investments in any Subsidiary; provided that the aggregate amount of all such loans, advances and investments made in any fiscal year does not exceed $100,000. (g) Distributions. Declare or pay any dividends, purchase, redeem, ------------- retire, or otherwise acquire for value any of its capital stock (or rights, options or warrants to purchase such shares) now or hereafter outstanding, return any capital to its stockholders as such, or make any distribution of assets to its stockholders as such, or permit any Subsidiary to do any of the 26 foregoing (such transactions being hereinafter referred to as "Distributions"), except that the Subsidiaries may declare and make payment of cash and stock - ------ dividends, return capital and make distributions of assets to the Company; provided, however, that nothing herein contained shall prevent the Company from: - -------- ------- (i) effecting a stock split or declaring or paying any dividend consisting of shares of any class of capital stock to the holders of shares of such class of capital stock, (ii) redeeming any stock of a deceased stockholder out of insurance held by the Company on that stockholder's life, (iii) paying dividends with respect to shares of its Series A Convertible Preferred Stock, Series B Convertible Preferred Stock or Series C Convertible Preferred Stock, as authorized on the date hereof, at the time and pursuant to the terms and conditions of the Company's Certificate of Incorporation as in effect as of the date hereof, or (iv) repurchasing shares of Common Stock owned by an employee or former employee, which shares are subject to an agreement under which the Company has the right to repurchase the same; provided, however, that the purchase price shall not exceed the purchase price paid to the Company for the purchase of such shares of Common Stock, if in the case of any such transaction there does not exist at the time of such Distribution an Event of Default or an event which, but for the requirement that notice be given or time elapse or both, would constitute an Event of Default and provided that such Distribution can be made in compliance with the other terms of this Agreement. (h) Dealings with Affiliates. Except as is set forth in Exhibit ------------------------ ------- 3.11, enter or permit ny Subsidiary to enter into any transaction with any - ---- holder of 5% or more of any class of capital stock of the Company, or any member of their families or any corporation or other entity in which any one or more of such stockholders or members of their immediate families directly or indirectly holds five percent (5%) or more of any class of capital stock except in the ordinary course of business and on terms not less favorable to the Company or the Subsidiary than it would obtain in a transaction between unrelated parties. (i) Maintenance of Ownership of Subsidiaries. Sell or otherwise ---------------------------------------- dispose of any shares of capital stock of any Subsidiary, except to the Company or another Subsidiary, or permit any Subsidiary to issue, sell or otherwise dispose of any shares of its capital stock or the capital stock of any Subsidiary, 27 except to the Company or another Subsidiary, provided, however, that nothing -------- ------- herein contained shall prevent any merger, consolidation or transfer of assets permitted by subsection 4.02(e). (j) Change in Nature of Business. Make, or permit any Subsidiary to ---------------------------- make, any material change in the nature of its business as carried on at the date hereof. 4.03 Reporting Requirements. The Company will furnish to each registered ---------------------- holder of any Note, any Warrant or any Common Stock issued upon exercise of any Warrant: (a) as soon as possible and in any event within five (5) days after the occurrence of each Event of Default or each event which, with the giving of notice or lapse of time or both, would constitute an Event of Default, the statement of the chief financial officer of the Company setting forth details of such Event of Default or event and the action which the Company proposes to take with respect thereto; (b) as soon as available and in any event within thirty (30) days after the end of each month in each fiscal year of the Company (other than the last month in each fiscal year and the last month in each fiscal quarter), consolidated and consolidating balance sheets of the Company and its Subsidiaries as of the end of such month and consolidated and consolidating statements of income and retained earnings and of changes in financial position of the Company and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such month, setting forth in each case (except for the statement of changes in financial position) in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief financial officer of the Company as having been prepared in accordance with generally accepted accounting principles consistently applied (except that such unaudited financial statements need not contain footnotes required by generally accepted accounting principles); (c) as soon as available and in any event within forty five (45) days after the end of each of the first three quarters of each fiscal year of the Company, consolidated and consolidating balance sheets of the Company and its Subsidiaries as of the end of such quarter and consolidated and consolidating statements of income and retained earnings and of changes in financial position of the Company and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, setting forth in each case (except for the statement of changes in financial position) in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, all in reasonable detail and duly certified 28 (subject to year-end audit adjustments) by the chief financial officer of the Company as having been prepared in accordance with generally accepted accounting principles consistently applied (except that such unaudited financial statements need not contain footnotes required by generally accepted accounting principles); (d) as soon as available and in any event within ninety (90) days after the end of each fiscal year of the Company, a copy of the annual audit report for such year for the Company and its Subsidiaries, including therein consolidated and consolidating balance sheets of the Company and its Subsidiaries as of the end of such fiscal year and consolidated and consolidating statements of income and retained earnings and of changes in financial position of the Company and its Subsidiaries for such fiscal year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, all duly certified by independent public accountants of recognized standing acceptable to the Purchasers; (e) at the time of delivery of each monthly, quarterly and annual statement, a certificate, executed by the chief financial officer in the case of monthly and quarterly statements and the Company's independent public accountants in the case of annual statements, stating that such officer or accountants, as the case may be, has caused this Agreement, the Notes, and the Warrants to be reviewed and has no knowledge of any default by the Company or any Subsidiary in the performance or observance of any of the provisions of this Agreement, the Notes or the Warrants or, if such officer or accountant has such knowledge, specifying such default and the nature thereof. Each such certificate shall set forth computations in reasonable detail demonstrating compliance with the provisions of subsections 4.01(j) and (k) and subsections 4.02(b) and (c); (f) promptly upon receipt thereof, any written report submitted to the Company by independent public accountants in connection with an annual or interim audit of the books of the Company and its Subsidiaries made by such accountants; (g) prior to the start of each fiscal year, consolidated capital and operating expense budgets, cash flow projections and income and loss projections for the Company and its Subsidiaries in respect of such fiscal year, all itemized in reasonable detail and prepared on a monthly basis, and, promptly after preparation, any revisions to any of the foregoing; (h) promptly after the commencement thereof, notice of all actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting the Company or any Subsidiary of the type described in Section 3.04; and 29 (i) promptly after sending, making available, or filing the same, such reports and financial statements as the Company or any Subsidiary shall send or make available to the stockholders of the Company or the Securities and Exchange Commission and, except as prohibited by law, such other information respecting the business, properties or the condition or operations, financial or otherwise, of the Company or any of its Subsidiaries as any Purchaser may from time to time reasonably request. 4.04 Termination of Certain Covenants of the Company. The covenants set ----------------------------------------------- forth in subsections 4.01(a), (j) and (k) and in subsections 4.02(a), (b) and (c) shall terminate and be of no further force or effect when the Notes have been redeemed in their entirety. All other covenants set forth in Sections 4.01, 4.02 and 4.03 shall terminate and be of no further force or effect upon the later of (i) such time as the Notes have been redeemed in their entirety and the Warrants have expired and/or been exercised in their entirety and (ii) when the Company shall be subject to the reporting requirements of the Securities Exchange Act of 1934, or any similar federal statute. ARTICLE V EVENTS OF DEFAULT 5.01 Events of Default. If any of the following events ("Events of ----------------- Default") shall occur and be continuing: (a) The Company shall fail to pay any installment of principal of or interest or premium on any of the Notes when due; or (b) The Company shall default in the performance of any covenant contained in subsections 4.01(j) or (k) or shall default for ten (10) days in the performance of any covenant contained in Section 4.02; or (c) Any representation or warranty made by the Company or any Subsidiary in this Agreement or by the Company or any Subsidiary (or any officers of the Company or any Subsidiary) in any certificate, instrument or written statement contemplated by or made or delivered pursuant to or in connection with this Agreement, shall prove to have been incorrect when made in any material respect; or (d) The Company or any Subsidiary shall fail to perform or observe any other term, covenant or agreement contained in this Agreement, the Notes, the Warrants or the Registration Rights Agreement on its part to be performed or observed and any such failure remains unremedied for ten (10) business days after written notice thereof shall have been given to the Company by any registered holder of the Notes; or 30 (e) The Company or any Subsidiary shall fail to pay any Indebtedness for borrowed money (other than as evidenced by the Notes) owing by the Company or such Subsidiary (as the case may be), or any interest or premium thereon, when due (or, if permitted by the terms of the relevant document, within any applicable grace period), whether such Indebtedness shall become due by scheduled maturity, by required prepayment, by acceleration, by demand or otherwise, or shall fail to perform any term, covenant or agreement on its part to be performed under any agreement or instrument (other than this Agreement or the Notes) evidencing or securing or relating to any Indebtedness owing by the Company or any Subsidiary, as the case may be, when required to be performed (or, if permitted by the terms of the relevant document, within any applicable grace period), if the effect of such failure to pay or perform is to accelerate, or to permit the holder or holders of such Indebtedness, or the trustee or trustees under any such agreement or instrument to accelerate, the maturity of such Indebtedness, unless such failure to pay or perform shall be waived by the holder or holders of such Indebtedness or such trustee or trustees, or, if permitted by the applicable documents, cured by the Company or Subsidiary; or (f) The Company or any Subsidiary shall be involved in financial difficulties as evidenced (i) by its admitting in writing its inability to pay its debts generally as they become due; (ii) by its commencement of a voluntary case under Title 11 of the United States Code as from time to time in effect, or by its authorizing, by appropriate proceedings of its Board of Directors or other governing body, the commencement of such a voluntary case; (iii) by its filing an answer or other pleading admitting or failing to deny the material allegations of a petition filed against it commencing an involuntary case under said Title 11, or seeking, consenting to or acquiescing in the relief therein provided, or by its failing to controvert timely the material allegations of any such petition; (iv) by the entry of an order for relief in any involuntary case commenced under said Title 11; (v) by its seeking relief as a debtor under any applicable law, other than said Title 11, of any jurisdiction relating to the liquidation or reorganization of debtors or to the modification or alteration of the rights of creditors, or by its consenting to or acquiescing in such relief; (vi) by the entry of an order by a court of competent jurisdiction (a) finding it to be bankrupt or insolvent, (b) ordering or approving its liquidation, reorganization or any modification or alteration of the rights of its creditors, or (c) assuming custody of, or appointing a receiver or other custodian for, all or a substantial part of its property; or (vii) by its making an assignment for the benefit of, or entering into a composition with, its creditors, or appointing or consenting to the appointment of a receiver or other custodian for all or a substantial part of its property; or 31 (g) Any judgment, writ, warrant of attachment or execution or similar process shall be issued or levied against a substantial part of the property of the Company or any Subsidiary and such judgment, writ, or similar process shall not be released, vacated or fully bonded within sixty (60) days after its issue or levy; then, and in any such event, any Purchaser or any other holder of the Notes may, by notice to the Company, declare the entire unpaid principal amount of the Notes, all interest accrued and unpaid thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such accrued interest and all such amounts shall become and be forthwith due and payable (unless there shall have occurred an Event of Default under subsection 5.01(f) in which case all such amounts shall automatically become due and payable), without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company. 5.02 Annulment of Defaults. Section 5.01 is subject to the condition that, --------------------- if at any time after the principal of any of the Notes shall have become due and payable, and before any judgment or decree for the payment of the moneys so due, or any thereof, shall have been entered, all arrears of interest upon all the Notes and all other sums payable under the Notes and under this Agreement (except the principal of the Notes which by such declaration shall have become payable) shall have been duly paid, and every other Event of Default shall have been made good or cured, then and in every such case the holders of seventy-five percent (75%) or more in principal amount of all Notes then outstanding may, by written instrument filed with the Company, rescind and annul such declaration and its consequences; but no such rescission or annulment shall extend to or affect any subsequent default or Event of Default or impair any right consequent thereon. ARTICLE VI DEFINITIONS AND ACCOUNTING TERMS 6.01 Certain Defined Terms. As used in this Agreement, the following terms --------------------- shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Agreement" means this Subordinated Note and Warrant Purchase Agreement as from time to time amended and in effect between the parties. "Capital Resource Company Act" shall have the meaning assigned to that term in Section 1.12. 32 "Code" shall have the meaning assigned to that term in Section 4.01(i). "Company" means and shall include Credit Technologies, Inc. and its successors and assigns. "Common Stock" includes the Company's Common Stock, $.01 par value per share, as authorized on the date of this Agreement and any other securities into which or for which such Common Stock may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. "Consolidated" and "consolidating" when used with reference to any term defined herein mean that term as applied to the accounts of the Company and its Subsidiaries consolidated in accordance with generally accepted accounting principles. "Consolidated Net Earnings Available for Interest Charges" means, for any period, Consolidated Net Income for such period plus (a) interest paid or accrued by the Company and its Subsidiaries with respect to all Indebtedness for such period and (b) income and excess profit taxes for such period and all other taxes for such period which are imposed on or measured by income after deduction of interest charges. "Consolidated Net Income" means, for any period, the net income (or net deficit) of the Company and its Subsidiaries for such period, after all expenses, taxes and other proper charges, determined in accordance with generally accepted accounting principles eliminating (i) all intercompany items, (ii) all earnings attributable to equity interests in Persons that are not Subsidiaries unless actually received by the Company or its Subsidiaries, (iii) all income arising from the forgiveness, adjustment or negotiated settlement of any Indebtedness, and (iv) any increase or decrease of income arising from any change in the method of accounting for any item from that employed in the preparation of the financial statements attached hereto as Exhibit 3.08. ------------ "Consolidated Net Worth" means, at any dates, the sum of (a) the par value of all of the stock of the Company issued and outstanding, (b) the amount of any additional paid-in-capital and (c) (i) the positive retained earnings, if any, of the Company and its Subsidiaries, or (ii) less, the amount of any deficit in the retained earnings of the Company and its Subsidiaries as the same appears on a consolidated balance sheet of the Company and its Subsidiaries prepared in accordance with generally 33 accepted accounting principles consistently applied as of such date, after eliminating all intercompany items and all amounts properly attributable to (1) any write-up in the book value of any asset resulting from a revaluation thereof after the date of this Agreement; (2) the amount of any intangible assets including patents, trademarks, unamortized debt discount and expense, goodwill, covenants and agreements and the excess of the purchase price paid for assets or stock acquired over the value assigned thereto on the books of the Company or of the Subsidiary which shall have acquired the same; (3) earnings attributable to any other Person unless actually received by the Company or its Subsidiaries; and (4) changes in the method of accounting. "Current Liabilities" means all liabilities of any corporation which would, in accordance with generally accepted accounting principles consistently applied, be classified as current liabilities of a corporation conducting a business the same as or similar to that of such corporation, including, without limitation, all rental payments due under leases required to be capitalized in accordance with applicable Statements of Financial Accounting Standards and fixed prepayments of, and sinking fund payments with respect to, Indebtedness (including Indebtedness evidenced by the Notes), which payments are required to be made within one year from the date of determination. "Distribution" shall have the meaning assigned to that term in Section 4.02(g). "ERISA" shall have the meaning assigned to that term in Section 3.10. "Events of Default" shall have the meaning assigned to that term in Section 5.01. "Government Contract" shall have the meaning assigned to that in Section 3.14. "Indebtedness" means all obligations, contingent and otherwise, which should, in accordance with generally accepted accounting principles consistently applied, be classified upon the obligor's balance sheet as liabilities, but in any event including, without limitation, liabilities secured by any mortgage on property owned or acquired subject to such mortgage, whether or not the liability secured thereby shall have been assumed, and also including, without limitation, (i) all guaranties, endorsements and other contingent obligations, in respect of Indebtedness of others, whether or not the same are or should be so reflected in said balance sheet, except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business and (ii) the present value of any lease payments due under leases required to be capitalized in accordance with applicable Statements of 34 Financial Accounting Standards, determined in accordance with applicable Statements of Financial Accounting Standards. "Interest Charges" means the interest expense of the Company and its Subsidiaries on Indebtedness (including the current portion thereof). "MCRC" shall have the meaning assigned to that term in Section 1.12. "Notes" shall have the meaning assigned to that term in Section 1.01. "Person" means an individual, corporation, partnership, joint venture, trust, or unincorporated organization, or a government or any agency or political subdivision thereof. "Purchaser" or "Purchasers" means and shall include not only the Purchasers listed in the Schedule of Purchasers attached hereto but also any other holder or holders of any of the Notes or Warrants. "Registration Rights Agreement" shall have the meaning assigned to that term in Section 2.03(a). "Registration Rights Amendment" shall have the meaning assigned to that term in Section 2.03(a). "Securities Act" means the Securities Act of 1933 or any similar Federal statute, and the rules and regulations of the Securities and Exchange Commission (or of any other Federal agency then administering the Securities Act) thereunder, all as the same shall be in effect at the time. "Senior Debt" shall have the meaning assigned to that term in Section 1.10(h). "Subsidiary" or "Subsidiaries" means any corporation or trust of which the Company and/or any of its other Subsidiaries (as herein defined) directly or indirectly owns more than fifty percent (50%) outstanding stock having ordinary voting power to elect a majority of the Board of Directors of such corporation or trust. "Warrants" shall have the meaning assigned to that term in Section 1.02. 6.02 Accounting Terms. All accounting terms not specifically defined ---------------- herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in preparation of the financial statements attached hereto as Exhibit 3.08, and all financial data submitted ------------ pursuant to this Agreement 35 and all financial tests to be calculated in accordance with this Agreement shall be prepared and calculated in accordance with such principles. ARTICLE VII MISCELLANEOUS 7.01 No Waiver; Cumulative Remedies. No failure or delay on the part of ------------------------------ the Purchasers, or any other holder of the Notes or Warrants in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 7.02 Amendments, Waivers and Consents. Any provision in this Agreement, -------------------------------- the Notes or the Warrants to the contrary notwithstanding, changes in or additions to this Agreement may be made, and compliance with any covenant or provision herein or therein set forth may be omitted or waived, if the Company (i) shall, in the case of the Notes, obtain consent thereto in writing from the holder or holders of at least seventy-five percent (75%) in principal amount of all Notes then outstanding, and (ii) shall, in the case of the Warrants, obtain the consent thereto in writing from the holder or holders of at least seventy- five percent (75%) of the Common Stock issued and issuable upon exercise of the Warrants; provided that no such consent shall be effective to reduce or to -------- postpone the date fixed for the payment of the principal (including any required redemption) or interest payable on any Note, without the consent of the holder thereof, or to reduce the percentage of the Notes and Warrants the consent of the holders of which is required under this Section. Any waiver or consent may be given subject to satisfaction of conditions stated therein and any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Written notice of any waiver or consent effected under this subsection shall promptly be delivered by the Company to any holders who did not execute the same. 7.03 Addresses for Notices, etc. All notices, requests, demands and other -------------------------- communications provided for hereunder shall be in writing (including telegraphic communication) and mailed, telegraphed, sent by facsimile or delivered to the applicable party at the addresses indicated below: 36 If to the Company: Credit Technologies, Inc. 281 Winter Street Waltham, Massachusetts 02154 Attention: President with a copy to: John D. Patterson, Jr., Esq. Foley, Hoag & Eliot One Post Office Square Boston, Massachusetts 02109 If to any Purchaser: At such Purchaser's address as listed in the Schedule of Purchasers attached hereto If to any other holder of the Notes or Warrants: at such holder's address for notice as set forth in the register maintained by the Company, or, as to each of the foregoing, at such other address as shall be designated by such Person in a written notice to the other party complying as to delivery with the terms of this Section. All such notices, requests, demands and other communications shall, when mailed, sent by facsimile or telegraphed, respectively, be effective five (5) days from when deposited in the mails or delivered to the telegraph company, respectively, addressed as aforesaid. 7.04 Costs, Expenses and Taxes. The Company agrees to pay on demand all ------------------------- reasonable costs and expenses of the Purchasers in connection with the preparation, execution and delivery of this Agreement, the Notes, the Warrants, the Registration Rights Amendment and other instruments and documents to be delivered hereunder, including the reasonable fees and out-of-pocket expenses of Messrs. Testa, Hurwitz & Thibeault, special counsel for the Purchasers, with respect thereto, as well as the reasonable fees and out-of-pocket expenses of legal counsel, independent public accountants and other outside experts reasonably retained by the Purchasers in connection with the amendment or enforcement of this Agreement, the Notes, the Warrants, the Registration Rights Agreement and other instruments and documents to be delivered hereunder or thereunder. In addition, the Company shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Agreement, the Notes, the Warrants and the other instruments and documents to be delivered hereunder or thereunder and agrees to save the Purchasers harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and filing fees. 37 7.05 Binding Effect; Assignment. This Agreement shall be binding upon -------------------------- and inure to the benefit of the Company and the Purchasers and their respective successors and assigns, except that the Company shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Purchasers. 7.06 Survival of Representations and Warranties. All representations and ------------------------------------------ warranties made in this Agreement, the Notes, the Warrants or any other instrument or document delivered in connection herewith or therewith, shall survive the execution and delivery hereof or thereof and the making of the loans. 7.07 Prior Agreements. This Agreement constitutes the entire agreement ---------------- between the parties and supersedes any prior understandings or agreements concerning the subject matter hereof. 7.08 Severability. The invalidity or unenforceability of any provision ------------ hereof shall in no way affect the validity or enforceability of any other provision. 7.09 Governing Law. This Agreement shall be governed by, and construed in ------------- accordance with, the laws of the Commonwealth of Massachusetts. 7.10 Headings. Article, Section and subsection headings in this Agreement -------- are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 7.11 Sealed Instrument. This Agreement is executed as an instrument under ----------------- seal. 7.12 Counterparts. This Agreement may be executed in any number of ------------ counterparts, all of which taken together shall constitute one and the same instrument, and each of the parties hereto may execute this Agreement by signing any such counterpart. 7.13 Further Assurances. From and after the date of this Agreement, upon ------------------ the request of any Purchaser, the Company and each Subsidiary shall execute and deliver such instruments, documents and other writings as may be necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement, the Notes and the Warrants. 7.14 Acknowledgment. The Company and each Purchaser hereby acknowledge that -------------- the Purchasers, other than MCRC, would not have provided to the Company the financing being provided hereunder on the terms agreed to herein had not MCRC agreed to participate for the amount and on the terms agreed to herein. 38 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. CREDIT TECHNOLOGIES, INC. By /s/ Pamela D.A. Reeve -------------------------------------- Pamela D.A. Reeve, President MASSACHUSETTS CAPITAL RESOURCE COMPANY By /s/ Joan C. McArdle -------------------------------------- Joan C. McArdle, Vice President D. QUINN MILLS, AS CUSTODIAN FOR SHIRLEY E. MILLS UNDER THE MASSACHUSETTS UNIFORM TRANSFERS TO MINORS ACT By /s/ D. Quinn Mills -------------------------------------- D. Quinn Mills, Custodian 39 CREDIT TECHNOLOGIES, INC. Schedule of Purchasers ----------------------
Number of Total Principal Shares of Aggregate Name and Amount Common Stock Purchase Address of Purchaser Of Notes Under Warrant Price - -------------------- ---------- ------------- ---------- Massachusetts Capital $2,000,000 250,000 $2,000,000 Resource Company* 420 Boylston Street Boston, MA 02116 D. Quinn Mills, As 100,000 12,500 100,000 Custodian for Shirley E. Mills Under the Massachusetts Uniform Transfers to Minors Act 7 Central Street Winchester, MA 01893 ---------- ------- ---------- TOTAL $2,100,000 262,500 $2,100,000 ---------- ------- ----------
______________ *Payments to MCRC should be made to: Massachusetts Capital Resource Company P.O. Box 3707 Boston, Massachusetts 02241 40 The securities represented hereby have not been registered under the Securities Act of 1933. These securities have been acquired for investment and not with a view to distribution or resale, and may not be sold, mortgaged, pledged, hypothecated or otherwise transferred without an effective registration statement for such securities under the Securities Act of 1933, or an opinion of counsel reasonably satisfactory to the Company that registration is not required under such act. This instrument is subject to a certain Subordination Agreement, dated as of August 29, 1994, by and among the holder, Silicon Valley Bank and certain other parties. CREDIT TECHNOLOGIES, INC. SUBORDINATED NOTE DUE 2001 $ [ ] August 29, 1994 For value received, Credit Technologies, Inc., a Delaware corporation (the "Company"), hereby promises to pay to [ name ] or registered assigns (hereinafter referred to as the "Payee"), on or before June 30, 2001, the principal sum of [ amount ] Dollars ($ [ amt ]) or such part thereof as then remains unpaid, to pay interest from the date hereof on the whole amount of said principal sum remaining from time to time unpaid at the rate of eight percent (8%) per annum, such interest to be payable quarterly on the last day of March, June, September and December in each year, the first such payment to be due and payable on September 30, 1994, until the whole amount of the principal hereof remaining unpaid shall become due and payable, and to pay interest at the rate of fourteen percent (14%) (so far as the same may be legally enforceable) on all overdue principal (including any overdue required redemption), premium and interest. Principal, premium, if any, and interest shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Payee or at such other place as the legal holder may designate from time to time in writing to the Company. Interest shall be computed on the basis of a 360-day year and a 30-day month. This Note is issued pursuant to and is entitled to the benefits of a certain Subordinated Note and Warrant Purchase Agreement, dated as of August 29, 1994, between the Company and the Persons listed on the Schedule of Purchasers attached thereto (as the same may be amended from time to time, hereinafter referred to as the "Agreement"), and each holder of this Note, by his acceptance hereof, agrees to be bound by the provisions of the Agreement, including, without 45 limitation, that (i) this Note is subject to prepayment, in whole or in part, as specified in said Agreement, (ii) the principal of and interest on this Note is subordinated to Senior Debt, as defined in the Agreement and (iii) in case of an Event of Default, as defined in the Agreement, the principal of this Note may become or may be declared due and payable in the manner and with the effect provided in the Agreement. As further provided in the Agreement, upon surrender of this Note for transfer or exchange, a new Note or new Notes of the same tenor dated the date to which interest has been paid on the surrender Note and in an aggregate principal amount equal to the unpaid principal amount of the Note so surrendered will be issued to, and registered in the name of, the transferee or transferees. The Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes. In case any payment herein provided for shall not be paid when due, the Company promises to pay all cost of collection, including all reasonable attorney's fees. This Note shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts and shall have the effect of a sealed instrument. The Company and all endorsers and guarantors of this Note hereby waive presentment, demand, notice of nonpayment, protest and all other demands and notices in connection with the delivery, acceptance, performance or enforcement of this Note. CREDIT TECHNOLOGIES, INC. By___________________________________ Pamela D.A. Reeve, President Attest: By:__________________________ Title:_______________________ 46 The securities represented hereby have not been registered under the Securities Act of 1933. These securities have been acquired for investment and not with a view to distribution or resale, and may not be sold, mortgaged, pledged, hypothecated or otherwise transferred without an effective registration statement for such securities under the Securities Act of 1933, or an opinion of counsel reasonably satisfactory to the Company that registration is not required under such act. No. W- Right to Purchase Shares of Common Stock of Credit Technologies, Inc. CREDIT TECHNOLOGIES, INC. Common Stock Purchase Warrant CREDIT TECHNOLOGIES, INC., a Delaware corporation (the "Company"), hereby certifies that, for value received [NAME], or assigns, is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 P.M., Boston time, on June 30, 2001, or such later time as may be specified in Section 17 hereof, fully paid and nonassessable shares of Common Stock, $.01 par value, of the Company, at a purchase price per share of $4.00 (such purchase price per share as adjusted from time to time as herein provided is referred to herein as the "Purchase Price"). The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. This Warrant is one of the Common Stock Purchase Warrants (the "Warrants") evidencing the right to purchase shares of Common Stock of the Company, issued pursuant to a certain Subordinated Note and Warrant Purchase Agreement (the "Agreement"), dated as of August 29, 1994, between the Company and the Persons listed in the Schedule of Purchasers attached thereto, a copy of which is on file at the principal office of the Company and the holder of this Warrant shall be entitled to all of the benefits of the Agreement, as provided therein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Credit Technologies, Inc. and any corporation which shall succeed or assume the obligations of the Company hereunder. 47 (b) The term "Common Stock" includes the Company's Common Stock, $.01 par value per share, as authorized on the date of the Agreement and any other securities into which or for which such Common Stock may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holders of the Warrants at any time shall be entitled to receive, or shall have received, on the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to section 5 or otherwise. 1. Exercise of Warrant. ------------------- 1.1. Full Exercise. This Warrant may be exercised in full by the ------------- holder hereof by surrender of this Warrant, with the form of subscription at the end hereof duly executed by such holder, to the Company at its principal office, accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then exercisable by the Purchase Price then in effect. 1.2. Partial Exercise. This Warrant may be exercised in part by ---------------- surrender of this Warrant in the manner and at the place provided in subsection 1.1 except that the amount payable by the holder on such partial exercise shall be the amount obtained by multiplying (a) the number of shares of Common Stock designated by the holder in the subscription at the end hereof by (b) the Purchase Price then in effect. On any such partial exercise the Company at its expense will forthwith issue and deliver to or upon the order of the holder hereof a new Warrant or Warrants of like tenor, in the name of the holder hereof or as such holder (upon payment by such holder of any applicable transfer taxes) may request, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock for which such Warrant or Warrants may still be exercised. 1.3. Payment by Notes Surrender. Notwithstanding the payment -------------------------- provisions of subsections 1.1 and 1.2, all or part of the payment due upon exercise of this Warrant in full or in part may be made by the surrender by such holder to the Company of any of the Company's Notes issued pursuant to the Agreement and such Notes so surrendered shall be credited against such payment in an amount equal to the principal amount thereof plus premium (if any) and accrued interest to the date of surrender. 48 1.4 Net Issue Election. The holder hereof may elect to receive, ------------------ without the payment by such holder of any additional consideration, shares equal to the value of this Warrant or any portion hereof by the surrender of this Warrant or such portion to the Company, with the form of subscription at the end hereof duly executed by such holder, at the office of the Company. Thereupon, the Company shall issue to such holder such number of fully paid and nonassessable shares of Common Stock as is computed using the following formula: X = Y (A-B) ------- A where X = the number of shares to be issued to such holder pursuant to this subsection 1.4. Y = the number of shares covered by this Warrant in respect of which the net issue election is made pursuant to this subsection 1.4. A = the fair market value of one share of Common Stock, as determined in good faith by the Board of Directors of the Company, as at the time the net issue election is made pursuant to this subsection 1.4. B = the Purchase Price in effect under this Warrant at the time the net issue election is made pursuant to this subsection 1.4. The Board of Directors of the Company shall promptly respond in writing to an inquiry by the holder hereof as to the fair market value of one share of Common Stock. 1.5. Company Acknowledgment. The Company will, at the time of the ---------------------- exercise of the Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to afford to such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights. 1.6. Trustee for Warrant Holders. In the event that a bank or trust --------------------------- company shall have been appointed as trustee for the holders of the Warrants pursuant to subsection 4.2, such bank or trust company shall have all the powers and duties of a warrant agent appointed pursuant to section 12 and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this section 1. 49 2. Delivery of Stock Certificates, etc., on Exercise. As soon as ------------------------------------------------- practicable after the exercise of this Warrant in full or in part, and in any event within 10 days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder hereof, or as such holder (upon payment by such holder of any applicable transfer taxes) may direct, a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock (or Other Securities) to which such holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then current market value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such holder is entitled upon such exercise pursuant to section 1 or otherwise. 3. Adjustment for Dividends in Other Stock, Property, etc.; -------------------------------------------------------- Reclassification, etc. In case at any time or from time to time, the holders of - --------------------- Common Stock (or Other Securities) shall have received, or (on or after the record date fixed for the determination of shareholders eligible to receive) shall have become entitled to receive, without payment therefor, (a) other or additional stock or other securities or property (other than cash) by way of dividend, or (b) any cash (excluding cash dividends payable solely out of earnings or earned surplus of the Company), or (c) other or additional stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, recapitalization, combination of shares or similar corporate rearrangement, other than additional shares of Common Stock (or Other Securities) issued as a stock dividend or in a stock-split (adjustments in respect of which are provided for in subsection 5.4), then and in each such case the holder of this Warrant, on the exercise hereof as provided in section 1, shall be entitled to receive the amount of stock and other securities and property (including cash in the cases referred to in subdivisions (b) and (c) of this section 3) which such holder would hold on the date of such exercise if on the date hereof he had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and all such other or additional stock and other securities and property (including cash in the cases referred to in subdivisions (b) and (c) of this section 3) receivable by him as aforesaid during such period, giving effect to all adjustments called for during such period by sections 4 and 5. 50 4. Adjustment for Reorganization, Consolidation, Merger, etc. --------------------------------------------------------- 4.1. In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, the holder of this Warrant, on the exercise hereof as provided in section 1 at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in sections 3 and 5. 4.2. Dissolution. In the event of any dissolution of the Company ----------- following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the holders of the Warrants after the effective date of such dissolution pursuant to this section 4 to a bank or trust company having its principal office in Boston, Massachusetts, as trustee for the holder or holders of the Warrants. 4.3. Continuation of Terms. Upon any reorganization, consolidation, --------------------- merger or transfer (and any dissolution following any transfer) referred to in this section 4, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in section 6. 5. Adjustment for Issue or Sale of Common Stock at Less Than the Purchase ---------------------------------------------------------------------- Price in Effect. - --------------- 5.1. General. If the Company shall at any time or from time to time, ------- issue any additional shares of Common Stock (other than shares of Common Stock excepted from the provisions of this section 5 by subsections 5.4 or 5.5) without consideration or for a net consideration per share less than the Purchase Price in effect immediately prior to such issuance, 51 then, and in each such case: (a) the Purchase Price shall be lowered to an amount determined by multiplying such Purchase Price then in effect by a fraction: (1) the numerator of which shall be (a) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock, plus (b) the number of shares of Common Stock which the net aggregate consideration, if any, received by the Company for the total number of such additional shares of Common Stock so issued would purchase at the Purchase Price in effect immediately prior to such issuance, and (2) the denominator of which shall be (a) the number of shares of Common stock outstanding immediately prior to the issuance of such additional shares of Common Stock plus (b) the number of such additional shares of Common Stock so issued; and (b) the holder of this Warrant shall thereafter, on the exercise hereof as provided in section 1, be entitled to receive the number of shares of Common stock determined by multiplying the number of shares of Common Stock which would otherwise (but for the provisions of this subsection 5.1) be issuable on such exercise by the fraction of which (i) the numerator is the Purchase Price which would otherwise (but for the provisions of this subsection 5.1) be in effect, and (ii) the denominator is the Purchase Price in effect on the date of such exercise. 5.2. Definitions, etc. For purposes of this section 5 and of section ---------------- 7: The issuance of any warrants, options or other subscription or purchase rights with respect to shares of Common Stock and the issuance of any securities convertible into or exchangeable for shares of Common Stock (or the issuance of any warrants, options or any rights with respect to such convertible or exchangeable securities) shall be deemed an issuance at such time of such Common Stock if the Net Consideration Per Share which may be received by the Company for such Common Stock (as hereinafter determined) shall be less than the Purchase Price at the time of such issuance and, except as hereinafter provided, an adjustment in the Purchase Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be made upon each such issuance in the manner provided in subsection 5.1. Any obligation, agreement or undertaking to issue warrants, options, or other subscription or purchase rights at any time in the future shall be deemed to be an issuance at the time such obligation, agreement or undertaking is made or arises. No adjustment of the Purchase Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be made under subsection 5.1 upon the issuance of any shares of Common Stock which are issued pursuant to 52 the exercise of any warrants, options or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any convertible securities if any adjustment shall previously have been made upon the issuance of any such warrants, options or other rights or upon the issuance of any convertible securities (or upon the issuance of any warrants, options or any rights therefor) as above provided. Any adjustment of the Purchase Price and the number of shares of Common Stock issuable upon exercise of this Warrant with respect to this subsection 5.2 which relates to warrants, options or other subscription or purchase rights with respect to shares of Common Stock shall be disregarded if, as, and when all of such warrants, options or other subscription or purchase rights expire or are cancelled without being exercised, so that the Purchase Price effective immediately upon such cancellation or expiration shall be equal to the Purchase Price in effect at the time of the issuance of the expired or cancelled warrants, options or other subscriptions or purchase rights, with such additional adjustments as would have been made to that Purchase Price had the expired or cancelled warrants, options or other subscriptions or purchase rights not been issued. For purposes of this subsection 5.2, the "Net Consideration Per Share" which may be received by the Company shall be determined as follows: (A) The "Net Consideration Per Share" shall mean the amount equal to the total amount of consideration, if any, received by the Company for the issuance of such warrants, options, subscriptions, or other purchase rights or convertible or exchangeable securities, plus the minimum amount of consideration, if any, payable to the Company upon exercise or conversion thereof, divided by the aggregate number of shares of Common Stock that would be issued if all such warrants, options, subscriptions, or other purchase rights or convertible or exchangeable securities were exercised, exchanged or converted. (B) The "Net Consideration Per Share" which may be received by the Company shall be determined in each instance as of the date of issuance of warrants, options, subscriptions or other purchase rights, or convertible or exchangeable securities without giving effect to any possible future price adjustments or rate adjustments which may be applicable with respect to such warrants, options, subscriptions or other purchase rights or convertible securities. For purposes of this section 5, if a part or all of the consideration received by the Company in connection with the issuance of shares of the Common Stock or the issuance of any of the securities described in this section 5, consists of property other than cash, such consideration shall be deemed to have the same value as shall be determined in good faith by the Board of Directors of the Company. This subsection 5.2 shall not apply under any of the circumstances described in 53 subsections 5.4 or 5.5. 5.3. Dilution in Case of Other Securities. In case any Other ------------------------------------ Securities shall be issued or sold, or shall become subject to issue upon the conversion or exchange of any stock (or Other Securities) of the Company (or any other issuer of Other Securities or any other person referred to in section 4) or to subscription, purchase or other acquisition pursuant to any rights or options granted by the Company (or such other issuer or person), for a consideration per share such as to dilute the purchase rights evidenced by this Warrant, the computations, adjustments and readjustments provided for this section 5 with respect to the Purchase Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be made as nearly as possible in the manner so provided and applied to determine the amount of Other Securities from time to time receivable on the exercise of the Warrants, so as to protect the holders of the Warrants against the effect of such dilution. 5.4. Extraordinary Events. In the event that the Company shall (i) -------------------- issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock, or (iii) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Purchase Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this subsection 5.4. The holder of this Warrant shall thereafter, on the exercise hereof as provided in section 1, be entitled to receive that number of shares of Common Stock determined by multiplying the number of shares of Common Stock which would otherwise (but for the provisions of this subsection 5.4) be issuable on such exercise by a fraction of which (i) the numerator is the Purchase Price which would otherwise (but for the provisions of this subsection 5.4) be in effect, and (ii) the denominator is the Purchase Price in effect on the date of such exercise. 5.5. Certain Issues of Common Stock Excepted. Anything herein to the --------------------------------------- contrary notwithstanding, the Company shall not be required to make any adjustment of the Purchase Price or the number of shares for which this Warrant is exercisable in the case of (i) the issuance of up to an aggregate of 900,000 shares (appropriately adjusted to reflect the occurrence of any event described in subparagraph 5.4) of Common Stock or options thereof to directors, officers, employees or consultants of the Company in connection with their service to the Company or their employment by the Company or (ii) the conversation of shares of the Company's Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred Stock as authorized on the date hereof. Any shares of Common Stock issued pursuant to this subparagraph 5.5 which are hereinafter repurchased by the Company at a purchase price per share no greater than the price per share paid to the Company upon the issuance of such shares shall again be available for issuance pursuant to this subparagraph 5.5. 6. No Dilution or Impairment. The Company will not, by amendment of its ------------------------- Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Warrants against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of the Warrants above the amount payable therefor on such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the exercise of all Warrants from time to time outstanding, (c) will not issue any capital stock of any class which is preferred as to dividends or as to the distribution of assets upon voluntary or involuntary dissolution, liquidation or winding up, unless the rights of the holders thereof shall be limited to a fixed sum or percentage of par value in respect of participation in dividends and in any such distribution of assets, and (d) will not transfer all or substantially all of its properties and assets to any other person (corporate or otherwise), or consolidate with or merge into any other person or permit any such person to consolidate with or merge into the Company (if the Company is not the surviving person), unless such other person shall expressly assume in writing and will be bound by all the terms of the Warrants. 7. Certificate as to Adjustments. In each case of any adjustment or ----------------------------- readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrants, the Company at its expense will promptly cause its Chief Financial Officer to compute such adjustment or readjustment in accordance with the terms of the Warrants and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such issue or sale and as adjusted and readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to each holder of a Warrant, and will, on the written request at any time of any holder of a Warrant, furnish to such holder a like certificate setting forth the Purchase Price at the time in effect and showing how it was calculated. 8. Notices of Record Date, etc. In the event of --------------------------- (a) any taking by the Company of a record of the holders of any class or securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, or (d) any proposed issue or grant by the Company to all or substantially all of its stockholders of any right or option to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities, then and in each such event the Company will mail or cause to be mailed to each holder of a Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up, and (iii) the amount and character of any rights or options with respect to any shares of any stock of any class or other securities proposed to be issued or granted by the Company to all or substantially all of its stockholders, the date of such proposed issue or grant and the persons or class of persons to whom such proposed issue or grant is to be offered or made. Such notice shall be mailed at least 20 days prior to the date specified in such notice on which any such action is to be taken. 9. Reservation of Stock, etc., Issuable on Exercise of Warrants. The ------------------------------------------------------------ Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrants, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrants. 10. Exchange of Warrants. Subject to compliance with federal and -------------------- applicable state securities laws, on surrender for exchange of any Warrant, properly endorsed, to the Company, the Company at its expense will issue and deliver to or on the order of the holder thereof a new Warrant or Warrants of like tenor, in the name of such holder or as such holder (on payment by such holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 11. Replacement of Warrants. On receipt of evidence reasonably ----------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction of any Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 12. Warrant Agent. The Company may, by written notice to each holder of a ------------- Warrant, appoint an agent having an office in either Boston, Massachusetts or New York, New York for the purpose of issuing Common Stock (or Other Securities) on the exercise of the Warrants pursuant to section 1, exchanging Warrants pursuant to section 10, and replacing Warrants pursuant to section 11, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 13. Remedies. The Company stipulates that the remedies at law of the -------- holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 14. Negotiability, etc. This Warrant is issued upon the following terms, ------------------ to all of which each holder or owner hereof by the taking hereof consents and agrees: (a) subject to compliance with federal and applicable state securities laws, title to this Warrant may be transferred by endorsement (by the holder hereof executing the form of assignment at the end hereof) and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery; (b) subject to compliance with federal and applicable state securities laws, any person in possession of this Warrant properly endorsed is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of each such bona fide purchaser, and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby; and (c) until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 15. Notices, etc. All notices and other communications from the Company ------------ to the holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such holder or, until any such holder furnishes to the Company an address, then to, and at the address of, the last holder of this Warrant who has so furnished an address to the Company. 16. Miscellaneous. This Warrant and any term hereof may be changed, ------------- waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and enforced in accordance with and governed by the laws of the Commonwealth of Massachusetts. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. This Warrant is being executed as an instrument under seal. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. The holder of this Warrant shall have no rights as a stockholder with respect to shares subject to this Warrant until such holder has exercised this Warrant for such shares. 17. Expiration; Automatic Exercise. The right to exercise this Warrant ------------------------------ shall expire at 5:00 P.M., Boston time, on the later of (i) June 30, 2001 or (ii) at such time as all principal and interest on the Notes (as defined in the Agreement) is paid in full. Notwithstanding the foregoing, this Warrant shall automatically be deemed to be exercised in full pursuant to the provisions of subsection 1.4 hereof, without any further action on behalf of the holder hereof, immediately prior to the time this Warrant would otherwise expire pursuant to the preceding sentence. Dated: August 29, 1994 CREDIT TECHNOLOGIES, INC. By___________________________________ (Corporate Seal) Pamela D.A. Reeve, President Attest: By ________________________________ Its FORM OF SUBSCRIPTION (To be signed only on exercise of Warrant) TO CREDIT TECHNOLOGIES, INC. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise this Warrant for, and to purchase thereunder, ........ shares of Common Stock of CREDIT TECHNOLOGIES, INC. and herewith makes payment of $........ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to ............, whose address is................ Dated: ............................... (Signature must conform to name of holder as specified on the face of the Warrant) ............................... (Address) ____________________ FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto .................. the right represented by the within Warrant to purchase ............. shares of Common Stock of CREDIT TECHNOLOGIES, INC. to which the within Warrant relates, and appoints .......................... Attorney to transfer such right on the books of CREDIT TECHNOLOGIES, INC. with full power of substitution in the premises. Dated: ___________________________________ (Signature must conform to name of holder as specified on the face of the Warrant) ___________________________________ (Address) Signed in the presence of: ___________________________________ EX-10.4 9 AMENDED AND RESTATED CREDIT AGREEMENT EXHIBIT 10.4 AMENDED AND RESTATED CREDIT AGREEMENT, DATED AS OF JUNE 18, 1996, BY AND BETWEEN SILICON VALLEY BANK AND LIGHTBRIDGE, INC. TABLE OF CONTENTS 1. DEFINITIONS AND CONSTRUCTION................... 1 ---------------------------- 1.1 Definitions............................... 1 1.2 Accounting Terms.......................... 9 2. LOAN AND TERMS OF PAYMENT...................... 9 2.1 Advances.................................. 9 2.1.1 Existing Indebtedness.................... 9 2.2 Equipment Advances........................ 10 2.3 Overadvances.............................. 10 2.4 Interest Rates, Payments and Calculations. 10 2.5 Crediting Payments........................ 11 2.6 Fees...................................... 11 2.7 Additional Cost........................... 12 2.8 Term...................................... 12 3. CONDITIONS OF LOAN............................. 12 3.1 Conditions Precedent to Initial Loan...... 13 3.2 Conditions Precedent to all Advances...... 13 4. SECURITY....................................... 13 4.1 Continuation of Security Interest......... 13 4.2 Delivery of Additional Documentation Required................................. 14 5. REPRESENTATIONS AND WARRANTIES................. 14 5.1 Due Organization and Qualification........ 14 5.2 Due Authorization: No Conflict............ 14 5.3 No Prior Encumbrances..................... 14 5.4 Bona Fide Eligible Accounts............... 14 5.5 Merchantable Inventory.................... 14 5.6 Name: Location of Chief Executive Office.. 14 5.7 Litigation................................ 14 5.8 No Material Adverse Change in Financial Statements............................... 15 5.9 Solvency.................................. 15 5.10 Regulatory Compliance..................... 15 5.11 Environmental Condition................... 15 5.12 Taxes..................................... 15 5.13 Subsidiaries.............................. 16 5.14 Government................................ 16 5.15 Full Disclosure........................... 16 6. AFFIRMATIVE COVENANTS.......................... 16 6.1 Good Standing............................. 16
-i- 6.2 Government Compliance..................... 16 6.3 Financial Statements, Reports, Certificates............................. 16 6.4 Inventory; Returns........................ 17 6.5 Taxes..................................... 17 6.6 Insurance................................. 17 6.7 Principal Depository...................... 18 6.8 Quick Ratio............................... 18 6.9 Tangible Net Worth........................ 18 6.10 Debt-Net Worth Ratio...................... 18 6.11 Liquidity................................. 18 6.12 Minimum Debt Service...................... 18 6.13 Profitability............................. 18 6.14 Registration of Intellectual Property Rights................................... 18 6.15 Further Assurances........................ 19 7. NEGATIVE COVENANTS............................. 19 7.1 Dispositions.............................. 19 7.2 Change in Business........................ 19 7.3 Mergers or Acquisitions................... 19 7.4 Indebtedness.............................. 19 7.5 Encumbrances.............................. 19 7.6 Distributions............................. 19 7.7 Investments............................... 20 7.8 Transactions with Affiliates.............. 20 7.9 Subordinated Debt......................... 20 7.10 Inventory................................. 20 7.11 Compliance................................ 20 8. EVENTS OF DEFAULT.............................. 20 8.1 Payment Default........................... 20 8.2 Covenant Default.......................... 20 8.3 Material Adverse Developments............. 21 8.4 Attachment................................ 21 8.5 Insolvency................................ 22 8.6 Other Agreements.......................... 22 8.7 Subordinated Debt......................... 22 8.8 Judgments................................. 22 8.9 ERISA..................................... 22 8.10 Misrepresentations........................ 22 9. BANKS RIGHTS AND REMEDIES...................... 22 9.1 Rights and Remedies....................... 23 9.2 Power of Attorney......................... 23 9.3 Bank Expenses............................. 23 9.4 Remedies Cumulative....................... 24
-ii- 9.5 Demand; Protest........................... 24 10. NOTICES........................................ 24 11. CHOICE OF LAW AND VENUE: JURY TRIAL WAIVER..... 25 12. GENERAL PROVISIONS............................. 25 12.1 Successors and Assigns.................... 25 12.2 Indemnification........................... 26 12.3 Time of Essence........................... 26 12.4 Severability of Provisions................ 26 12.5 Amendments in Writing; Integration........ 26 12.6 Counterparts.............................. 26 12.7 Survival.................................. 26 12.8 Confidentiality........................... 26 12.9 Countersignature.......................... 27
SCHEDULE Schedule of Exceptions EXHIBIT A Loan Payment/Advance Telephone Request Form EXHIBIT B Borrowing Base Certificate EXHIBIT C Compliance Certificate -iii- This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is dated as of the 18 day of June, 1996, by SILICON VALLEY BANK, a California-chartered bank ("Bank"), with its principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan production office located at Wellesley Office Park, 40 William Street, Suite 350, Wellesley, MA 02181, doing business under the name "Silicon Valley East", and LIGHTBRIDGE, INC. (formerly known as Credit Technologies, Inc.), a Delaware corporation ("Borrower"). RECITALS -------- WHEREAS, Borrower and Bank have previously executed a Credit Agreement, dated as of October 5, 1994, amending and restating a certain Commitment Letter dated as of April 1, 1992, as amended by a First Amendment thereto dated as of April 5, 1993, and a Second Amendment thereto dated as of June 5, 1994 (hereinafter, the "Existing Agreement"); WHEREAS, pursuant to a Security Agreement dated as of April 1, 1992, as amended by a First Amendment to Security Agreement dated as of October 5, 1994, Borrower granted to Bank a continuing security interest in and to certain Collateral to secure Borrower's obligations to Bank; WHEREAS, Borrower and Bank wish to amend the Existing Agreement to increase the working capital line of credit from $2,000,000 to $4,000,000 and to permit certain other borrowings; WHEREAS, Borrower and Bank wish to amend the Existing Agreement in certain other respects; NOW, THEREFORE, in furtherance of the foregoing, and in consideration of the mutual promises and agreements of the parties which are set forth herein, the parties hereto hereby agree that , subject to the satisfaction of the terms and conditions set forth herein, the Existing Agreement shall be amended and restated in its entirety to read as follows: 1. DEFINITIONS AND CONSTRUCTION ---------------------------- 1.1 Definitions. - As used in this Agreement, the following terms shall ----------- have the following definitions: "Accounts" means all presently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing. "Advance" or "Advances" means an Advance under the Committed Revolving Line. "Affiliate" means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person's senior executive officers, directors, and partners. "Agreement" means this Amended and Restated Credit Agreement, as amended, supplemented or modified from time to time in accordance with its terms. "Bank Expenses" means all: reasonable costs or expenses (including reasonable attorneys' fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; and Bank's reasonable attorneys' fees and expenses incurred in amending, enforcing or defending the Loan Documents, whether or not suit is brought. "Borrower's Books" means all of Borrower's books and records including: ledgers; records concerning Borrower's assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information. "Borrowing Base" has the meaning set forth in Section 2.1 hereof "Business Day" means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close. "Closing Date" means the date of this Agreement. "Code" means the Massachusetts Uniform Commercial Code. "Collateral" has the meaning given that term in the Security Agreement. "Committed Revolving Line" means Four Million Dollars ($4,000,000). "Committed Equipment Line" means Two Million Dollars ($2,000,000). "Contingent Obligation" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term "Contingent Obligation" -2- shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement. "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with Borrower, are treated as a single employer under Section 414 of the IRC. "Current Assets" means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current assets on the consolidated balance sheet of Borrower and its Subsidiaries as at such date. "Current Liabilities" means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current liabilities on the consolidated balance sheet of Borrower and its Subsidiaries, as at such date, plus, to the extent not already included therein, all outstanding Advances and the current portion of any Equipment Advances made under this Agreement, including all Indebtedness that is payable upon demand or within one year from the date of determination thereof unless such Indebtedness is renewable or extendable at the option of Borrower or any Subsidiary to a date more than one year from the date of determination, but excluding Subordinated Debt. "Daily Balance" means the amount of the Obligations owed at the end of a given day. "Eligible Accounts" means those Accounts that arise in the ordinary course of Borrower's business that comply with all of Borrower's representations and warranties to Bank set forth in Section 5.4; provided, that standards of -------- eligibility may be fixed and revised from time to time by Bank in Bank's reasonable judgment and upon notification thereof to Borrower in accordance with the provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts shall not include the following: (a) Accounts that the account debtor has failed to pay within ninety (90) days of invoice date; (b) Accounts with respect to an account debtor, fifty percent (50%) of whose Accounts the account debtor has failed to pay within ninety (90) days of invoice date; (c) Accounts with respect to which the account debtor is an officer, employee, or agent of Borrower; -3- (d) Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval bill and hold, or other terms by reason of which the payment by the account debtor may be conditional; (e) Accounts with respect to which the account debtor is an Affiliate (other than by virtue of being directly or indirectly under common ownership or control with Borrower) of Borrower; (f) Accounts with respect to which the account debtor does not have its principal place of business in the United States, and Accounts arising from products shipped to or services provided to branches or offices located in the United States of any account debtor that does not have its principal place of business in the United States; (g) Accounts with respect to which the account debtor is a federal state, local governmental entity or any department, agency, or instrumentality thereof; (h) Accounts with respect to which Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to Borrower, but only to the extent of any amounts owing to the account debtor against amounts owed to Borrower; (i) Accounts with respect to an account debtor, including Subsidiaries and Affiliates, whose total obligations to Borrower exceed forty percent (40%) of all Accounts, to the extent such obligations exceed the aforementioned percentage, except as approved in writing by Bank; (j) Accounts with respect to which the account debtor disputes liability or makes any claim with respect thereto as to which Bank believes, in its sole discretion, that there may be a basis for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; or (k) Accounts the collection of which Bank reasonably determines to be doubtful. "Equipment" means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest. "Equipment Advance" or "Equipment Advances" means an Equipment Advance under the Committed Equipment Line. "Equipment Availability End Date" has the meaning set forth in Section 2.2(a) hereof. -4- "ERISA" means the Employment Retirement Income Security Act of 1974, as amended, and the regulations thereunder. "Existing Agreement" has the meaning set forth in the Recitals to this Agreement. "GAAP" means generally accepted accounting principles as in effect from time to time. "Indebtedness" means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including, without limitation, reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations and (d) all Contingent Obligations. "Insolvency Proceeding" means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief. "Inventory" means all present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing, and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or at any time hereafter owned by or in the custody or possession, actual or constructive, of Borrower, including such inventory as is temporarily out of its custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower's Books relating to any of the foregoing. "Investment" means any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person. "IRC" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder. "Lien" means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance. "Loans" means, collectively, the Advances and the Equipment Advances; and "Loan" means any Advance or Equipment Advance. -5- "Loan Documents" means, collectively, this Agreement, any note or notes executed by Borrower, and any other agreement entered into between Borrower and Bank in connection with this Agreement, all as amended or extended from time to time. "Material Adverse Effect" means a material adverse effect on (i) the business operations or condition (financial or otherwise) of Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which Borrower or any member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the Controlled Group during such five year period. "Negotiable Collateral" means all of Borrower's present and future letters of credit of which it is a beneficiary, notes, drafts, instruments, securities, documents of title, and chattel paper, and Borrower's Books relating to any of the foregoing. "Obligations" means all debt, principal interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise. "Payment Date" means the last calendar day of each month. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding, to any or all of its functions under ERISA. "Periodic Payments" means all installments or similar recurring payments that Borrower may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrower and Bank. "Permitted Indebtedness" mean: (a) Indebtedness of Borrower in favor of Bank; (b) Indebtedness existing on the Closing Date and disclosed in the Schedule; (c) Subordinated Debt; and -6- (d) Indebtedness to trade creditors incurred in the ordinary course of business. "Permitted Investment" means: (a) Investments existing on the Closing Date disclosed in the Schedule; and (b) (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates of deposit maturing no more than one (1) year from the date of investment therein issued by Bank. "Permitted Liens" means the following: (a) Any Liens existing on the Closing Date and disclosed in the Schedule; (b) Liens in favor of Bank, including, without limitation, Liens arising under this Agreement or the other Loan Documents; (c) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Bank's security -------- interests; (d) Liens (1) upon or in any equipment acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment, or (ii) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so -------- acquired and improvements thereon, and the proceeds of such equipment; (e) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (d) above, provided that any extension, renewal or replacement Lien -------- shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase. "Person" means any individual sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency. -7- "Plan" means any employee pension benefit plan which is covered by Title IV of ERISA or subject to minimum funding standards under Section 412 of the IRC and is either (a) maintained by Borrower or any member of the Controlled Group for employees of Borrower or any member of the Controlled Group or (b) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which Borrower or any member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions. "Present Unpaid Amount" means the presently outstanding amount of advances made by Bank to Borrower under the Existing Agreement, which as of the date hereof is $1,500,000. "Prime Rate" means the variable rate of interest, per annum, most recently announced by Bank, as its "prime rate," whether or not such announced rate is the lowest rate available from Bank. "Quick Assets" means, at any date as of which the amount thereof shall be determined, the consolidated cash, cash-equivalents, accounts receivable and investments, with maturities not to exceed 90 days, of Borrower determined in accordance with GAAP. "Responsible Officer" means each of the Chief Executive Officer, the Chief Financial Officer and the Controller of Borrower. "Revolving Maturity Date" means June 5, 1997. "Schedule" means the schedule of exceptions attached hereto. "Security Agreement" has the meaning set forth in Section 4.1 hereof. "Subordinated Debt" means any debt incurred by Borrower that is subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank (and identified as being such by Borrower and Bank). "Subsidiary" means any corporation or partnership in which (1) any general partnership interest or (ii) more than 50% of the stock of which by the terms thereof ordinary voting power to elect the Board of Directors, managers or trustees of the entity shall, at the time as of which any determination is being made, be owned by Borrower, either directly or through an Affiliate. "Tangible Net Worth" means at any date as of which the amount thereof shall be determined, the consolidated total assets of Borrower and its Subsidiaries minus, without duplication, (i) the sum of any amounts attributable to (a) - ----- goodwill, (b) intangible items such as unamortized debt discount and expense, patents, trade and service marks and names, copyrights -8- and research and development expenses except prepaid expenses, and (c) all reserves not already deducted from assets, and (ii) Total Liabilities. === "Total Liabilities" means at any date as of which the amount thereof shall be determined, all obligations that should, in accordance with GAAP be classified as liabilities on the consolidated balance sheet of Borrower, including in any event all Indebtedness, but specifically excluding Subordinated Debt. "Trademarks Assignment" has the meaning set forth in Section 4.1 hereof. 1.2 Accounting Terms. All accounting terms not specifically defined herein ----------------- shall be construed in accordance with GAAP and all calculations made hereunder shall be made in accordance with GAAP. When used herein, the terms "financial statements" shall include the notes and schedules thereto. 2. LOAN AND TERMS OF PAYMENT ------------------------- 2.1 Advances. Subject to and upon the terms and conditions of this --------- Agreement, Bank agrees to make Advances to Borrower in an aggregate amount not to exceed the Committed Revolving Line or the Borrowing Base, whichever is less. For purposes of this Agreement, "Borrowing Base" shall mean an amount equal to eighty percent (80%) of Eligible Accounts. Subject to the terms and conditions of this Agreement, amounts borrowed pursuant to this Section 2.1 may be repaid and reborrowed at any time during the term of this Agreement. Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 3:00 p.m Pacific time, on the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit A hereto. Bank is authorized to make Advances under this Agreement, - --------- based upon instructions received from a Responsible Officer, or without instructions if in Bank's discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under this Section 2.1 to Borrower's deposit account. The Committed Revolving Line shall terminate on the Revolving Maturity Date, at which time all Advances under this Section 2. 1, all accrued and unpaid interest thereon and other amounts due under this Agreement (except as otherwise expressly specified herein) shall be immediately due and payable. 2.1.1 Existing Indebtedness. Borrower acknowledges that, pursuant to the ---------------------- Existing Agreement, Bank has made certain advances to Borrower, the current outstanding amount of which is equal to the Present Unpaid Amount. Borrower and Bank agree that such -9- Present Unpaid Amount shall hereafter constitute Advances made pursuant to this Agreement, and the obligations of Borrower with respect to such Advances shall be governed by the terms and conditions of this Agreement and the note executed in connection herewith. 2.2 Equipment Advances. ------------------ (a) At any time from the date hereof through December 31, 1996 (the "Equipment Availability End Date"), Borrower may from time to time request advances (each an "Equipment Advance" and collectively, the "Equipment Advances") from Bank in an aggregate amount not to exceed the Committed Equipment Line. To evidence the Equipment Advance or Equipment Advances, Borrower shall deliver to Bank, at the time of each Equipment Advance request, an invoice for the equipment to be purchased. The Equipment Advances shall be used only to purchase equipment, and shall not exceed One Hundred Percent (100%) of the invoice amount of such equipment approved from time to time by Bank, excluding taxes, shipping, warranty charges, freight discounts and installation expense. Borrower may, however, use Equipment Advances aggregating up to Five Hundred Thousand Dollars ($500,000.00) to purchase software. (b) Interest shall accrue from the date of each Equipment Advance at the rate specified in Section in Section 2.4(a), and shall be payable monthly for each month through the month in which the Equipment Availability End Date falls. Any Equipment Advance or Equipment Advances that are outstanding on the Equipment Availability End Date will be payable in thirty consecutive equal monthly installments of principal, plus interest, beginning January 31, 1997, and on the Payment Date of each month thereafter until the entire principal balance shall have been paid in full. (c) When Borrower desires to obtain an Equipment Advance, Borrower shall notify Bank (which notice shall be irrevocable) by facsimile transmission to be received no later than 3:00 p.m. Pacific time one (1) Business Day before the day on which the Equipment Advance is to be made. Such notice shall be substantially in the form of Exhibit A. The notice shall be signed by a Responsible Officer and include a copy of the invoice for the Equipment to be financed. 2.3 Overadvances. If, at any time or for any reason, (a) the outstanding ------------- principal amount of Advances hereunder exceeds the lesser of (i) the Committed Revolving Line or (ii) the Borrowing Base, and/or (b) the outstanding principal amount of Equipment Advances exceeds the Committed Equipment Line, Borrower shall immediately pay to Bank, in cash, the amount of such excess. 2.4 Interest Rates, Payments and Calculations. ----------------------------------------- (a) Interest Rate. Except as set forth in Section 2.4(b), (i) each Advance ------------- shall bear interest, on the average Daily Balance, at a rate equal to one- quarter of one percentage point (0.250%) above the Prime Rate, and (ii) each Equipment Advance shall bear -10- interest, on the average Daily Balance, at a rate equal to three-quarters of one percentage point (0.750%) above the Prime Rate. (b) Default Rate. All Obligations shall bear interest, from and after the ------------ occurrence of an Event of Default, at a rate equal to five percentage points (5.000%) above the interest rate applicable immediately prior to the occurrence of the Event of Default. (c) Payments. Interest hereunder shall be due and payable on the Payment -------- Date of each month during the term hereof. Borrower hereby authorizes Bank to debit any accounts with Bank, including, without limitation, Account Number 700195970 for payments of principal and interest due on the Obligations and any other amounts owing by Borrower to Bank. Bank will notify Borrower of all debits which Bank makes against Borrower's accounts. Any such debits against Borrower's accounts in no way shall be deemed a set-off. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. (d) Computation. In the event the Prime Rate is changed from time to time ----------- hereafter, the applicable rate of interest hereunder shall be increased or decreased effective as of 12:01 a.m on the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. 2.5 Crediting Payments. Prior to the occurrence of an Event of Default, ------------------- Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence of an Event of Default, the receipt by Bank of any wire transfer of funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 12:00 noon Pacific time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension. 2.6 Fees. Borrower shall pay to Bank the following: ----- (a) Facility Fees. Facility Fees equal to one-quarter of one percentage -------------- point of the Committed Revolving Line or Ten Thousand Dollars ($10,000), in the case of the Committed Revolving Line, and Two Thousand Five Hundred Dollars ($2,500), in the case of the Committed Equipment Line, which fees shall be due on the Closing Date and shall be fully earned and non-refundable; -11- (b) Financial Examination and Appraisal Fees. Bank's customary fees and ---------------------------------------- out-of-pocket expenses for Bank's audits of Borrower's Accounts, and for each appraisal of Collateral and financial analysis and examination of Borrower performed from time to time by Bank or its agents; (c) Bank Expenses. Upon demand from Bank, including, without limitations ------------- upon the date hereof, all Bank Expenses incurred through the date hereof, including reasonable attorneys' fees and expenses, and, after the date hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as and when they become due. 2.7 Additional Cost. In case any law, regulation, treaty or official ---------------- directive or the interpretation or application thereof by any court or any governmental authority charged with the administration thereof or the compliance with any guideline or request of any central bank or other governmental authority (whether or not having the force of law): (a) subjects Bank to any tax with respect to payments of principal or interest or any other amounts payable hereunder by Borrower or otherwise with respect to the transactions contemplated hereby (except for taxes on the overall net income of Bank imposed by the United States of America or any political subdivision thereof); (b) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or loans by, Bank; or (c) imposes upon Bank any other condition with respect to its performance under this Agreement, and the result of any of the foregoing is to increase the cost to Bank, reduce the income receivable by Bank or impose any expense upon Bank with respect to any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank the amount of such increase in cost, reduction in income or additional expense as and when such cost, reduction or expense is incurred or determined upon presentation by Bank of a statement of the amount and setting forth Bank's calculation thereof, all in reasonable detail, which statement shall be deemed true and correct absent manifest error. 2.8 Term. Except as otherwise set forth herein, this Agreement shall ----- become effective on the Closing Date and, subject to Section 12.7, shall continue in full force and effect until all Obligations are paid in full. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Loans under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default. Notwithstanding termination, Bank's Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding. 3. CONDITIONS OF LOAN ------------------ -12- 3.1 Conditions Precedent to Initial Loan. The obligation of Bank to make ------------------------------------- the initial Loan is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following: (a) this Agreement; (b) a certificate of the Secretary of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement; (c) an opinion of Borrower's counsel; (d) insurance certificate; (e) payment of the fees and Bank Expenses then due specified in Section 2.6 hereof; and (f) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate. 3.2 Conditions Precedent to all Loans. The obligation of Bank to make ---------------------------------- each Loan, including the initial Loan, is further subject to the following conditions: (a) timely receipt by Bank of the Payment/Advance Form as provided in Section 2.1 or 2.2, as applicable; and (b) the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Payment/Advance Form and on the effective date of each Loan as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would result from such Loan. The making of each Loan shall be deemed to be a representation and warranty by Borrower on the date of such Loan as to the accuracy of the facts referred to in this Section 3.2(b). 4. SECURITY -------- 4.1 Continuation of Security Interest. This Agreement and the other Loan ---------------------------------- Documents and all Obligations of Borrower to Bank arising hereunder or thereunder shall continue to be secured under the terms of (i) that certain Security Agreement dated as of April 1, 1992, as amended by a First Amendment thereto dated October 5, 1994 (the "Security Agreement"), pursuant to which Borrower has granted to Bank a continuing security interest in and to all of Borrower's assets, whether presently existing or hereafter arising or acquired, and (ii) that certain Collateral Assignment of Trademarks dated as of October 5, 1994 (the "Trademarks Assignment"), pursuant to which Borrower has collaterally assigned to Bank all of Borrower's right, title and interest in, to and under all trademarks, trademark licenses and certain related assets, whether presently existing or hereafter arising or acquired. -13- 4.2 Delivery of Additional Documentation Required. Borrower shall from --------------------------------------------- time to time execute and deliver to Bank, at the request of Bank, all Negotiable Collateral, all financing statements and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue perfected Bank's security interest in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. 5. REPRESENTATIONS AND WARRANTIES ------------------------------ Borrower represents and warrants as follows: 5.1 Due Organization and Qualification. Borrower and each Subsidiary is a ----------------------------------- corporation duly existing and in good standing under the laws of its state of incorporation and qualified and licensed to do business in, and is in good standing in, any state in which the conduct of its business or its ownership of property requires that it be so qualified. 5.2 Due Authorization: No Conflict. The execution, delivery, and ------------------------------- performance of the Loan Documents are within Borrower's powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower's Certificate of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement to which Borrower is a party or by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound, which default could have a Material Adverse Effect. 5.3 No Prior Encumbrances. Borrower has good and indefeasible title to ---------------------- the Collateral, free and clear of Liens, except for Permitted Liens. 5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide ---------------------------- existing obligations. The property giving rise to such Eligible Accounts has been delivered to the account debtor or to the account debtor's agent for immediate shipment to and unconditional acceptance by the account debtor. Borrower has not received notice of actual or imminent Insolvency Proceeding of any account debtor that is included in any Borrowing Base Certificate as an Eligible Account. 5.5 Merchantable Inventory. All Inventory is in all material respects of ----------------------- good and marketable quality, free from all material defects. 5.6 Name: Location of Chief Executive Office. Except as disclosed in the ----------------------------------------- Schedule, Borrower has not done business under any name other than that specified on the signature page hereof. The chief executive office of Borrower is located at the address indicated in Section 11 hereof. 5.7 Litigation. Except as set forth in the Schedule, there are no actions ----------- or proceedings pending by or against Borrower or any Subsidiary before any court or administrative agency in which an adverse decision could have a Material Adverse Effect or a material adverse -14- effect on Borrower's interest or Bank's security interest in the Collateral. Borrower does not have knowledge of any such pending or threatened actions or proceedings. 5.8 No Material Adverse Change in Financial Statements. All consolidated --------------------------------------------------- financial statements related to Borrower and any Subsidiary that have been delivered by Borrower to Bank fairly present in all material respects Borrower's consolidated financial condition as of the date thereof and Borrower's consolidated results of operations for the period then ended. There has not been a material adverse change in the consolidated financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank. 5.9 Solvency. Borrower is solvent and able to pay its debts (including --------- trade debts) as they mature. 5.10 Regulatory Compliance. Borrower and each Subsidiary has met the ---------------------- minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from Borrower's failure to comply with ERISA that is reasonably likely to result in Borrower's incurring any liability that could have a Material Adverse Effect. Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations G, T and U of the Board of Governors of the Federal Reserve System). Borrower has complied with all the provisions of the Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, violation of which could have a Material Adverse Effect. 5.11 Environmental Condition. None of Borrower's or any Subsidiary's ------------------------ properties or assets has ever been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by previous owners or operators, in the disposal of or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance other than in accordance with applicable law; to the best of Borrower's knowledge, none of Borrower's properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; no lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal, state or other governmental agency concerning any action or omission by Borrower or any Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment. 5.12 Taxes. Borrower and each Subsidiary has filed or caused to be filed ------ all tax returns required to be filed, and has paid, or has made adequate provision for the payment of, all taxes reflected therein. -15- 5.13 Subsidiaries. Borrower does not own any stock, partnership ------------- interest or other equity securities of any Person, except for Permitted Investments. 5.14 Government. Borrower and each Subsidiary has obtained all consents, ----------- approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower's business as currently conducted. 5.15 Full Disclosure. No representation, warranty or other statement made ---------------- by Borrower in any certificate or written statement furnished to Bank contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading. 6. AFFIRMATIVE COVENANTS --------------------- Borrower covenants and agrees that, until payment in full of all outstanding Obligations, and for so long as Bank may have any commitment to make any Loan hereunder, Borrower shall do all of the following: 6.1 Good Standing. Borrower shall maintain its and each of its -------------- Subsidiaries' corporate existence and good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which the failure to so qualify could have a Material Adverse Effect. Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, to the extent consistent with prudent management of Borrower's business, in force all licenses, approvals and agreements, the loss of which could have a Material Adverse Effect. 6.2 Government Compliance. Borrower shall meet, and shall cause each ---------------------- Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could have a Material Adverse Effect or a material adverse effect on the Collateral or the priority of Bank's Lien on the Collateral. 6.3 Financial Statements, Reports, Certificates. Borrower shall deliver -------------------------------------------- to Bank: (a) as soon as available, but in any event within thirty (30) days after the end of each mouth, a company prepared consolidated balance sheet and income statement covering Borrower's consolidated operations during such period, certified by an officer of Borrower reasonably acceptable to Bank; (b) as soon as available, but in any event within one hundred twenty (120) days after the end of Borrower's fiscal year, audited consolidated financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank; (c) within five (5) days of filing, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed with the -16- Securities and Exchange Commission; (d) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000) or more in the aggregate; and (e) such budgets, sales projections, operating plans or other financial information as Bank may reasonably request from time to time. Within twenty-five (25) days after the last day of each month, Borrower shall deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit B hereto, together with aged --------- listings of accounts receivable and accounts payable. Within thirty (30) days after the last day of each month, Borrower shall deliver to Bank with the monthly financial statements a Compliance Certificate signed by a Responsible Officer in substantially the form of Exhibit C hereto. --------- Bank shall have a right from time to time hereafter to audit Borrower's Accounts at Borrower's expense; provided that such audits will be conducted no more often than every twelve (12) months unless an Event of Default has occurred and is continuing. 6.4 Inventory; Returns. Borrower shall keep all Inventory in good and ------------------- marketable condition, free from any material defects. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist at the time of the execution and delivery of this Agreement. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims, where the return, recovery, dispute or claim involves more than Fifty Thousand Dollars ($50,000). 6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make, ------ due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, and will execute and deliver to Bank, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower will make, and will cause each Subsidiary to make, timely payment or deposit of all material tax payments and withholding taxes required of it by applicable laws, including, but not limited to, those laws concerning, F.I.C.A., F.U.T.A, state disability, and local, state, and federal income taxes, and will, upon request, furnish Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower. 6.6 Insurance. ---------- (a) Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the -17- locations where Borrower's business is conducted on the date hereof. Borrower shall also maintain insurance relating to Borrower's ownership and use of the Collateral in amounts and of a type that are customary to businesses similar to Borrower's. (b) All such policies of insurance shall be in such form with such companies, and in such amounts as reasonably satisfactory to Bank. All such policies of property insurance shall contain a lender's loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee thereof and all liability insurance policies shall show the Bank as an additional insured, and shall specify that the insurer must give at least twenty (20) days' notice to Bank before canceling its policy for any reason. Borrower shall deliver to Bank certified copies of such policies of insurance and evidence of the payments of all premiums therefor. All proceeds payable under any such policy shall, at the option of Bank, be payable to Bank to be applied on account of the Obligations. 6.7 Principal Depository. Borrower shall maintain its principal --------------------- depository and operating accounts with Bank. 6.8 Quick Ratio. Borrower shall maintain, as of the last day of each ------------ calendar month, a ratio of Quick Assets to Current Liabilities of at least 1.5 to 1.O. 6.9 Tangible Net Worth. Borrower shall maintain, as of the last day of ------------------- each fiscal quarter, a Tangible Net Worth of not less than eighty percent (80%) of aggregate net invested capital received from and after the date of this Agreement. 6.10 Debt-Net Worth Ratio. Borrower shall maintain, as of the last day of --------------------- each calendar month, a ratio of Total Liabilities to Tangible Net Worth of not more than 1.0 to 1.0. 6.11 Liquidity. Borrower shall maintain, as of the last day of each ---------- calendar month, (1) unrestricted cash (and equivalents), plus (ii) Eligible Accounts, minus (iii) outstanding Loans, of not less than two hundred percent (200%) of Equipment Advances outstanding. The Liquidity covenant set forth in this Section 6.11 shall continue in effect only until such time as Borrower initially satisfies the Minimum Debt Service covenant set forth in Section 6.12. 6.12 Minimum Debt Service. Borrower shall maintain, as of the end of each --------------------- fiscal quarter, a Debt Service ratio of at least 1.25 to 1.00. "Debt Service" is defined as net after tax earnings plus interest, depreciation and amortization, divided by total interest plus current portion of long term debt and current portion of capitalized lease obligations. 6.13 Profitability. Borrower shall have minimum net income of One Dollar -------------- ($1.00) for each fiscal quarter. 6.14 Registration of Intellectual Property Rights. Borrower shall --------------------------------------------- register or cause to be registered with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, intellectual property rights developed or acquired by Borrower -18- from time to time in connection with any product prior to the sale or licensing of such product to any third party. Borrower shall execute and deliver such additional instruments and documents from time to time as Bank shall reasonably request to perfect Bank's security interest in such intellectual property rights. 6.15 Further Assurances. At any time and from time to time Borrower shall ------------------- execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement. 7. NEGATIVE COVENANTS ------------------ Borrower covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the outstanding Obligations or for so long as Bank may have any commitment to make any Loans, Borrower will not do any of the following: 7.1 Dispositions. Convey, sell lease, transfer or otherwise dispose of ------------- (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than: (i) Transfers of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries; or (iii) Transfers of worn-out or obsolete Equipment. 7.2 Change in Business. Engage in any business, or permit any of its ------------------- Subsidiaries to engage in any business, other than the businesses currently engaged in by Borrower and any business substantially similar or related thereto (or incidental thereto), or suffer a material change in Borrower's ownership, management or directors. Borrower will not, without thirty (30) days' prior written notification to Bank, relocate its chief executive office. 7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its ------------------------ Subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person. 7.4 Indebtedness. Create, incur, assume or be or remain liable with ------------- respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness. 7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with ------------- respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens. 7.6 Distributions. Pay any dividends or make any other distribution or -------------- payment on account of or in redemption, retirement or purchase of any capital stock. -19- 7.7 Investments. Directly or indirectly acquire or own, or make any ------------ Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments. 7.8 Transactions with Affiliates. Directly or indirectly enter into or ----------------------------- permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower's business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm's length transaction with a nonaffiliated Person. 7.9 Subordinated Debt. Make any payment in respect of any Subordinated ------------------ Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision contained in any documentation relating to the Subordinated Debt without Bank's prior written consent. 7.10 Inventory. Store the Inventory with a bailee, warehouseman, or ---------- similar party unless Bank has received a pledge of the warehouse receipt covering such Inventory. Except for Inventory sold in the ordinary course of business and except for such other locations as Bank may approve in writing, Borrower shall keep the Inventory only at the location set forth in Section 11 hereof and such other locations of which Borrower gives Bank prior written notice and as to which Borrower signs and files a financing statement where needed to perfect Bank's security interest. 7.11 Compliance. Become an "investment company" or a company "controlled" ----------- by an "investment company," within the meaning of the Investment Company Act of 1940, as amended, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Advance for such purpose. Fail to meet the minimum funding requirements of ERISA, permit a "Reportable Event" or "Prohibited Transaction", as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any law or regulation, which violation could have a Material Adverse Effect or a material adverse effect on the Collateral or the priority of Bank's Lien on the Collateral or permit any of its Subsidiaries to do any of the foregoing. 8. EVENTS OF DEFAULT ----------------- Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement: 8.1 Payment Default. If Borrower fails to pay, when due, any of the ---------------- Obligations; 8.2 Covenant Default. ----------------- -20- (a) If Borrower fails to perform any obligation under Sections 6.7, 6.8, 6.9, 6.10, 6.11, 6.12 or 6.13 or violates any of the covenants contained in Article 7 of this Agreement, or (b) If Borrower fails or neglects to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Agreement or in any of the other Loan Documents and as to any default under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure such default within ten (10) days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof, provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default (provided that no Loans will be required to be made during such cure period), or (c) If a default occurs under any other present or future agreement between Borrower and Bank, and such default has not been expressly waived in writing, permits the acceleration of debt issued or otherwise created pursuant thereto, or if any such debt is declared due and payable prior to the stated maturity thereof or is not paid in full at the stated maturity thereof; 8.3 Material Adverse Developments. If (i) there occurs a material ------------------------------ impairment of the perfection or priority of the Bank's security interest in the Collateral or of the value of such Collateral which is not covered by adequate insurance or (ii) the Bank determines, based upon information available to it and in the exercise of its reasonable judgment, that there is a reasonable likelihood that Borrower will fail to comply with one or more of the financial covenants set forth on Section 6 during the next succeeding financial reporting period; 8.4 Attachment. If any material portion of Borrower's assets is attached, ----------- seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or, any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower's assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrower's assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal or governmental agency, and the same is not paid within ten (10) days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Loans will be required to be made during such cure period); -21- 8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency ----------- Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within ten (10) days (provided that no Loans will be made prior to the dismissal of such Insolvency Proceeding); 8.6 Other Agreements. If there is a default in any agreement to which ----------------- Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of One Hundred Thousand Dollars ($100,000) in the aggregate or that could have a Material Adverse Effect; 8.7 Subordinated Debt. If Borrower makes any payment on account of ------------------ Subordinated Debt, except to the extent such payment is allowed under any subordination agreement entered into with Bank; 8.8 Judgments. If a judgment or judgments for the payment of money in an ---------- amount, individually or in the aggregate, of at least Fifty Thousand Dollars ($50,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days (provided that no Loans will be made prior to the satisfaction or stay of such judgment); 8.9 ERISA. If Borrower or any member of the Controlled Group fails to pay ------ when due an amount or amounts aggregating in excess of $100,000 which it is obligated to pay to the PBGC or to a Plan under Title IV of ERISA; or a notice of intent to terminate a Plan or Plans having aggregate Unfunded Liabilities in excess of $100,000 shall be filed under Title IV of ERISA by Borrower or any member of the Controlled Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans or a proceeding shall be instituted by a fiduciary of any such Plan or Plans against Borrower or any member of the Controlled Group to enforce Sections 515 or 4219(c)(5) of ERISA; or a condition exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause Borrower or one or more members of the Controlled Group to incur a current payment obligation in excess of $100,000; or 8.10 Misrepresentations. If any material misrepresentation or material ------------------ misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document. 9. BANK'S RIGHTS AND REMEDIES -------------------------- -22- 9.1 Rights and Remedies. Upon the occurrence and during the continuance of -------------------- an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower: (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5 all Obligations shall become immediately due and payable without any action by Bank); (b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank; (c) Without notice to or demand upon Borrower, make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral; (d) Exercise all of its rights and remedies available to it hereunder, under the other Loan Documents (including, without limitation, the Security Agreement and the Trademarks Assignment), at law and in equity; (e) Without notice to Borrower set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank. 9.2 Power of Attorney. Effective only upon the occurrence and during the ------------------ continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank's designated officers or employees) as Borrower's true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank's security interest in the Accounts; (b) endorse Borrower's name on any checks or other forms of payment or security that may come into Bank's possession; (c) sign Borrower's name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) make, settle, and adjust all claims under and decisions with respect to Borrower's policies of insurance; and (e) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in Section 4.2 regardless of whether an Event of Default has occurred. The appointment of Bank as Borrower's attorney in fact, and each and every one of Bank's rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank's obligation to provide advances hereunder is terminated. 9.3 Bank Expenses. If Borrower fails to pay any amounts or furnish any ------------- required proof of payment due to third persons or entities, as required under the terms of this Agreement, -23- then Bank may do any or all of the following: (a) make payment of the same or any part thereof; (b) set up such reserves under the Committed Revolving Line as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.6 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement. 9.4 Remedies Cumulative. Bank's rights and remedies under this Agreement, -------------------- the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given. 9.5 Demand; Protest. Borrower waives demand, protest, notice of protest, ---------------- notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Bank on which Borrower may in any way be liable. 10. NOTICES ------- Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below: If to Borrower Lightbridge, Inc. 281 Winter Street Waltham MA 02154 Attn: William G. Brown, Chief Financial Officer FAX: (617) 890-2681 -24- If to Bank Silicon Valley East, a Division of Silicon Valley Bank 40 William Street, Suite 350 Wellesley, MA 02181 Attn: Pamela J. Lowe, Vice President FAX: (617) 431-9906 The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. 11. CHOICE OF LAW AND VENUE: JURY TRIAL WAIVER ------------------------------------------ This Agreement shall be governed by, and contained in accordance with, the internal laws of The Commonwealth of Massachusetts, without regard to principles of conflicts of law. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF nm COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL, 12. GENERAL PROVISIONS ------------------ 12.1 Successors and Assigns. This Agreement shall bind and inure to the ----------------------- benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Agreement nor any rights hereunder -------- ------- may be assigned by Borrower without Bank's prior written consent, which consent may be granted or withheld in Bank's sole discretion. Bank shall have the right without the consent of or notice to Borrower to sell transfer, negotiate, or gant participation in all or any part of, or any interest in, Bank's obligation rights and benefits hereunder. -25- 12.2 Indemnification. Borrower shall defend, indemnity and hold harmless ---------------- Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including, without limitation, reasonable attorneys fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct. 12.3 Time of Essence. Time is of the essence for the performance of all ---------------- obligations set forth in this Agreement. 12.4 Severability of Provisions. Each provision of this Agreement shall --------------------------- be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 12.5 Amendments in Writing; Integration. This Agreement cannot be amended ----------------------------------- or terminated orally. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement, if any, are merged into this Agreement and the Loan Documents. 12.6 Counterparts. This Agreement may be executed in any number of ------------- counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. 12.7 Survival. All covenants, representations and warranties made in this --------- Agreement shall continue in full force and effect so long as any Obligations remain outstanding. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run, provided that so long as the obligations set forth in the first sentence of this Section 12.7 have been satisfied, and Bank has no commitment to make any Loans or to make any other loans to Borrower, Bank shall release all security interests granted hereunder and redeliver all Collateral held by it in accordance with applicable law. 12.8 Confidentiality. In handling any confidential information Bank shall ---------------- exercise the same degree of care that it exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or affiliates of Bank in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the Loans, provided that they have entered into a comparable confidentiality agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as required by law, regulations, rule or order, -26- subpoena, judicial order or similar order and (iv) as may be required in connection with the examination, audit or similar investigation of Bank. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information. 12.9 Countersignature. This Agreement shall become effective only when it ----------------- shall have been executed by Borrower and Bank (provided, however, in no event shall this Agreement become effective until signed by an officer of Bank in California). IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. LIGHTBRIDGE, INC. By: /s/ William G. Brown ----------------------------- Name: William G. Brown -------------------------- Title: CEO/VP Finance ------------------------- SILICON VALLEY BANK, doing business as SILICON VALLEY EAST By: /s/ Pamela J. Lowe ----------------------------- Name: Pamela J. Lowe --------------------------- Title: Vice President -------------------------- SILICON VALLEY BANK By:_____________________________ Name:___________________________ Title:__________________________ (signed in Santa Clara County, California) -27- LIGHTBRIDGE, INC. Schedule of Exceptions ---------------------- Permitted Investments - --------------------- The Borrower owns 50% of the capital stock of BGX, Inc., a Delaware corporation. BGX, Inc. is currently inactive. Permitted Indebtedness - ---------------------- The Borrower has borrowed an aggregate of $2,100,000 pursuant to the terms of a Subordinated Note and Warrant Purchase Agreement dated as of August 29, 1994 among the Borrower and the persons listed on the Schedule of Purchasers thereto. Master Lease Agreements between Comdisco, Inc. as lessor and the Borrower as lessee. The leases provide for an aggregate of $1,500,000.00 in computer hardware lines of credit. The Borrower rents its office space from independent landlords. Currently under lease is approximately 90,000 square feet of space, with an annual lease payment of $1,502,745. Leases expire between 1999 and 2001. Litigation - ---------- Mohammad Kammoun, a former employee of the Borrower, has filed a charge of religious/national origin discrimination with the Massachusetts Commission Against Discrimination and the Equal Employment Opportunity Commission arising out of the termination of his employment in October 1994. The Borrower has submitted a position statement and an investigative conference was held by the MCAD on January 10, 1995. The Borrower is awaiting an initial determination from the MCAD as to whether there is probable cause to support Mr. Kammoun's charge. Use of other names - ------------------ In 1994, the Borrower changed its name from "Credit Technologies, Inc." to "Lightbridge, Inc." EXHIBIT A LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T. TO: CENTRAL CLIENT SERVICE DIVISION DATE: FAX#: (408) TIME: FROM: ______________________________________________________________________ BORROWER'S NAME FROM: ______________________________________________________________________ AUTHORIZED SIGNER'S NAME ____________________________________________________________________________ AUTHORIZED SIGNATURE PHONE: _____________________________________________________________________ FROM ACCOUNT #___________________________ TO ACCOUNT #_____________________
========================================================================= REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT - ---------------------------------- --------------------- PRINCIPAL INCREASE (ADVANCE) $____________________ PRINCIPAL PAYMENT (ONLY) $____________________ INTEREST PAYMENT (ONLY) $____________________ PRINCIPAL AND INTEREST (PAYMENT) $____________________ OTHER INSTRUCTIONS: ========================================================================
All representations and warranties of Borrower stated in the Amended and Restated Credit Agreement dated as of June __, 1996, by and between Borrower and Silicon Valley Bank are true, correct and complete in all material respects as of the date of the telephone request for the Advance/Equipment Advance confirmed by this Borrowing Certificate; provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date. ============================================================================ BANK USE ONLY TELEPHONE REQUEST - ---------------------------------------- The following person is authorized to request the loan payment transfer/loan advance on the advance designated account and is known to me. - ---------------------------------------- --------------------------------- Authorized Requester Phone # - ---------------------------------------- --------------------------------- Received by (Bank) Phone # ___________________________________ Authorized Signature (Bank) ============================================================================ -2- EXHIBIT B BORROWING BASE CERTIFICATE Borrower: Lightbridge, Inc. Bank: Silicon Valley Bank Commitment Amount: $4,000,000 ================================================================================ ACCOUNTS RECEIVABLE: 1. Accounts Receivable Book Value as of______ $______ 2. Additions (please explain on reverse) $______ 3. TOTAL ACCOUNTS RECEIVABLE $______ ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication) 4. Amounts over 90 days due $______ 5. Balance of 50% over 90 day accounts $______ 6. Concentration Limits $______ 7. Foreign Accounts $______ 8. Government Accounts $______ 9. Contra Accounts $______ 10. Promotion or Demo Accounts $______ 11. Intercompany/Employee Accounts $______ 12. Other (please explain on reverse) $______ 13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $______ 14. Eligible Accounts (#3 minus #13) $______ 15. LOAN VALUE OF ACCOUNTS (80% OF #14) $______ INVENTORY 16. Inventory Value as of $ N/A 17. LOAN VALUE OF INVENTORY (__% OF # 16) $ N/A BALANCES 18. Maximum Loan Amount $______ 19. Total Funds Available [Lesser of #18 or (#15 plus #17)] $______ 20. Present balance owing on Line of Credit $______ 21. Outstanding under Sublimits (Letters of Credit) $______ 22. RESERVE POSITION (#19 minus #2O and #21) $______
The undersigned represents and warrants that the foregoing is true, complete and correct, and that the information reflected in this Borrowing Base Certificate complies with the representations and warranties set forth in the Amended and Restated Credit Agreement dated as of June ____, 1996 between the undersigned and Silicon Valley Bank. COMMENT: - ------------------------------- By:____________________________ Authorized Signer BANK USE ONLY Received by:____________________ Authorized Signer Date:___________________________ Verified:_______________________ Authorized Signer Date:___________________________ -2- EXHIBIT C COMPLIANCE CERTIFICATE TO: SILICON VALLEY BANK ("Bank") FROM: LIGHTBRIDGE, INC. ("Borrower") The undersigned authorized officer of Lightbridge, Inc. hereby certifies that in accordance with the terms and conditions of the Amended and Restated Credit Agreement dated as of June ___, 1996 between Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for the period ending ___________ with all required covenants except as noted below and (ii) all representations and warranties of Borrower stated in the Agreement are true and correct in all material respects as of the date hereof. Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The Officer expressly acknowledges that no borrowings may be requested by the Borrower at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that such compliance is determined not just at the date this certificate is delivered. Please indicate compliance status by circling Yes/No under "Complies" column.
Reporting Covenant Required Complies - ----------------------------------- ---------------------- -------- Monthly financial statements Monthly within 30 days Yes No Annual (CPA Audited) FYE within 120 days Yes No A/R & A/P Agings Monthly within 25 days Yes No Borrowing Base Certificate Monthly within 25 days Yes No A/R Audit Annual Yes No Financial Covenant Required Actual Complies - ----------------------------------- ------------------- ------ -------- Maintain on a Monthly Basis: Minimum Quick Ratio 1.5:1.0 ____:1.0 Yes No Maximum Debt/Tangible Net Worth 1.0:1.0 ____:1.0 Yes No Minimum Liquidity $______ $_______ Yes No Maintain on a Quarterly Basis: Minimum Tangible Net Worth $______ $_______ Yes No Minimum Profitability $1.00 ____:1.0 Yes No Minimum Debt Service 1.25:1.0 ____:1.0 Yes No
Comments Regarding Exceptions: See Attached Sincerely, - -------------------------------- Signature Title:__________________________ Date:___________________________ BANK USE ONLY Received by:________________________ Authorized Signer Date:_______________________________ Verified:___________________________ Authorized Signer Date:_______________________________ Compliance Status: Yes No EX-10.5 10 SETTLEMENT AGREEMENT Exhibit 10.5 SETTLEMENT AGREEMENT -------------------- This Settlement Agreement ("Agreement") is made and effective the 2nd day of February, 1996, by and among Lightbridge, Inc., f/k/a Credit Technologies, Inc., BEB, Inc., BEB Limited Partnership I, BEB Limited Partnership II, BEB Limited Partnership III, and BEB Limited Partnership IV, and all of their predecessors, successors and assigns (collectively, the "Plaintiffs"), Entrepreneurial, Inc., Entrepreneurial Limited Partnership VI (together with the Plaintiffs, the "Plaintiffs and Related Parties"), Torrence C. Harder ("Harder"), Brian E. Boyle and all of his representatives, assigns, heirs, executors and administrators and Boyle Corp. and all of its predecessors, successors and assigns (together, "Boyle" and, together with the Plaintiffs, Related Parties and Harder, the "Settlement Agreement Parties"). W I T N E S S E T H - - - - - - - - - - WHEREAS, there is pending in the Middlesex Superior Court in the Commonwealth of Massachusetts a civil action in which the Plaintiffs and Brian E. Boyle (together, the "Litigants") assert claims against each other entitled Credit Technologies, Inc., BEB, Inc., BEB Limited Partnership I, BEB Limited - ---------------------------------------------------------------------------- Partnership II, BEB Limited Partnership III, and BEB Limited Partnership IV v. - ------------------------------------------------------------------------------ Brian E. Boyle, Civil Action No. 94-2983 (the "Civil Action"); and - -------------- WHEREAS, the Litigants entered into a letter agreement on December 28, 1995, as subsequently amended by a letter agreement between the Litigants dated January 19, 1996, to settle and forever dismiss the Civil Action; and WHEREAS, the Settlement Agreement Parties have also agreed to resolve all claims and disputes between them, including but in no way limited to any and all claims that were, or could have been, asserted in the Civil Action; NOW, therefore, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Settlement Agreement Parties agree as follows: 1. The closing (the "Closing") of the transactions contemplated hereby shall occur at the offices of Foley, Hoag & Eliot at 5:00 p.m. on February 29, 1996, which time may be extended by the Plaintiffs and Related Parties to 5:00 p.m. on March 8, 1996 by providing Boyle with written notice of such extension prior to 5:00 p.m. on February 26, 1996, and which time may be further extended by mutual agreement among the Settlement Agreement Parties (such time, as it may be extended as set forth above, is hereinafter referred to as the "Termination Date") . Receipt of the requisite approval (the "Approval") by (i) the partners, as set forth in each of Exhibits A-1, B-1, C-1, D-1 and E-1, of BEB Limited Partnership I, BEB Limited Partnership II, BEB Limited Partnership III, BEB Limited Partnership IV and Entrepreneurial Limited Partnership VI of the amendments to the Limited Partnership Agreements and limited partnership certificates of such limited partnerships attached hereto as Exhibits A-1 and A-2, -2- Exhibits B-1 and B-2, Exhibits C-1 and C-2, Exhibits D-1 and D-2, and Exhibits E-1 and E-2, respectively, (ii) the parties to those certain Agreements Among Partners among Entrepreneurial, Inc., Torrence C. Harder, D. Quinn Mills, James I. Cash and Brian E. Boyle, dated July 24, 1989 and January 31, 1991 and that certain Agreement Among Partners among Entrepreneurial, Inc., Torrence C. Harder, D. Quinn Mills, James I. Cash and Boyle Corp. dated December 2, 1993 of the amendments to such Agreements Among Partners attached hereto as Exhibit C-3, Exhibit D-3 and Exhibit E-3, respectively, and (iii) the parties to that certain Stock Restiction Agreement dated as of February 11, 1991, as amended on December 19, 1991 and June 9, 1993 by and among CTI (as hereinafter defined), Brian E. Boyle and certain other parties (the "Stock Restriction Agreement") of the termination (or amendment so as to have the effect of termination as to Boyle) of the Stock Restriction Agreement as it pertains to Brian E. Boyle, his successors and assigns, shall be the only conditions to the obligation of the Settlement Agreement Parties to consummate the transactions contemplated hereby at the Closing. At the Closing, the applicable parties shall execute and deliver the foregoing documents which are the subject of the Approval, together with such powers of attorney, signature pages or other similar evidence of due execution by the limited partners of the partnerships listed above. If the Approval is not received by the Termination Date, then the Settlement Agreement Parties shall have no obligation to consummate the transactions contemplated hereby, and all rights and obligations of the Settlement Agreement Parties hereunder shall terminate. -3- 2. At the Closing, counsel for the Litigants shall execute and deliver a Stipulation of Dismissal in the form attached hereto as Exhibit F. The fully executed Stipulation of Dismissal shall be filed, not later than the first business day following the date of the Closing, in the Middlesex Superior Court by counsel for the Plaintiffs. Prior to the Closing, Litigants shall cooperate to defer and extend until after the Termination Date any motions, discovery or hearings with respect to the Civil Action. 3. At the Closing, the Settlement Agreement Parties, Pamela D.A. Reeve, William G. Brown, III, RentGrow, Inc., Trade Credit Corp., Dent-A-Med Northeast, Inc., GWA Information Systems, Inc. and Entrepreneurial Limited Partnership VII shall execute and deliver a Mutual General Release in the form attached hereto as Exhibit G (the "Mutual General Release"). 4. At the Closing, BEB, Inc. shall issue and deliver to Boyle a promissory note in the principal amount of $169,050 in the form attached hereto as Exhibit H (the "Note"). 5. At the Closing, Boyle shall execute a stock power in blank sufficient to permit transfer of all of the common stock, par value $.01 per share, of BEB, Inc. held by Boyle, and shall deliver such stock power to BEB, Inc. together with the stock certificate(s) to which such stock power relates. -4- 6. At the Closing, Boyle shall execute an Assignment of Note in the form attached hereto as Exhibit I and deliver such Assignment of Note along with the Note to BEB Limited Partnership I. 7. At the Closing, BEB Limited Partnership I shall deliver to Boyle the securities listed in Exhibit J hereto under the name of BEB Limited Partnership I, together with stock powers sufficient to permit transfer attached thereto. 8. At the Closing, BEB Limited Partnership II shall deliver to Boyle the securities listed in Exhibit J hereto under the name of BEB Limited Partnership II, together with stock powers sufficient to permit transfer attached thereto. 9. At the Closing, Boyle shall execute a stock power in blank sufficient to permit transfer of all of the common stock, par value $.01 per share, of Entrepreneurial, Inc. held by Boyle, and shall deliver such stock power to Entrepreneurial, Inc. together with the stock certificate(s) to which such stock power relates. 10. At the Closing, Boyle shall execute and deliver resignations in the form attached hereto as Exhibit K, which shall effect the removal of Boyle from the boards of directors and all positions as officer or employee of certain corporations. Brian E. Boyle acknowledges that he has already been removed from the board of directors of Dent-A-Med Northeast, Inc. Brian E. Boyle will not seek legal recourse for any actions which were taken to effectuate his removal from the position of Chairman of Boyle Leasing Technologies, Inc. The Plaintiffs and Related Parties -5- acknowledge that Boyle is not hereby removed from the Board of Directors of Boyle Leasing Technologies, Inc., and Boyle acknowledges that he is no longer Chairman of such corporation. The Settlement Agreement Parties hereby agree that Boyle holds no interests, as shareholder, optionholder, or otherwise, in Trade Credit Corp. and GWA Information Systems, Inc. The Settlement Agreement Parties hereby further acknowledge that Boyle holds no position, as director, officer, employee or other similar position in, Dent-A-Med Northeast, Inc., RentGrow, Inc., Trade Credit Corp. or GWA Information Systems, Inc. 11. At the Closing, Brian E. Boyle and Boyle Corp. shall execute and deliver a resignation in the form attached hereto as Exhibit L which shall effect their withdrawal, as applicable, to the extent they have not already withdrawn, as a General Partner of BEB Limited Partnership II, BEB Limited Partnership III, BEB Limited Partnership IV and Entrepreneurial Limited Partnership VI. 12. At the Closing, Boyle shall execute and deliver the Agreements of Assignment and Assumption relating to his interest in Entrepreneurial Limited Partnership VI in the form attached hereto as Exhibits M-1 and M-2 and such Agreements of Assignment and Assumption shall be submitted within twenty days after the Closing to Amherst College and Cornell University, respectively, for acceptance on or before December 31, 1996; provided, however, that nothing in this paragraph shall be construed to prevent Torrence C. Harder from recovering from Entrepreneurial Limited Partnership VI amounts previously contributed to the capital -6- of Entrepreneurial Limited Partnership VI on behalf of Boyle; and provided, further, that failure by Amherst College or Cornell University to accepts its assignment shall result in such interest reverting back to the benefit of Entrepreneurial Limited Partnership VI and its partners at that time. 13. Each Settlement Agreement Party warrants and represents to the other Settlement Agreement Parties that his or its execution, delivery and performance of this Settlement Agreement have been duly authorized and that the individual executing this Settlement Agreement on behalf of such Settlement Agreement Party is fully authorized to do so. BEB, Inc., Entrepreneurial, Inc. and Boyle Corp. shall each deliver at the Closing an officer's certificate certifying such due authorization and including (i) votes approving the Settlement Agreement and the transactions contemplated thereby, and (ii) in the case of BEB, Inc., and Entrepreneurial, Inc., copies of the agreements of limited partnership of BEB Limited Partnership I, BEB Limited Partnership II, BEB Limited Partnership III, BEB Limited Partnership IV and Entrepreneurial Limited Partnership VI and all amendments thereto. 14. This Settlement Agreement and all the terms thereof are, and shall be treated as, confidential and shall not be disclosed or revealed at any time in whole or in part to any person or entity except that (i) any Settlement Agreement Party may disclose this Settlement Agreement or the terms thereof to any shareholder, officer, director or partner of any entity that signs this Settlement Agreement or the Mutual General Release, or to any individual who was deposed in any capacity in the Civil -7- Action; (ii) any Settlement Agreement Party may disclose this Settlement Agreement or the terms thereof under a lawful order of any court or governmental agency, or as otherwise specifically required by law, regulation or other controlling legal requirement; (iii) any Settlement Agreement Party may disclose this Settlement Agreement or the terms thereof to the extent necessary to enforce such terms; (iv) any Settlement Agreement Party may disclose this Settlement Agreement or the terms thereof to specific persons or entities with the prior written consent of the other Settlement Agreement Parties; (v) any Settlement Agreement Party may disclose this Settlement Agreement or the terms thereof in connection with and to the extent ordinarily called for in the preparation of financial statements (and may deliver such financial statements to any party to which it is legally or contractually bound to do so); and (vi) any Settlement Agreement Party may disclose this Settlement Agreement or the terms thereof as may be reasonably required in connection with a due diligence request relating to an initial public offering or financing. In any instance in which disclosure of this Settlement Agreement or any terms thereof is believed to be necessary in order to effect any of clauses (i) through (vi) above, or to be required under a lawful order of any court or governmental agency, or otherwise specifically required by law, regulation or other controlling legal requirement, the Settlement Agreement Party wishing to make such disclosure shall provide reasonable advance notice to each other Settlement Agreement Party of its intention to disclose in order to enable the other Settlement Agreement Parties, if they so desire, to seek to prevent -8- such disclosure by appropriate legal means. Such notice need not be given to each individual entity or individual that is a member of any of the Settlement Agreement Parties, but will be sufficient if given by first class mail or overnight delivery service, postage or cost prepaid (as follows): If to the Plaintiffs or Related Parties: - --------------------------------------- Lightbridge, Inc. 281 Winter Street Waltham, MA 02154 Attention: Chief Executive Officer BEB, Inc. 281 Winter Street Waltham, MA 02154 Attention: Chief Executive Officer Entrepreneurial, Inc. 281 Winter Street Waltham, MA 02154 Attention: Chief Executive Officer BEB Limited Partnership I 281 Winter Street Waltham, MA 02154 Attention: General Partner BEB Limited Partnership II 281 Winter Street Waltham, MA 02154 Attention: General Partner BEB Limited Partnership III 281 Winter Street Waltham, MA 02154 Attention: General Partner BEB Limited Partnership IV -9- 281 Winter Street Waltham, MA 02154 Attention: General Partner Entrepreneurial Limited Partnership VI 281 Winter Street Waltham, MA 02154 Attention: General Partner With a copy to: Foley, Hoag & Eliot One Post Office Square Boston, MA 02109 Attention: John D. Patterson, Jr., Esq. If to Boyle or Boyle Corp.: - -------------------------- Brian E. Boyle 31 Hallett Hill Road Weston, MA 02193 With a copy to: Hale and Dorr 60 State Street Boston, MA 02109 Attention: Thomas L. Barrette, Jr., Esq. No Settlement Agreement Party shall be deemed to be in violation of this paragraph to the extent that he or it re-discloses information previously disclosed by any other Settlement Agreement Party pursuant to said paragraph. 15. In connection with the execution of this Settlement Agreement and any attachments hereto, including without limitation the Mutual General Release, and in connection with the options sold by Boyle to the Plaintiffs as set forth in Section 18 hereof, Boyle specifically acknowledges that Lightbridge, Inc. is continuing to communicate with investment banks, investors, underwriters and advisors the result of -10- which may be a private placement, or initial public offering, of equity securities of Lightbridge, Inc. at a price per share that may or may not exceed the exercise price of the options sold pursuant to the said letter agreement. Prior to December 28, 1995, Lightbridge, Inc. received and provided to Boyle a term sheet from Trident Capital, L.L.C. with respect to a private placement of equity securities and anticipates receiving other such term sheets from venture capital, corporate or individual investors or other sources of equity financing. 16. From and after the Closing, Boyle on the one hand and the Plaintiffs, Entrepreneurial, Inc., Entrepreneurial Limited Partnership VI, Torrence C. Harder, Pamela D.A. Reeve, William G. Brown, III, RentGrow, Inc., Trade Credit Corp., Dent-A-Med Northeast, Inc. and GWA Information Systems, Inc. on the other hand hereby agree to indemnify each other and to hold each other harmless of and from any cost or liability because of any suit, proceeding, or litigation brought by Boyle or by the Plaintiffs, Entrepreneurial, Inc., Entrepreneurial Limited Partnership VI, Torrence C. Harder, RentGrow, Inc., Trade Credit Corp., Dent-A-Med Northeast, Inc. and GWA Information Systems, Inc. for, or based on, any claim released by the Mutual General Release. In the event of such suit, proceeding or litigation for, or based on, any claim released by the Mutual General Release, the prevailing party shall be entitled to recover from the other Settlement Agreement Party its reasonable attorney's fees and costs incurred in defending such suit, proceeding or litigation. -11- 17. The letter agreement of December 28, 1995 is merged into this Settlement Agreement, which, together with all transactions contemplated hereby and all agreements, instruments and other documents delivered herewith or at the Closing (collectively, the "Settlement Documents") constitute the complete and exclusive agreement among the Settlement Agreement Parties with respect to the subject matter thereof, and supersede all prior and contemporaneous agreements and understandings, oral or written, between the Settlement Agreement Parties, with respect to such subject matter. No representation, promise, proposal, warranty, covenant, condition, inducement, statement of intention, or other statement or communication, express or implied, has been made by any Settlement Agreement Party with respect to such subject matter that has not been set forth in the Settlement Documents, and no Settlement Agreement Party shall be bound by any purported representation, promise, proposal, warranty, covenant, condition, inducement, statement of intention, or other statement or communication, express or implied, with respect to such subject matter that is not set forth in the Settlement Documents, and in entering into the Settlement Documents no Settlement Agreement Party is relying on any representation, promise, proposal, warranty, covenant, condition, inducement, statement of intention, or other statement or communication, express or implied, made by any other Settlement Agreement Party except as expressly set forth in the Settlement Documents. 18. At the Closing, Brian E. Boyle shall sell the Options to the Plaintiffs other than BEB, Inc. in the denominations and otherwise as set forth in -12- Exhibits N-1 through N-15 hereto upon tender of payment by check in the amount of $51,000 in the aggregate, plus interest from January 19, 1996 through the Closing at 8% per annum. 19. Lightbridge, Inc. hereby agrees that after the Closing and in the event that Brian E. Boyle first delivers to Lightbridge, Inc. an Affidavit of Lost, Stolen, Mutilated or Destroyed Certificate in form and substance reasonably satisfactory to Lightbridge, Inc., it shall, consistent with its by- laws, use its best efforts to issue a new stock certificate to Brian E. Boyle of like tenor and denomination. 20. Except for those agreements entered into in connection with this Settlement Agreement, and except for the indemnification provisions set forth in the partnership agreements of the partnerships that are Settlement Agreement Parties and in the by-laws of Lightbridge, Inc. with respect to claims arising before the Closing, from and after the Closing all prior contracts, agreements, covenants, undertakings, promises, plans and understandings, whether oral or in writing, between Boyle and any other party to the Mutual General Release are hereby terminated with no further rights, duties, obligations or liabilities thereunder, including without limitation (i) the letter from Boyle to Pamela D.A. Reeve, dated December 16, 1993 and signed by Reeve as President and Chief Executive Officer of Credit Technologies, Inc. on December 12, 1993; (ii) the so-called "Amended and Restated Employment and Compensation Agreement" between Credit Technologies, Inc. ("CTI") and Brian E. -13- Boyle dated February 8, 1991; (iii) the Voting Agreement among Brian E. Boyle, Torrence C. Harder and CTI dated December 31, 1990 (the "Voting Agreement"); (iv) the Incentive and Nonqualified Stock Option and Confidentiality Agreement dated November 27, 1990 between CTI and Brian E. Boyle; and (v) any agreement with respect to BEB, Inc.; provided, that Boyle shall promptly return securities, if any, held pursuant to the Voting Agreement, which agreement shall be terminated with no further rights, duties, obligations or liabilities thereunder upon such return. All such contracts, agreements, covenants, undertakings, promises, plans and understandings that include parties other than the Settlement Agreement Parties, including without limitation x) the Stock Restriction Agreement as it pertains to Brian E. Boyle, his successors and assigns, shall be terminated (or amended so as to have the effect of termination as to Boyle) from and after the Closing and after agreement to so terminate among all such other parties that are required to so agree in order to effectuate such termination. The Settlement Agreement Parties covenant to execute at the Closing such agreements to terminate and further covenant to use their best efforts to obtain such agreements to terminate from other relevant parties, which further covenant shall continue after the Closing if such agreements are not obtained before the Closing. Upon termination of any such agreements, Lightbridge, Inc. shall deliver stock certificates without legends relating to agreements terminated as set forth above in substitution for certificates having such legends, which certificates shall be delivered by Brian E. Boyle. The Plaintiffs and Related Parties hereby agree that a) -14- BEB Limited Partnership I, BEB Limited Partnership II, BEB Limited Partnership III, BEB Limited Partnership IV and Entrepreneurial Limited Partnership VII shall provide annual audited financial statements relating to such entity to Brian E. Boyle so long as he is a partner in, or creditor of, such partnership and with respect to any year for which he was a partner or creditor for any part of the year, b) Lightbridge, Inc., Dent-A-Med, Inc., Dent-A-Med Northeast, Inc., GWA Information Systems, Inc., RentGrow, Inc. and Trade Credit Corp. shall provide annual audited financial statements and quarterly reports relating to such entities to Brian E. Boyle to the extent that such statements and reports are distributed to other stockholders or creditors generally and with respect to any particular corporation if he is and for so long as he shall remain a stockholder or ceditor of such corporation, and c) BEB, Inc. and Entrepreneurial, Inc. shall provide Brian E. Boyle with Forms K-1 and all other information relating to such entities necessary for him to prepare his federal and state income tax returns. 21. Notwithstanding the generality of the foregoing, nothing herein shall be construed to have any effect on (i) Boyle's rights, if any, to indemnification from the Plaintiffs for any claims made against Boyle arising out of conduct prior to the execution of this Settlement Agreement; or (ii) any invoices from D. Quinn Mills to Boyle for services rendered as a mediator in the Civil Action, or on the obligations, if any, of Boyle to make any payment with respect to the same, or on Boyle's rights, -15- if any, to object to or challenge any such invoices or any amounts claimed for such services. 22. The business, professional, employment and investment activities of the Settlement Agreement Parties will be unrestricted by this Settlement Agreement, the Options, or any other agreement, understanding, expectation or commitment between the Settlement Agreement Parties, except for the limitations imposed by Paragraph 23 below. The conduct of the Settlement Agreement Parties hereto will continue to be subject to the laws of this Commonwealth. 23. After the Closing, the Settlement Agreement Parties will return to each other all materials acquired from each other in the discovery process in the Civil Action, and will not at any time use, or cause or permit any other person to use, such materials or any of the information contained therein for any purpose. Counsel for the respective Settlement Agreement Parties will cause such materials to be delivered to opposing counsel (identified in paragraph 14 above) within ten (10) days of the Closing. 24. The Settlement Agreement Parties state that they have been represented by counsel of their choice throughout the negotiation of this Settlement Agreement, that they fully discussed its terms and conditions with counsel, and that they fully understood its terms and conditions. -16 25. This Settlement Agreement shall be binding upon and inure to the benefit of the Settlement Agreement Parties and their respective successors in interest, transferees, heirs and assigns. 26. The Settlement Agreement Parties agree that the terms and conditions of this Settlement Agreement are valid and enforceable under the laws of the Commonwealth of Massachusetts and that the Settlement Agreement shall be governed by and construed in accordance with the substantive law of The Commonwealth of Massachusetts. 27. This Settlement Agreement may be executed in one or more counterparts, each of which, when so executed, shall be deemed to be an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Settlement Agreement Parties have caused this Settlement Agreement to be executed by their duly authorized officers or agents as of the date set forth immediately below their respective signatures. LIGHTBRIDGE, INC. BEB, INC. By: /s/ William G. Brown By: /s/ Torrence C. Harder -------------------------- -------------------------- Title: Chief Financial Officer Title: President ------------------------ ------------------------ Date: February 1, 1996 Date: 1 February 1996 ------------------------- ------------------------- Witness: /s/ Georgia Diamond Witness: /s/ Georgia E. Diamond ---------------------- ---------------------- -17- BEB LIMITED PARTNERSHIP I BEB LIMITED PARTNERSHIP II By: BEB, Inc. By: BEB, Inc. Its: General Partner Its: General Partner By: /s/ Torrence C. Harder By: /s/ Torrence C. Harder -------------------------- -------------------------- Title: President Title: President ------------------------ ------------------------ Date: 1 February 96 Date: 1 February 96 ------------------------- ------------------------- Witness: /s/ Georgia E. Diamond Witness: /s/ Georgia Diamond ---------------------- ---------------------- BEB LIMITED PARTNERSHIP III BEB LIMITED PARTNERSHIP IV By: BEB, Inc. By: Entrepreneurial, Inc. Its: General Partner Its: General Partner By: /s/ Torrence C. Harder By: /s/ Torrence C. Harder -------------------------- -------------------------- Title: President Title: President ------------------------ ------------------------ Date: 1 February 96 Date: 1 February 96 ------------------------- ------------------------- Witness: /s/ Georgia Diamond Witness: /s/ Georgia Diamond ---------------------- ---------------------- BRIAN E. BOYLE ENTREPRENEURIAL, INC. By: /s/ Brian Boyle By: /s/ Torrence C. Harder -------------------------- -------------------------- Date: 2/3/96 Title: President ------------------------- ------------------------ Witness: /s/ Polly Marmaduke Date: 1 February 96 ---------------------- ------------------------- Witness: /s/ Georgia E. Diamond ---------------------- -18- ENTREPRENEURIAL LIMITED TORRENCE C. HARDER PARTNERSHIP, VI By: Entrepreneurial, Inc. /s/ Torrence C. Harder ---------------------------------------- Its: General Partner Date: 1 February 96 ---------------------------------- By: /s/ Torrence C. Harder Witness: /s/ Georgia Diamond -------------------------- ------------------------------- Title: President ------------------------ Date: 1 February 96 ------------------------- Witness: /s/ Georgia Diamond ---------------------- BOYLE CORP. By: /s/ Brian Boyle -------------------------- Title: President ------------------------ Date: 2/3/96 ------------------------- Witness: /s/ Polly Marmaduke ---------------------- -19- EX-10.9 11 OFFICE LEASE DATED SEPTEMBER 21, 1993 EXHIBIT 10.9 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 terminated 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 with 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, 1994 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 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, 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 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 12 LEASE DATED SEPTEMBER 26, 1994 EXHIBIT 10.10 HOBBS BROOK OFFICE PARK Waltham, Massachusetts LEASE dated September 26, 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: 104,429 square feet. PREMISES: The space delineated on Exhibit A. RENTABLE FLOOR AREA OF PREMISES: 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 party, 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 or 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 Waste 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, shall 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 of all 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. All such alterations, additions and improvements shall be done only by contractors 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 lien to 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 in 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 of 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 anything lawfully done in pursuance of public or other authority, this 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 date of termination specified by Landlord shall not be less than 15 nor more than 30 days after the date of notice of 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 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 of 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 costs 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 rules 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 or 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 made 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 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 be 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 used, the persons included 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 the 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:/s/ [Agent for the Trustees] ------------------------------- Agent for the Trustees Credit Technologies, Inc. Tenant By:/s/ Pamela D. A. Reeve ------------------------------- -33- Exhibit A Third Floor Plan 235 Wyman Street 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'-6" 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 II" installed - --------------------------- direct glue-down. Carpet shall be selected from -35- 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 exit 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. -36- 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 wipe 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-10.11 13 EMPLOYMENT AGREEMENT WITH PAMELA REEVE Exhibit 10.11 Employment Agreement -------------------- This Employment Agreement made as of the 16th day of August, 1996 by and between Lightbridge, Inc., a Delaware corporation (the "Company"), and Pamela D.A. Reeve of Winchester, Massachusetts (the "Employee"). WHEREAS, the Employee currently serves as the President and Chief Executive Officer of the Company; and WHEREAS, the Company and the Employee desire to establish certain terms and conditions governing the Employee's employment by the Company; NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth, the Company and the Employee agree as follows: 1. Employment. The Company hereby employs the Employee, and the Employee ---------- accepts employment with the Company. The Employee's title and duties at the start of this agreement shall be those of President and Chief Executive Officer of the Company. As such, the Employee shall report directly to the Company's Board of Directors. 2. Term of Employment. There shall be no definite term of employment, and ------------------ Employee shall be an employee at will. However, if Employee's employment hereunder terminates for any reason, other than death or disability, within one year after a change of control of the Company or if the Company terminates the Employee's employment hereunder at any time without cause, the Company shall make Severance Payments to Employee equal to one year of Base Salary, payable over twelve (12) months. "Cause" shall mean dishonesty or misappropriation of assets of the Company, gross failure to perform duties to the Company, or the commission of a crime involving moral turpitude or constituting a felony. "Change of control" shall include a merger or sale of stock in which the stockholders of the Company immediately before the merger own fifty percent (50%) or less of the voting securities of the surviving corporation immediately after the merger. 3. Compensation. ------------ (a) During the term of this Agreement, the Company shall pay the Employee a Base Salary, payable in accordance with the Company's standard schedule for salary payments to its executives (but no less frequently than monthly) in arrears, in equal installments at an annual rate equal to $165,000. At the beginning of each fiscal year, the Board of Directors shall consider in its discretion increases in the base salary. (b) The Board of Directors shall determine on an annual basis the amount of any bonus to be paid to the Employee. (c) All payments of salary and incentive compensation to the Employee shall be made after deduction of any taxes which are required to be withheld with respect thereto under applicable federal and state laws. 4. Office and Fringe Benefits. The Employee shall be provided with an -------------------------- office, secretary and other facilities and services commensurate with her position as a senior executive of the Company. The Company shall continue to provide the Employee with an automobile in accordance with its current practice. 5. Expenses. The Company shall reimburse the Employee for all reasonable -------- business expenses incurred by the Employee in connection with her employment by the Company, including, without limitation, expenses of travel and entertainment. The Company shall promptly reimburse the Employee for all such expenses upon presentation of appropriate vouchers, receipts and other supporting documents as reasonably required by the Company. 6. Duty to Perform Services. The Employee shall devote her full time ------------------------ during normal business hours to rendering services to the Company hereunder, and shall exert all reasonable efforts in the rendering of such services. Nothing in this Agreement shall prohibit the Employee from: (a) making and managing passive investments; (b) serving on the Board of Directors of any company; (c) participating in professional organizations; and (d) engaging in religious, charitable or other community or nonprofit activities, provided none of the foregoing shall interfere with Employee's duties hereunder. The Employee agrees that in the rendering of all services to the Company and in all aspects of her employment as a senior level executive of the Company, she will comply in all material respects with all directives, policies, standards and regulations from time to time established by the Board of Directors of the Company to the extent they are not in conflict with this Agreement. 7. Vacations; Holidays; Sick Time. The Employee shall be entitled to ------------------------------ vacation time, holiday time and sick leave in accordance with the Company's policies for senior executive officers, as in effect from time to time. 8. Other Agreements. Nothing in this Agreement shall supersede or modify ---------------- Employee's obligations under any existing non-competition or non-disclosure agreement with the Company. -2- 9. Notices. All notices, requests, demands and other communications ------- required by or permitted under this Agreement shall be in writing and shall be sufficiently delivered if delivered by hand or sent by registered or certified mail, postage prepaid, to the parties at their respective addresses listed below: (a) if to the Employee: Pamela D.A. Reeve 3 Black Horse Terrace Winchester, MA 01890 (b) if to the Company: Lightbridge, Inc. 281 Winter Street Waltham, MA 02154 Attn: Chief Financial Officer Any party may change such party's address by such notice to the other party. 10. Governing Law. This Agreement shall be governed by, and construed and ------------- enforced in accordance with, the laws of The Commonwealth of Massachusetts. 11. Binding Upon Successors. This Agreement shall be binding upon, and ----------------------- shall inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and assigns. 12. Waivers and Amendments. ---------------------- (a) This Agreement may be amended, modified or supplemented, and any obligation hereunder may be waived, only by a written instrument executed by the parties hereto. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate as a waiver of any subsequent breach. (b) No failure on the part of any party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or remedy by such party preclude any other or further exercise thereof or the exercise of any other right or remedy. All rights and remedies hereunder are cumulative and are in addition to all other rights and remedies provided by law, agreement or otherwise. 13. Term of Agreement. This Agreement shall terminate on December 31, ----------------- 1998; provided, that this Agreement shall be automatically renewed for successive one-year periods unless either party gives sixty (60) days' prior written notice to the other party to terminate this Agreement on December 31 of such year. -3- IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement on the date first above written. LIGHTBRIDGE, INC. By: /s/ William G. Brown ------------------------------- Its CFO/VP Finance /s/ Pamela D.A. Reeve ------------------------------------ Pamela D.A. Reeve -4- EX-10.12 14 OFFICE LEASE WITH L&E INVESTMENT Exhibit 10.12 DATE OF LEASE EXECUTION: August 5, 1994 (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 data 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 & Somerset Court MANAGING AGENT'S 281 Winter Street ADDRESS: 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 second floor as shown on Exhibit A attached hereto RENTABLE FLOOR AREA OF TENANT'S SPACE: 12,046 square feet TENANT'S 17.77% (12,046) square feet divided by PROPORTIONATE SHARE: 67,800 square feet) TOTAL RENTABLE FLOOR AREA OF THE BUILDING: 67,800 square feet PARKING SPACES ALLOCATED TO TENANT: Approximately 48 parking spaces (calculated at 4.0 unassigned parking spaces per 1,000 square feet) COMMENCEMENT DATE: December 1, 1994 or the substantial completion of the Leasehold Improvements 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, 1995 BASE TAX COSTS: Landlord's Real estate taxes for Tax Year 1995 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 any area separately metered and paid for by Tenant FIRST FISCAL YEAR FOR TENANT'S PAYING OPERATING COST ESCALATION: Year ending December 31, 1996 FIRST YEAR FOR TENANT'S PAYING TAX ESCALATION: Tax Year 1996 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: FISCAL YEAR: January 1 through December 31 -2- 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 1995 is the Tax Year beginning July 1, 1994 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 Plan showing Tenant's Space on second floor. EXHIBIT B Specifications of Leasehold Improvements. EXHIBIT C Building Standards. EXHIBIT D Landlord's Services. EXHIBIT E Rules and Regulations.
1.3 TABLE OF CONTENTS. Page ---- ARTICLE II - PREMISES AND TERM.......................................... Section 2.1 Premises............................................ Section 2.2 Term................................................ Section 2.3 Extended Terms...................................... Section 2.4 Intentionally Omitted............................... Section 2.5 Intentionally Omitted............................... 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............................................
-3- 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. 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.............. -4- 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.................... -5- 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). -6- 2.3 EXTENDED TERMS. Tenant shall have the right and option to extend the Term for one (1) period of two (2) years, such option to be exercisable by notice given to Landlord not less than nine months prior to the expiration of the initial 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 the two 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 option 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 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 appraisers) -7- 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 two 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. -8- 2.4 INTENTIONALLY OMITTED 2.5 INTENTIONALLY OMITTED 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. 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 the Commencement Date. 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 exceeds the Tenant's Allowance, Tenant shall promptly reimburse Landlord for one hundred percent (100%) of such excess. The Tenant Allowance shall be $13.00 per rentable square foot of Tenant's Space. 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 -9- 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 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. -10- 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 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 -11- (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. (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 -12- 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 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; -13- (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). (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 -14- 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, 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. -15- 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 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 ARTICLE IV shall be appropriately apportioned. In all Landlord's Statements rendered under ARTICLE IV, 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 -16- 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. -17- 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. 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 -18- 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. 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; -19- 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 @@his 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; 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 -20- 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 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 fifty percent (50%) of 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; -21- 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; 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 -22- 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 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 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 financial statements, audited financial statements if available, 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 -23- 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 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 -24- 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 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 -25- foreclosure proceeding shall be deemed a conveyance under said provisions to the owner of the equity of the Premises. 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 -26- elects to do so, and a reasonable time to correct or cure the condition if such condition is determined to exist. 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; of if Tenant is in default (beyond any applicable grace period) under that lease with Landlord dated September 21, 1993, as amended, with respect to certain other space in the Building; or if Tenant -27- 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 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 terminated 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 -28- 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 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 re-letting the Premises, after deducting all Landlord's expenses in connection with such re-letting, including, without implied limitation, all repossession costs, brokerage commissions, fees for legal services and expenses of preparing the Premises for such re-letting, it being agreed by Tenant that Landlord may (i) re-let 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 re-let the same and (ii) make such alterations, repairs and decorations in the Premises as Landlord in its sole judgment considers advisable or necessary to re-let the same, and no action of Landlord in accordance with the foregoing or failure to re-let or to collect rent under re-letting 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 -29- termination of this Lease, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, 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 shall not be subject to levy, execution or other enforcement procedure for the satisfaction of the remedies of Tenant. -30- 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 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 -31- 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. 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 -32- 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. 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 -33- 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. 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. 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:_________________________________ Pamela D. A. Reeve, Its President By:/s/ William G. Brown --------------------------------- William G. Brown, Its Treasurer and Vice President of Finance -34- EXHIBIT A --------- [Floor Plan -- Second Floor] -35- EXHIBIT B --------- Somerset Court 281 Winter Street Waltham, Massachusetts SPECIFICATION OF LEASEHOLD IMPROVEMENTS --------------------------------------- Work shown on plans to be prepared for Tenant by Landlord's architect and approved by Landlord, such approval not to be unreasonably withheld. In the event that such plans are not completed on or before October 1, 1994, the Commencement Date shall, nevertheless, be deemed to be the earlier of December 1, 1994 or the date of the substantial completion of the Leasehold Improvements. -36- 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. b) Wall covering will be provided at Tenant's own expense and shall be subject to Landlord's approval prior to installation. -37- 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 Louver drape blinds in building standard color. 9. SPRINKLERS: ---------- General office space shall have flushed mounted sprinkler heads as required by local laws and ordinances. 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. -38- 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. -39- 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. -40- 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. -41- 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 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. -42- 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 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 -43- 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 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. -44- 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. 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 -45- 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. -46- FIRST AMENDMENT TO LEASE This First Amendment to Lease is entered into as of the 31st day of May, 1994 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 1,809 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 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 the payment of fixed and additional rent. 3. Effective as of August 1, 1994 the definition of the term "RENTABLE FLOOR AREA OF TENANT'S SPACE" set forth in Section 1.1 of the Lease is hereby deleted and the following is substituted therefore: -47- "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 will remove the existing demising wall separating the Expansion Space from the original 17,580 square feet premises, and Landlord agrees to use diligent efforts to ensure that Tenant's use of the Premises is no 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, 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 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. -48- 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 -49- SECOND AMENDMENT TO LEASE This Second Amendment to Lease is entered into as of the 5th day of August, 1994 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, as amended by a First Amendment to Lease dated as of May 31, 1994 (as so amended, the 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, Landlord and Tenant have, on or about the date hereof, entered into a second lease of space with respect to 12,046 square feet of space in the Building (the "Second Lease"); and WHEREAS, Landlord and Tenant wish to amend the Lease as set forth below to provide that a default by Tenant under the Second Lease shall likewise constitute a default under the Lease; 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. The term "Second Lease" shall have the meaning set forth above. 2. Section 9.1 of the Lease is hereby amended by inserting the following language immediately after the word "default;" in the seventh (7th) line thereof: "or if Tenant is in default (beyond any applicable grace periods) under the Second Lease;", it being the intention of the parties that a default under the Second Lease likewise constitute a default under this Lease. 3. 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. -50- 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 Title: Treasurer, VP Finance and Administration -51- THIRD AMENDMENT TO LEASE This Third Amendment to Lease is entered into as of the 29th day of November, 1994 by and between L & E INVESTMENT OF MASSACHUSETTS ONE, INC., a Delaware corporation (the "Landlord"), and LIGHTBRIDGE, INC., a Delaware corporation (the "Tenant"). R E C I T A L S - - - - - - - - WHEREAS, Landlord and Credit Technologies, Inc. entered into that certain Lease dated September 21, 1993, as amended by a First Amendment to Lease dated as of May 31, 1994 and a Second Amendment to Lease dated as of August 5, 1994 (as so amended, 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, Credit Technologies, Inc. has since changed its name to and reincorporated as Lightbridge, Inc.; WHEREAS, in accordance with Section 2.5 of the Lease Landlord has offered to lease to Tenant and Tenant has accepted from Landlord 1,775 square feet of space formerly occupied by Intersel, Inc. and located 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. Tenant hereby warrants and represents that, but for the name change, Lightbridge, Inc. is the same corporate entity formerly known as Credit Technologies, Inc. and that the assets and net worth of said corporation were not affected by such name change or any transaction(s) relating thereto. The parties hereby agree that all references to "Tenant" in the Lease and herein shall refer to Lightbridge, Inc. and, accordingly, the definition of "TENANT" in Section 1.1 of the Lease is hereby amended by deleting "Credit Technologies, Inc." and substituting "Lightbridge, Inc." therefor. 3. Effective as of December 15, 1994 the parties agree that 1,775 square feet of space formerly occupied by Intersel, Inc. and located on the first floor of the Building and more particularly shown on the floor plan attached hereto as Exhibit A (the "Additional Expansion Space") - --------- -1- 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 adding to and incorporating into the floor space plan attached as Exhibit Al to the Lease the floor space plan attached as Exhibit A 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 of space, the 1,809 square feet of Expansion Space added by the above-referenced First Amendment and the Additional 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 Additional 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. 4. Effective as of December 15, 1994 the definition of the term "RENTABLE FLOOR AREA 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: 21,164 square feet (16,466 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." 5. Effective as of December 15, 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 "28.60% (19,389 square feet divided by 67,800 square feet)" and substituting "131.22% (21,164 square feet divided by 67,800 square feet)" therefor. 6. Effective as of December 15, 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 78 parking spaces" and substituting "Approximately 85 parking spaces" therefor. 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, 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 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: LIGHTBRIDGE, INC. By:/s/ William G. Brown -------------------- Name: William G. Brown Title: Treasurer/VP - Finance -3- EXHIBIT A [Plan of 1,775 s.f. Additional Expansion Space] THIRD AMENDMENT TO LEASE This Third Amendment to Lease is entered into as of the 29th day of November, 1994 by and between L & E INVESTMENT OF MASSACHUSETTS ONE, INC., a Delaware corporation (the "Landlord"), and LIGHTBRIDGE, INC., a Delaware corporation (the "Tenant"). R E C I T A L S - - - - - - - - WHEREAS, Landlord and Credit Technologies, Inc. entered into that certain Lease dated September 21, 1993, as amended by a First Amendment to Lease dated as of May 31, 1994 and a Second Amendment to Lease dated as of August 5, 1994 (as so amended, 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, Credit Technologies, Inc. has since changed its name to and reincorporated as Lightbridge, Inc.; WHEREAS, in accordance with Section 2.5 of the Lease Landlord has offered to lease to Tenant and Tenant has accepted from Landlord 1,775 square feet of space formerly occupied by Intersel, Inc. and located 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. Tenant hereby warrants and represents that, but for the name change, Lightbridge, Inc. is the same corporate entity formerly known as Credit Technologies, Inc. and that the assets and net worth of said corporation were not affected by such name change or any transaction(s) relating thereto. The parties hereby agree that all references to "Tenant" in the Lease and herein shall refer to Lightbridge, Inc. and, accordingly, the definition of "TENANT" in Section 1.1 of the Lease is hereby amended by deleting "Credit Technologies, Inc." and substituting "Lightbridge, Inc." therefor. 3. Effective as of December 15, 1994 the parties agree that 1,775 square feet of space formerly occupied by Intersel, Inc. and located on the first floor of the Building and more particularly shown on the floor plan attached hereto as Exhibit A (the "Additional 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 adding to and incorporating into the floor space plan attached as Exhibit Al to the Lease the floor space plan attached as Exhibit A --------- 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 of space, the 1,809 square feet of Expansion Space added by the above-referenced First Amendment and the Additional 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 Additional 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. 4. Effective as of December 15, 1994 the definition of the term "RENTABLE FLOOR AREA 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: 21,164 square feet (16,466 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." 5. Effective as of December 15, 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 "28.60% (19,389 square feet divided by 67,800 square feet)" and substituting "31.22% (21,164 square feet divided by 67,800 square feet)" therefor. 6. Effective as of December 15, 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 78 parking spaces" and substituting "Approximately 85 parking spaces" therefor. 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, 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 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: LIGHTBRIDGE, INC. By:/s/ William G. Brown -------------------- Name: William G. Brown Title: Treasurer/VP Finance -3- EXHIBIT A [Plan of 1,775 s.f. Additional Expansion Space] FOURTH AMENDMENT TO LEASE This Fourth Amendment to Lease is entered into as of the first day of January, 1996 (the "Effective Date") by and between L & E INVESTMENT OF MASSACHUSETTS ONE, INC., a Delaware corporation (the "Landlord"), and LIGHTBRIDGE, INC., a Delaware corporation, formerly known as Credit Technologies, Inc. (the "Tenant"). R E C I T A L S - - - - - - - - WHEREAS, Landlord and Tenant entered into that certain Lease dated September 21, 1993, as amended by a First Amendment to Lease dated as of May 31, 1994, a Second Amendment to Lease dated as of August 5, 1994 and a Third Amendment to Lease dated as of November 29, 1995 (as so amended, 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"); and WHEREAS, Landlord and Tenant wish to amend the Lease on 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. As of the Effective Date the parties agree that 4,352 square feet of space located on the first floor of the Building and more particularly shown on the floor plan attached hereto as Exhibit A (the "Additional 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 adding to and incorporating into the floor space plan attached as Exhibit Al to the Lease the floor space plan attached as Exhibit A 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 of space, the 1,809 square feet of space added by the above-referenced First Amendment, the 1,775 square feet of space added by the above referenced Third Amendment (the "Third Amendment Space") and the Additional 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 Additional 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. As of the Effective Date, the definition of the term "RENTABLE FLOOR AREA 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: 25,516 square feet (20,818 of which are on the first floor and 4,698 of which are on the second floor), as the same may be decreased pursuant to the terms hereof." 4. As of the Effective Date, 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 "31.22% (21,164 square feet divided by 67,800 square feet)" and substituting "37.63% (25,516 square feet divided by 67,800 square feet") therefor. 5. As of the Effective Date, 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 85 parking spaces" and substituting "Approximately 102 parking spaces" therefor. 6. Section 2.5 of the Lease is hereby deleted. 7. Notwithstanding any provision of the Lease to the contrary, the Term of the Lease with respect to the Third Amendment Space (and, at the option of the Landlord as hereinafter set forth, with respect to the Additional Expiration Space, as hereinafter defined) shall, at the option of Landlord be caused to expire on the following terms and conditions. Landlord may elect at any time, by written notice to Tenant (an "Expiration Election") to cause the Lease to expire with respect to the Third Amendment Space, and if Landlord shall simultaneously so elect up to three hundred square feet of contiguous space within the Premises (the "Additional Expiration Space"), all of such space so elected being hereinafter referred to as the "Expiration Space". Upon the exercise of an Expiration Election, the Term of the Lease with respect to the Expiration Space shall expire effective as of 12:00 midnight on the day five days after delivery of such Expiration Election to Tenant as though such date were the date specified for the expiration of the Term with respect to such Expiration Space originally provided in the Lease. Tenant shall yield up such Expiration Space upon such expiration in the condition required pursuant to the Lease. Upon the expiration of the Term of the Lease with respect to The Expiration Space pursuant to the terms of this Section, (i) the Rentable Floor Area of Tenant's Space shall be adjusted by deducting therefrom the rentable floor area of said Expiration Space, (ii) Exhibit Al of the Lease shall be amended by deleting therefrom the space constituting the Expiration Space, (iii) Tenant's Proportionate Share shall be adjusted by reducing the numerator used in calculating the same by the rentable floor area of the Expiration Space, and (iv) the Parking Spaces Allocated to Tenant shall be reduced by the smallest whole number greater than or equal to the -2- product of .004 and the rentable floor area of the Expiration Space, such adjustments and deletions being deemed to have occurred automatically, without the need for further action by Landlord or Tenant. In the event that Landlord does not deliver an Expiration Election to Tenant on or before September 25, 1996 then, as of 12:00 midnight, September 30, 1996, the Term of the Lease shall be deemed to have expired with respect to the Third Amendment Space as if Landlord had, in a timely manner, elected to so cause the Term to expire with respect to such space pursuant to the terms of this Section, including, without limitation, the adjustments to be made pursuant to the preceding paragraph. 8. Notwithstanding anything to the contrary in the Lease or in this Amendment, Tenant shall not be responsible for the payment of Annual Rent, Operating Cost Escalation or Tax Escalation allocable to the Additional Expansion Space for the period between the Effective Date and September 30, 1996. 9. Notwithstanding anything in the Lease to the contrary (including, without limitation, the expiration of the Term with respect to the remainder of the Premises), the Term of the Lease with respect to the Additional Expansion Space shall be for the period commencing January 1, 1996 and expiring November 30, 2001. 10. Tenant represents and warrants that it has dealt with no broker in connection with this Amendment other than Meredith & Grew, Incorporated (the "Broker") 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 a agent other than with Meredith & Grew, Incorporated, with respect to Tenant's dealings in connection with this Amendment. Landlord shall be responsible for the payment to Broker of any commission due and payable pursuant to this Amendment. 11. 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. -3- 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: LIGHTBRIDGE, INC. By:/s/ William G. Brown -------------------- Name: William G. Brown Title: VP -4- EXHIBIT A [Exhibit begins on next page] [Floor Plan - Ground Floor Rentable Square Footages] FIFTH AMENDMENT TO LEASE This Fifth Amendment to Lease is entered into as of the 22nd day of April, 1996 (the "Effective Date") by and between L & E INVESTMENT OF MASSACHUSETTS ONE, INC., a Delaware corporation (the "Landlord"), and LIGHTBRIDGE, INC., a Delaware corporation, formerly known as Credit Technologies, Inc. (the "Tenant"). R E C I T A L S - - - - - - - - WHEREAS, Landlord and Tenant entered into that certain Lease dated September 21, 1993, as amended by a First Amendment to Lease dated as of May 31, 1994, a Second Amendment to Lease dated as of August 5, 1994, a Third Amendment to Lease (the "Third Amendment") dated as of November 29, 1995 and a Fourth Amendment to Lease (the "Fourth Amendment") dated January 1, 1996 (as so amended, 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"); and WHEREAS, Landlord and Tenant wish to amend the Lease on 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. As of the Effective Date the parties agree that the Additional Expansion Space (as defined in the Fourth Amendment) shall be the 2,584 rentable square feet shown on the Floor Plan attached hereto as Exhibit A and that the Third Amendment Space is no longer subject to the Lease. 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 of space, the 1,809 square feet of space added by the above-referenced First Amendment and the Additional Expansion Space as redefined above, and the terms and provisions of the Lease, as the same may be amended hereby, shall apply to all of said space. 3. As of the Effective Date, the definition of the term "RENTABLE FLOOR AREA 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: 21,973 square feet (17,275 of which are on the first floor and 4,698 of which are on the second floor)." 4. As of the Effective Date, 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 "37.63% (25,516 square feet divided by 67,800 square feet") and substituting "32.41% (21,973 square feet divided by 67,800 square feet)" therefor. 5. As of the Effective Date, 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 102 parking spaces" and substituting "Approximately 88 parking spaces" therefor. 6. 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. 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: LIGHTBRIDGE, INC. By:/s/ William G. Brown -------------------- Name: William G. Brown Title: CFO/Vice President - Finance and Administration -2- EXHIBIT A [Exhibit begins on next page.] -1- [Floor Plan - First Floor 2,584 Rentable Square Feet] -2- EX-10.13 15 LETTER AGREEMENT WITH BRIAN BOYLE Exhibit 10.13 LIGHTBRIDGE, INC. 281 Winter Street Waltham, Massachusetts 02154 August 26, 1996 Mr. Brian E. Boyle 31 Hallett Hill Road Weston, Massachusetts 02193 Dear Mr. Boyle: This letter sets forth the agreement between you and Lightbridge, Inc. ("Lightbridge") regarding the matters listed below. 1. (a) In the event that Lightbridge effects an initial public offering (the "IPO") of its common stock, $.01 par value per share (the "Common Stock"), you, your wife and Boyle Corp. (collectively, the "Boyle Parties") will sell an aggregate of 778,132 shares of Common Stock on a firm basis in the IPO. If, however, the per share price at which the Common Stock is offered to the public in the IPO (the "IPO Price") is less than $6.80, the Boyle Parties will have the right to sell any smaller number shares, or no shares. (b) On the date hereof, each of the Boyle Parties shall execute, enter into and deliver the following documents: (i) a 180 day lock-up agreement, in the form attached hereto as Exhibit A, (ii) a Selling Stockholder's Irrevocable --------- Power of Attorney, in the form attached hereto as Exhibit B, (iii) a Letter of --------- Transmittal and Custody Agreement, in the form attached hereto as Exhibit C and --------- (iv) a letter agreement regarding the power of attorney in the form attached hereto as Exhibit D. In the event that Lightbridge withdraws its registration --------- statement on Form S-1 (SEC File No. 333-6589) prior to its effectiveness, the Boyle Parties shall, upon the written request of Lightbridge following its filing of a new registration statement with respect to an IPO, enter into and deliver documents containing terms and conditions equivalent to those contained in the agreements referred to in the preceding sentence, provided that such filing occurs prior to October 1, 1998. (c) (I) Lightbridge hereby agrees that, in the event of an IPO, it will indemnify and hold harmless each of the Boyle Parties that is a selling stockholder, each underwriter of such IPO and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement relating to such IPO, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein 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 will reimburse each such seller, each such underwriter and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that Lightbridge will not be liable in any such case - -------- if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by any such seller, any such underwriter or any such controlling person in writing specifically for use in such registration statement or prospectus. (II) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to such indemnified party other than under this Section 1(c) and shall only relieve it from any liability which it may have to such indemnified party under this Section 1(c) if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 1(c) for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected, provided, however, that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or in addition to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a single separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other reasonable expenses related to such participation to be reimbursed by the indemnifying party as incurred. (III) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any of the Boyle Parties selling shares in an IPO, or any controlling person of any such party, makes a claim for indemnification pursuant to this Section 1(c) but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 1(c) provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling party or any such controlling person in circumstances for which indemnification is provided under this Section 1(c); then, and in each such case, Lightbridge and such party will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such party is responsible for the portion represented by the percentage that the IPO price of its shares of Common Stock offered by the registration statement bears to the public offering price of all securities offered by such registration statement, and Lightbridge is responsible for the remaining portion; provided, however, that, in any such case, (A) no such party will be required to contribute any amount in excess of the public offering price of all such Common Stock offered by it pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. (d) Lightbridge may, in its discretion, obtain, prior to the date of the IPO, a directors' and officers' insurance policy that covers liabilities associated with the IPO, which policy includes a rider providing that you, in your capacity as a selling stockholder, shall be an additional insured. Such policy shall be written by National Union or another insurer reasonably acceptable to you, and shall provide for at least $10 million in coverage. If Lightbridge does not obtain a directors' and officers' insurance policy that meets the foregoing requirements, then, in the event of any action pursuant to which the Boyle Parties are entitled to indemnification pursuant to Section 1(c) (and notwithstanding the provisions of paragraph (II) of Section 1(c)), such parties shall have the right to select a single separate counsel to represent them in such action, with the reasonable expenses and fees of such separate counsel to be reimbursed by Lightbridge as incurred. 2. Upon execution of this Agreement, you shall deliver a lock-up agreement, in the form attached hereto as Exhibit A, executed by the Sheng Ren Trust. --------- 3. Upon the closing of an IPO, Lightbridge shall exercise all stock options granted to it by you pursuant to that certain Settlement Agreement dated February 2, 1996 among you, Lightbridge and certain other parties (the "Settlement Agreement") which remain unexercised on such date, and shall pay the exercise price therefor by wire transfer. In addition, upon such closing, Lightbridge shall pay all principal and interest outstanding under any promissory notes issued by Lightbridge in connection with the exercise of such stock options prior to such closing. 4. Upon your execution of this letter, Lightbridge shall execute and deliver to the Sheng Ren Trust a Common Stock Purchase Warrant in the form attached hereto as Exhibit E and shall pay you the sum of $75,000 by wire --------- transfer. 5. Upon your execution of this letter, you and Lightbridge shall execute and enter into a Registration Rights Agreement in the form attached hereto as Exhibit F. - --------- 6. You, Lightbridge and the other parties executing this letter hereby re- affirm and ratify, through and as of the date hereof, all of the terms and conditions of that certain Mutual General Release executed and delivered by you, Lightbridge and certain other parties pursuant to the terms of the Settlement Agreement. 7. You hereby consent to the filing of the Settlement Agreement as an exhibit to Lightbridge's registration statement on Form S-1. This letter, together with the agreements referred to herein, sets forth the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements or understandings, written or oral, with respect to such subject matter. This letter agreement shall be governed by, and construed and enforced in accordance with, the substantive laws of The Commonwealth of Massachusetts, without regard to its principles of conflict of laws. Please indicate your acceptance of the foregoing by signing and returning the enclosed counterpart of this letter, whereupon this letter shall be a binding agreement between Lightbridge and you. Very truly yours, LIGHTBRIDGE, INC. By:/s/ Pamela D.A. Reeve ---------------------------- Pamela D.A. Reeve, President AGREED TO AND ACCEPTED as of the date first above written /s/ Brian E. Boyle - ------------------------------- Brian E. Boyle The persons and entities named below hereby execute this letter solely for the purpose of agreeing to be bound by the provisions of Section 6. ENTREPRENEURIAL VENTURES, ENTREPRENEURIAL, INC. INC. By: /s/ Torrence C. Harder By: /s/ Torrence C. Harder --------------------------- --------------------------- Title: President Title: President ------------------------ ------------------------ ENTREPRENEURIAL LIMITED ENTREPRENEURIAL PARTNERSHIP I LIMITED PARTNERSHIP II By: Entrepreneurial Ventures, Inc. By: Entrepreneurial Ventures, Inc. Its: General Partner Its: General Partner By: /s/ Torrence C. Harder By: /s/ Torrence C. Harder --------------------------- --------------------------- Title: President Title: President ------------------------ ------------------------ ENTREPRENEURIAL LIMITED ENTREPRENEURIAL LIMITED PARTNERSHIP II PARTNERSHIP IV By: Entrepreneurial Ventures, Inc. By: Entrepreneurial, Inc. Its: General Partner Its: General Partner By: /s/ Torrence C. Harder By: /s/ Torrence C. Harder --------------------------- --------------------------- Title: President Title: President ------------------------ ------------------------ ENTREPRENEURIAL LIMITED ENTREPRENEURIAL LIMITED PARTNERSHIP VI PARTNERSHIP VII By: Entrepreneurial, Inc. By: Entrepreneurial, Inc. Its: General Partner Its: General Partner By: /s/ Torrence C. Harder By: /s/ Torrence C. Harder --------------------------- --------------------------- Title: President Title: President ------------------------ ------------------------ TORRENCE C. HARDER PAMELA D.A. REEVE /s/ Torrence C. Harder /s/ Pamela D.A. Reeve - ------------------------------- ------------------------------- WILLIAM G. BROWN, III BOYLE CORP. /s/ William G. Brown, III - ------------------------------- By: /s/ Brian E. Boyle --------------------------- Title: President ------------------------ EXHIBIT E THE WARRANT EVIDENCED HEREBY, AND THE SECURITIES ISSUABLE HEREUNDER, HAVE BEEN AND WILL BE ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE APPLICABLE SECURITIES LAWS OF ANY STATE. SUCH SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND SHALL NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE PROPOSED DISPOSITION IS THE SUBJECT OF A CURRENTLY EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT AND SUCH STATE SECURITIES LAWS IN CONNECTION WITH SUCH DISPOSITION. LIGHTBRIDGE, INC. COMMON STOCK PURCHASE WARRANT ----------------------------- Original Issue Date: August 26, 1996 This Warrant is Issued to SHENG REN TRUST ---------------------------------- (hereinafter called the "Registered Holder," which term shall include its successors and assigns) by Lightbridge, Inc., a Delaware corporation (hereinafter referred to as the "Company"). This Warrant may be transferred by the Registered Holder only in accordance with the provisions of Sections 1.04 and 5 hereof. 1. The Warrant. ----------- 1.01 For value received and subject to the terms and conditions hereinafter set forth, the Registered Holder is entitled, upon surrender of this Warrant at any time on or after the Initial Exercise Date (as defined below) but prior to three years after such Initial Exercise Date (with the subscription form annexed hereto duly executed), at the office of the Company at 281 Winter Street, Waltham, Massachusetts 02154, or such other office in the United States of which the Company shall notify the Registered Holder hereof in writing, to purchase from the Company, at the purchase price hereinafter specified (the "Exercise Price"), 100,000 shares of the Common Stock, $.01 par value per share, of the Company ("Common Stock"). This Warrant has been issued by the Company in connection with the execution of the letter agreement of even date herewith between Brian E. Boyle and the Company (the "Agreement"). The initial Exercise Price shall be $8.50 per share and shall be subject to adjustment as provided in Section 1.05(A) below. For the purposes of this Warrant, the Initial Exercise Date shall be the earliest of (i) one year from the Original Issue Date set forth above, (ii) the effective date of a registration statement filed by the Company with respect to an initial public offering of shares of its Common Stock, (iii) the date of any merger or consolidation of the Company, or any sale of shares by the stockholders of the Company, as a result of which the stockholders of the Company immediately prior to such merger, consolidation or sale do not own after such merger, consolidation or sale shares representing at least fifty percent (50%) of the voting power of the Company or the surviving or resulting corporation, as the case may be, or (iv) the date the Company is liquidated or sells or otherwise disposes of all or substantially all its assets. As promptly as practicable after surrender of this Warrant and receipt of payment of the Exercise Price, the Company shall issue and deliver to the Registered Holder a certificate or certificates for the shares purchased hereunder, in certificates of such denominations and in such names as the Registered Holder may specify, together with any other stock, securities or property which such Registered Holder may be entitled to receive pursuant to Section 1.05 hereof. Payment of the Exercise Price shall be made by check made payable to the order of the Company or wire transfer of funds to a bank account designated by the Company. In the case of the purchase of less than all the shares purchasable under this Warrant, the Company shall cancel this Warrant upon the surrender hereof and shall execute and deliver a substitute Warrant of like tenor and date for the balance of the shares purchasable hereunder. Notwithstanding the foregoing, however, the Registered Holder may elect to receive, without the payment by the Registered Holder of any additional consideration, shares equal to the value of this Warrant or any portion hereof by the surrender of this Warrant or such portion to the Company, with the form of subscription at the end hereof duly executed by the Registered Holder, at the office of the Company (such election a "Net Issue Election"). Thereupon, the Company shall issue to the Registered Holder such number of fully paid and nonassessable shares of Common Stock as is computed using the following formula: X = Y (A-B) ------- A where X = the number of shares to be issued to the Registered Holder pursuant to this Section 1.01. Y = the number of shares covered by this Warrant in respect of which the Net Issue Election is made pursuant to this subsection 1.01. A = the Fair Market Value of one share of Common Stock as defined below. For the purpose of this Section 1.01, the Fair Market Value of one share of Common Stock shall be the closing price per share on the date the Net Issue Election is made pursuant to this Section 1.01, as reported by a nationally recognized stock exchange, or, if the Common Stock is not listed on such an exchange, as reported -2- by the National Association of Securities Dealers, Inc. ("Nasdaq") on such date, or, if the Common Stock is neither listed on such an exchange nor quoted on Nasdaq, as determined by a nationally recognized independent investment banking firm jointly selected by the Company and the Registered Holder or, if such selection cannot be made within five days after delivery of the Net Issue Election, by a nationally recognized independent investment banking firm selected by the American Arbitration Association in accordance with its rules. B = the Exercise Price in effect under this Warrant on that date the Net Issue Election is made pursuant to this Section 1.01. 1.02 During the period within which the rights represented by this Warrant may be exercised, the Company shall at all times have authorized and reserved for the purpose of issue upon exercise of the rights evidenced hereby, a sufficient number of shares of the class of securities issuable upon exercise of this Warrant to provide for the exercise of such rights. Upon surrender for exercise, this Warrant shall be cancelled and shall not be reissued; provided, however, that upon the partial exercise hereof a substitute Warrant representing the rights to subscribe for and purchase any such unexercised portion hereof shall be issued. 1.03 This Warrant may be subdivided into one or more Warrants entitling the Registered Holder to purchase shares of the class of securities issuable upon exercise of this Warrant in multiples of one or more whole shares, upon surrender of this Warrant by the Registered Holder for such purpose at the office of the Company. 1.04 The Company shall maintain at its office (or at such other office or agency of the Company as it may from time to time designate in writing to the Registered Holder hereof), a register containing the name and address of the Registered Holder of this Warrant. The Registered Holder of this Warrant shall be the person in whose name this Warrant is originally issued and registered, unless a subsequent holder shall have presented to the Company this Warrant, duly assigned to such holder, for inspection and a written notice of his acquisition of this Warrant and designating in writing the address of such subsequent holder, in which case such subsequent holder of this Warrant shall become the subsequent Registered Holder. Any Registered Holder of this Warrant may change his address as shown on such register by written notice to the Company requesting such change. Any written notice required or permitted to be given to the Registered Holder of this Warrant shall be mailed by registered or certified mail, or sent by reputable overnight courier service, to the Registered Holder at the address as shown on such register. 1.05 The rights of the Registered Holder shall be subject to the following terms and conditions: (A) Adjustment to Exercise Price Upon Financing. The Exercise Price shall ------------------------------------------- be $8.50 per share, until and unless a registration statement with respect to an initial public offering of Common Stock is declared effective by the Securities and Exchange Commission. If and only -3- if such a registration is so declared effective, the Exercise Price shall then and thereafter be equal to the price per share paid by the public in such initial public offering, effective upon the date of effectiveness of such registration statement. (B) Adjustment to Exercise Price for Subdivision or Combination. If the ----------------------------------------------------------- Company at any time or from time to time after the issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) the outstanding shares of the class of securities issuable upon exercise hereof into a greater number of shares, the Exercise Price in effect immediately before that subdivision shall be proportionately decreased. If the Company at any time or from time to time after the issuance of this Warrant combines (by reverse stock split or otherwise) the outstanding shares of the class of securities issuable upon exercise hereof, the Exercise Price in effect immediately before the combination shall be proportionately increased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective. (C) Adjustment in the Number of Shares for Subdivisions or Combinations. ------------------------------------------------------------------- Whenever the Exercise Price is adjusted pursuant to Section 1.05(B), the number of shares of the class of securities issuable upon exercise hereof also shall be adjusted by multiplying the number of shares subject to this Warrant immediately prior to the adjustment of the Exercise Price by a fraction (x) the numerator of which is the Exercise Price immediately prior to the adjustment and (y) the denominator of which is the adjusted Exercise Price. (D) Adjustments for Certain Dividends and Distributions. In the event that --------------------------------------------------- at any time or from time to time after the Original Issue Date the Company shall make or issue, or fix a record date for the determination of holders of the class of securities issuable upon exercise hereof who are entitled to receive a dividend or other distribution payable in securities of the Company, then and in each such event, unless such dividend or distribution results in an adjustment of the Exercise Price pursuant to Section 1.05(B), provision shall be made so that the Registered Holder of this Warrant shall receive upon exercise hereof in addition to the securities receivable hereupon, the amount of securities of the Company that he would have received had this Warrant been exercised on the date of such event and had he thereafter, during the period from the date of such event to and including the exercise date, retained such securities receivable by him as aforesaid during such period, giving application during such period to all adjustments called for herein. (E) Adjustment for Reclassification, Exchange, or Substitution. In the ---------------------------------------------------------- event that at any time or from time to time after the Original Issue Date, the class of securities issuable upon the exercise of this Warrant shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a merger, consolidation, or sale of assets provided for below), then and in each such event the Registered Holder of this Warrant shall have the right thereafter to exercise this Warrant for the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification, or other change, by holders of the number of shares of the class -4- of securities into which such Warrant might have been exercisable for immediately prior to such reorganization, reclassification, or change, all subject to further adjustment as provided herein. (F) Adjustment for Merger, Consolidation or Sale of Assets. In the event ------------------------------------------------------ that at any time or from time to time after the Original Issue Date, the Company shall merge or consolidate with or into another entity or sell all or substantially all of its assets, this Warrant shall thereafter be exercisable for the kind and amount of shares of stock or other securities or property to which a holder of the number of shares of the class of securities of the Company deliverable upon exercise of this Warrant would have been entitled upon such consolidation, merger or sale; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions set forth in this Section 1.05 with respect to the rights and interest thereafter of the Registered Holder of this Warrant, to the end that the provisions set forth in this Section 1.05 (including provisions with respect to changes in and other adjustments of the Exercise Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the exercise of this Warrant. (G) No Impairment. The Company shall not, by amendment of its Charter or ------------- By-Laws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but shall at all times in good faith assist in the carrying out of all the provisions of this Section 1.05 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Registered Holder of this Warrant against impairment. (H) Notice of Adjustment of Number of Shares. Upon any adjustment, ---------------------------------------- readjustment or other change relating to the number of shares purchasable upon exercise of this Warrant or to the Exercise Price, then, and in each such case, the Company at its expense shall give written notice thereof, in hand or by first class mail, postage prepaid, addressed to the Registered Holder at the address of such Registered Holder as shown on the books of the Company, which notice shall state the Exercise Price resulting from such adjustment and the increase or decrease in the number of shares (or other denominations of securities) purchasable at the Exercise Price upon the exercise of this Warrant setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (I) Notice. In case at any time: (1) the Company shall pay any dividend or ------ make any distribution (other than regular cash dividends from earnings or earned surplus paid at an established rate) to the holders of the class of securities issuable upon exercise of this Warrant; (2) the Company shall offer for subscription pro rata to the holders of the class of securities issuable upon exercise of this Warrant any additional shares of stock of any class or other rights; (3) there shall be any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with or sale of all or substantially all of its assets to another corporation; or (4) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company -5- shall give written notice, in hand or by first class mail, postage prepaid, addressed to the Registered Holder at the address of such Registered Holder as shown on the books of the Company of the date on which (a) the books of the Company shall close or a record date shall be fixed for determining the shareholders entitled to such dividend, distribution or subscription rights, or (b) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice shall also provide reasonable details of the proposed transaction and specify the date as of which the holders of record of the class of securities issuable upon exercise of this Warrant shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their securities for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. Such written notice shall be given at least 20 days prior to the action in question and not less than 20 days prior to the record date or the date on which the Company's transfer books are closed in respect thereto. (J) Voting Rights. This Warrant shall not entitle the Registered Holder to ------------- any voting rights or any other rights as a stockholder of the Company but upon presentation of this Warrant with the subscription form annexed duly executed and the tender of payment of the Exercise Price at the office of the Company pursuant to the provisions of this Warrant the Registered Holder shall forthwith be deemed a stockholder of the Company in respect of the securities for which the Registered Holder has so subscribed and paid. (K) No Change Necessary. The form of this Warrant need not be changed ------------------- because of any adjustment in the Exercise Price or in the number of shares issuable upon its exercise. A Warrant issued after any adjustment on any partial exercise or upon replacement may continue to express the same Exercise Price and the same number of shares (appropriately reduced in the case of partial exercise) as are stated on this Warrant as initially issued, and that Exercise Price and that number of shares shall be considered to have been so changed as of the close of business on the date of adjustment. 2. Covenant of the Company. All securities which may be issued upon the ----------------------- exercise of the rights represented by this Warrant shall, upon issuance, be duly authorized, validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof. 3. Fractional Shares. No fractional shares or scrip representing fractional ----------------- shares shall be issued upon exercise of this Warrant. If, upon exercise of this Warrant as an entirety, the Registered Holder would be entitled to receive a fractional share, then the Company shall pay in cash to such Registered Holder an amount equal to such fractional share multiplied by the fair market value of one share of the class of securities issuable upon exercise of this Warrant (as determined by the Board of Directors of the Company) on the date of such exercise. 4. Substitution. In the case this Warrant shall be mutilated, lost, stolen or ------------ destroyed, the Company will issue a new Warrant of like tenor and denomination and deliver the same (a) in exchange and substitution for and upon surrender and cancellation of any mutilated Warrant, or -6- (b) in lieu of any Warrant lost, stolen or destroyed, upon receipt of evidence satisfactory to the Company of the loss, theft, or destruction of such Warrant (including a reasonably detailed affidavit with respect to the circumstances of any loss, theft or destruction), and of indemnity (or, in the case of the initial Registered Holder or any other institutional holder, an indemnity agreement) satisfactory to the Company. 5. Transfer Restrictions. This Warrant shall not be sold, transferred, pledged --------------------- or hypothecated unless the proposed disposition is the subject of a currently effective registration statement under the Securities Act of 1933, as amended, or unless the Company has received an opinion of counsel reasonably satisfactory in form and scope to the Company that such registration is not required. 6. Remedies. The Company stipulates that the remedies at law of the Registered -------- Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for that specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 7. Taxes. The Company shall pay any taxes or other charges that may be imposed ----- in respect of the issuance and delivery of the Warrant or any securities or other property upon exercise hereof. 8. Governing Law. This Warrant and its provisions and the rights and ------------- obligations of the parties hereunder shall be governed by, and construed and enforced in accordance with, the substantive laws of The Commonwealth of Massachusetts, without regard to its principles of conflicts of laws. 9. Miscellaneous. This Warrant and any term hereof may be changed, waived, ------------- discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its President thereunto duly authorized under seal this 26th day of August, 1996. ATTEST: LIGHTBRIDGE, INC. _______________________________ By:_____________________________ Its President -7- SUBSCRIPTION FORM ----------------- The undersigned, the Registered Holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, shares of common stock of LIGHTBRIDGE, INC. and herewith makes payment of $ therefor and requests that the certificates representing such shares be issued in the name of and delivered to: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ if such shares shall not include all of the shares issuable under this Warrant, that a new Warrant of like tenor and date be delivered to the undersigned holder for the shares not issued. Dated: _____________________________ ____________________________________ Signature FORM OF ASSIGNMENT ------------------ For value received the undersigned hereby sells, assigns and transfers unto ____________________________ whose address is _________________________________ _____________________________________________________________________________, the within Warrant with respect to ___________ shares purchasable thereby, and does hereby irrevocably constitute and appoint ___________________________________ attorney to transfer the within Warrant on the books of the within named corporation with full power of substitution in the premises. Dated:__________________________________ In the presence of: ___________________________________ ______________________________________ Signature EXHIBIT F REGISTRATION RIGHTS AGREEMENT August 26, 1996 Sheng Ren Trust c/o Mr. Brian E. Boyle 31 Hallett Hill Road Weston, MA 02193 Dear Mr. Boyle: This will confirm that pursuant to the letter agreement of even date herewith (the "Letter Agreement") between the Lightbridge, Inc. (the "Company") and Brian E. Boyle, and as an inducement to Mr. Boyle to consummate the transactions contemplated by the Letter Agreement, the Company covenants and agrees with Mr. Boyle as follows: 1. Certain Definitions. As used in this Agreement, the following terms ------------------- shall have the following respective meanings: "Warrant" shall mean the warrant to purchase 100,000 shares of Common ------- Stock issued by the Company to the Sheng Ren Trust on the date hereof. "Commission" shall mean the Securities and Exchange commission, or any ---------- other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Common Stock, $.01 par value, of the ------------ Company, as constituted as of the date of this Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Registration Expenses" shall mean the expenses so described in Section --------------------- 6. "Restricted Stock" shall mean the 100,000 shares of Common Stock issued ---------------- upon exercise of the Warrant on the date hereof excluding Common Stock which has been (a) registered under the Securities Act pursuant to an effective registration statement filed thereunder and disposed of in accordance with the registration statement covering them or (b) publicly sold pursuant to Rule 144 under the Securities Act. "Securities Act" shall mean the Securities Act of 1933, as amended, or -------------- any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean the expenses so described in Section 6. ---------------- 2. Restrictive Legend. Each certificate or other document representing ------------------ Restricted Stock or the Warrant shall, except as otherwise provided in this Section 2 or in Section 3, be stamped or otherwise imprinted with a legend substantially in the following form: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE." A certificate or other document shall not bear such legend if in the opinion of counsel satisfactory to the Company (it being agreed that Hale and Dorr shall be satisfactory) the securities being sold thereby may be publicly sold without registration under the Securities Act. 3. Notice of Proposed Transfer. Prior to any proposed transfer of the --------------------------- Warrant or any Restricted Stock (other than under the circumstances described in Section 4), the holder thereof shall give written notice to the Company of its intention to effect such transfer. Each such notice shall describe the manner of the proposed transfer and, if requested by the Company, shall be accompanied by an opinion of counsel satisfactory to the Company (it being agreed that Hale and Dorr shall be satisfactory) to the effect that the proposed transfer may be effected without registration under the Securities Act, whereupon the holder of such securities shall be entitled to transfer such securities in accordance with the terms of its notice; provided, however, that no such opinion of counsel ----------------- shall be required for a transfer to one or more partners of the transferor (in the case of a transferor that is a partnership) or to an affiliated corporation (in the case of a transferor that is a corporation). Each certificate or other document representing Restricted Stock or the Warrant transferred as above provided shall bear the legend set forth in Section 2, except that such certificate or other document shall not bear such legend if (i) such transfer is in accordance with the provisions of Rule 144 (or any other rule permitting public sale without registration under the Securities Act) or (ii) the opinion of counsel referred to above is to the further effect that the transferee and any subsequent transferee (other than an affiliate of the Company) would be entitled to transfer such securities in a public sale without registration under the Securities Act. The restrictions provided for in this Section 3 shall not apply to securities which are not required to bear the legend prescribed by Section 2 in accordance with the provisions of that Section. 4. Incidental Registration. If the Company at any time proposes to ----------------------- register any of its securities under the Securities Act for sale to the public, whether for its own account or for the account of other security holders or both (except with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Restricted Stock for sale to the public), each such time it will give written notice to all holders of outstanding Restricted Stock of its intention so to do. Upon the written request of any such holder, received by the Company within 30 days after the giving of any such notice by the Company, to register any of the Restricted Stock (which request shall state the intended method of disposition thereof), the -2- Company will use its best efforts to cause the Restricted Stock as to which registration shall have been so requested to be included in the securities to be covered by the registration statement proposed to be filed by the Company, all to the extent requisite to permit the sale or other disposition by the holder (in accordance with its written request) of such Restricted Stock so registered. In the event that any registration pursuant to this Section 4 shall be, in whole or in part, an underwritten public offering of Common Stock, the number of shares of Restricted Stock to be included in such an underwriting may be reduced (pro rata among all holders of registration rights requesting registration based upon the number of shares of Common Stock (excluding Common Stock which has been (a) registered under the Securities Act pursuant to an effective registration statement filed thereunder and disposed of in accordance with the registration statement covering them or (b) publicly sold pursuant to Rule 144 under the Securities Act) owned by such holders) if and to the extent that the managing underwriter shall be of the opinion that such inclusion would adversely affect the marketing of the securities to be sold by the Company therein, provided, -------- however, that such number of shares of Restricted Stock shall not be reduced if - ------- any shares are to be included in such underwriting for the account of any person other than the Company, requesting holders of Restricted Stock or parties to that certain Registration Rights Agreement dated February 11, 1991, as amended, among the Company and certain of its security holders (the "Prior Registration Rights Agreement"), and provided, further, however, that in no event may less -------- ------- ------- than one-third of the total number of shares of Common Stock to be included in such underwriting be made available for shares of Restricted Stock and shares registerable under the Prior Registration Rights Agreement. Notwithstanding the foregoing provisions, the Company may withdraw any registration statement referred to in this Section 4 without thereby incurring any liability to the holders of Restricted Stock. 5. Registration Procedures. If and whenever the Company is required by the ----------------------- provisions of Section 4 to use its best efforts to effect the registration of any shares of Restricted Stock under the Securities Act, the Company will promptly: (a) prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (determined as hereinafter provided); (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period specified in paragraph (a) above and comply with the provisions of the Securities Act with respect to the disposition of all Restricted Stock covered by, such registration statement in accordance with the sellers' intended method of disposition set forth in such registration statement for such period; (c) furnish to each seller of Restricted Stock and to each underwriter such number of copies of the registration statement and the prospectus included therein (including -3- each preliminary prospectus) as such persons reasonably may request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such registration statement; (d) use its best efforts to register or qualify the Restricted Stock covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the sellers of Restricted Stock or, in the case of an underwritten public offering, the managing underwriter reasonably shall request, provided, however, that the Company shall not for any such purpose be required - -------- ------- to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) use its best efforts to list the Restricted Stock covered by such registration statement with any securities exchange, if any, on which the Common Stock of the Company is then listed; (f) immediately notify each seller of Restricted Stock and each underwriter under such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (g) if the offering is underwritten and at the request of any seller of Restricted Stock, use its best efforts to furnish on the date that Restricted Stock is delivered to the underwriters for sale pursuant to such registration: (i) an opinion dated such date of counsel representing the Company for the purposes of such registration, addressed to the underwriters and to such seller, stating that such registration statement has become effective under the Securities Act and that (A) to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act, (B) the registration statement, the related prospectus and each amendment or supplement thereof comply as to form in all material respects with the requirements of the Securities Act (except that such counsel need not express any opinion as to financial statements contained therein) and (C) to such other effects as reasonably may be requested by counsel for the underwriters or by such seller or its counsel and (ii) a letter dated such date from the independent public accountants retained by the Company, addressed to the underwriters and to such seller, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five business days prior to the date of such letter) with respect to such registration as such underwriters reasonably may request; and -4- (h) make available for inspection by each seller of Restricted Stock, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement. For purposes of Section 5(a) and 5(b), the period of distribution of Restricted Stock in a firm commitment underwritten public offering shall be deemed to extend until each underwriter has completed the distribution of all securities purchased by it, and the period of distribution of Restricted Stock in any other registration shall be deemed to extend until the earlier of the sale of all Restricted Stock covered thereby and 120 days after the effective date thereof. In connection with each registration hereunder, the sellers of Restricted Stock will furnish to the Company in writing such information with respect to themselves and the proposed distribution by them as reasonably shall be necessary in order to assure compliance with federal and applicable state securities laws. In connection with each registration pursuant to Section 4 covering an underwritten public offering, the Company and each seller agree to enter into a written agreement with the managing underwriter selected in the manner herein provided in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of the Company's size and investment stature. 6. Expenses. All expenses incurred by the Company in complying with -------- Section 4 including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the National Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents and registrars, costs of insurance and fees and disbursements of one counsel for the sellers of Restricted Stock, but excluding any Selling Expenses, are called "Registration Expenses". All underwriting discounts and selling commissions applicable to the sale of Restricted Stock are called "Selling Expenses". Except as may otherwise be required by various blue sky laws, the Company will pay all Registration Expenses in connection with each registration statement under Section 4. All Selling Expenses in connection with each registration statement under Section 4 shall be borne by the participating sellers in proportion to the number of shares sold by each, or by such participating sellers other than the Company (except to the extent the Company shall be a seller) as they may agree. 7. Indemnification and Contribution. (a) In the event of a registration of -------------------------------- any of the Restricted Stock under the Securities Act pursuant to Section 4, the Company will indemnify and -5- hold harmless each seller of such Restricted Stock thereunder, each underwriter of such Restricted Stock thereunder and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Section 4, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein 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 will reimburse each such seller, each such underwriter and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that the Company will not be liable in any such case if and - -------- to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by any such seller, any such underwriter or any such controlling person in writing specifically for use in such registration statement or prospectus. (b) In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Section 4, each seller of such Restricted Stock thereunder, severally and not jointly, will indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer, director, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Section 4, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein 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 will reimburse the Company and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided however, that such seller will be -------- ------- liable hereunder in any such loss if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to such seller, as such, furnished in writing to the Company by such seller specifically for use in such registration statement or prospectus, and provided, further, however, that the liability of each seller hereunder shall be limited to the proportion of any such loss, claim, damage, liability or expense which is equal to the proportion that the public offering price of the shares sold by such seller under such registration statement bears to the total public offering price of all securities sold thereunder, but not in any event to exceed the proceeds received by such seller from the sale of Restricted Stock covered by such registration statement. (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to such indemnified party other than under this Section 7 and shall only relieve it from any liability which it may have to such indemnified party under this Section 7 if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 7 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected, provided, however, that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or in addition to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a single separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other reasonable expenses related to such participation to be reimbursed by the indemnifying party as incurred. (d) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any holder of Restricted Stock exercising rights under this Agreement, or any controlling person of any such holder, makes a claim for indemnification pursuant to this Section 7 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 7 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling holder or any such controlling person in circumstances for which indemnification is provided under this Section 7; then, and in each such case, the Company and such holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such holder is responsible for the portion represented by the percentage that the public offering price of its Restricted Stock offered by the registration statement bears to the public offering price of all securities offered by such registration -7- statement, and the Company is responsible for the remaining portion; provided, however, that, in any such case, (A) no such holder will be required to contribute any amount in excess of the public offering price of all such Restricted Stock offered by it pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. 8. Changes in Common Stock. If, and as often as, there is any change in ----------------------- the Common Stock by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted hereby shall continue with respect to the Common Stock as so changed. 9. Rule 144 Reporting. With a view to making available the benefits of ------------------ certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Stock to the public without registration, at all times after 90 days after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act; (b) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) furnish to each holder of Restricted Stock forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of such Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as such holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such holder to sell any Restricted Stock without registration. 10. Representations and Warranties of the Company. The Company represents --------------------------------------------- and warrants to you as follows: (a) The execution, delivery and performance of this Agreement by the Company have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the Charter or By-laws of the Company or any provision of any indenture, agreement or other instrument to which it or any of its properties or assets is bound, conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. -8- (b) This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms. 11. Miscellaneous. ------------- (a) All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including without limitation transferees of the Warrant or any Restricted Stock), whether so expressed or not, provided, however that registration rights conferred herein on the holders of the Warrant or Restricted Stock shall only inure to the benefit of a transferee of the Warrant or Restricted Stock if (i) there is transferred to such transferee at least 20% of the total shares of Restricted Stock originally issuable under the Warrant (as adjusted as may be required from time to time by Section 8 hereof) to the direct or indirect transferor of such transferee or (ii) such transferee is a partner, shareholder or affiliate of a party hereto. (b) All notices, requests, consents and other communications hereunder shall be in writing and shall be mailed by certified or registered mail, return receipt requested, postage prepaid, or telexed or telecopied, in the case of non-U.S. residents, addressed as follows: if to the Company at its address set forth in the Letter Agreement; if to the Sheng Ren Trust c/o Brian E. Boyle, 31 Hallett Hill Road, Weston, Massachusetts 02193; if to any subsequent holder of Restricted Stock or the Warrant, to it at such address as may have been furnished to the Company in writing by such holder; or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a holder of Restricted Stock or the Warrant) or to the holders of Restricted Stock and the Warrant (in the case of the Company) in accordance with the provisions of this paragraph. (c) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. (d) This Agreement may not be amended or modified, and no provision hereof may be waived, without the written consent of the Company and the holders of at least seventy-five percent (75%) of the outstanding shares of Restricted Stock. -9- (e) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (f) The obligations of the Company to register shares of Restricted Stock under Section 4 shall terminate twelve and one-half years from the date of this Agreement. (g) If requested in writing by the underwriters for the initial underwritten public offering of securities of the Company, each holder of Restricted Stock who is a party to this Agreement shall agree not to sell publicly any shares of Restricted Stock or any other shares of Common Stock (other than shares of Restricted Stock or other shares of Common Stock being registered in such offering), without the consent of such underwriters, for a period of not more than 90 days following the effective date of the registration statement relating to such offering; provided, however, that all persons ------- entitled to registration rights with respect to shares of Common Stock who are not parties to this Agreement, all other persons selling shares of Common Stock in such offering and all executive officers and directors of the Company shall also have agreed not to sell publicly their Common Stock under the circumstances and pursuant to the terms set forth in this Section 11(g). (h) Notwithstanding the provisions of Section 5(a), the Company's obligation to file a registration statement, or cause such registration statement to become and remain effective, shall be suspended for a period not to exceed 90 days in any 24-month period if there exists at the time material non-public information relating to the Company which, in the reasonable opinion of the Company, should not be disclosed. (i) The Company shall not grant to any third party any registration rights more favorable than any of those contained herein without the written consent of the holders of at least ninety percent (90%) of the outstanding shares of Restricted Stock, so long as any of the registration rights under this Agreement remains in effect. (j) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. -10- Please indicate your acceptance of the foregoing by signing and returning the enclosed counterpart of this letter, whereupon this Agreement shall be a binding agreement between the Company and you. Very truly yours, LIGHTBRIDGE, INC. By:_____________________________________ Pamela D.A. Reeve, President AGREED TO AND ACCEPTED as of the date first above written. SHENG REN TRUST By:____________________________________ Name: Title: -11- EX-11.1 16 COMPUTATION OF EARNINGS LOSS EXHIBIT 11.1 LIGHTBRIDGE, INC. COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
THREE MONTHS SIX MONTHS YEARS ENDED SEPTEMBER 30, ENDED DECEMBER 31, ENDED JUNE 30, ---------------------------------- ---------------------- ----------------------- 1993 1994 1995 1994 1995 1995 1996 --------- ---------- ----------- ---------- ---------- ----------- ---------- PRO-FORMA: Weighted Average Number of Common and Common Equivalent Shares Outstanding: Common Stock........... 6,508,424 6,507,846 6,509,214 6,508,319 6,422,537 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)......... -- 480,753 499,314 -- 1,218,222 SAB 83 Shares (treasury stock method)......... 858,747 858,747 858,747 858,747 858,747 ----------- ---------- ---------- ----------- ---------- Total.................. 12,614,495 13,094,670 13,114,599 12,614,390 13,746,830 =========== ========== ========== =========== ========== Net Income (Loss) Ap- plicable to Common Stock................. $(2,432,914) $ 411,723 $ 72,205 $(1,735,842) $ 302,500 =========== ========== ========== =========== ========== Pro-Forma Income (Loss) per Common Share...... $ (0.19) $ 0.03 $ 0.01 $ (0.14) $ 0.02 =========== ========== ========== =========== ========== PRIMARY: Weighted Average Number of Common and Common Equivalent Shares Outstanding: Common Stock........... 5,666,400 6,493,091 6,508,424 6,507,846 6,509,214 6,508,319 6,422,537 Common Equivalent Shares Resulting from stock options and warrants (treasury stock method)......... -- 397,081 -- 480,753 499,314 -- 1,218,222 SAB 83 Shares (treasury stock method)......... 858,747 858,747 858,747 858,747 858,747 858,747 858,747 --------- ---------- ----------- ---------- ---------- ----------- ---------- Total.................. 6,525,147 7,748,919 7,367,171 7,847,346 7,867,275 7,367,066 8,499,506 ========= ========== =========== ========== ========== =========== ========== Net Income (Loss)...... $(125,423) $ 950,272 $(2,432,914) $ 411,723 $ 72,205 $(1,735,842) $ 302,500 Dividends Accreted on Preferred Stock....... (150,421) (182,544) (182,544) (45,635) (45,635) (91,270) (91,270) --------- ---------- ----------- ---------- ---------- ----------- ---------- Net Income (Loss) Applicable to Common Stock................. $(275,844) $ 767,728 $(2,615,458) $ 366,088 $ 26,570 $(1,827,112) $ 211,230 ========= ========== =========== ========== ========== =========== ========== Primary Income per Com- mon Share............. $ (0.04) $ 0.10 $ (0.36) $ 0.05 $ 0.00 $ (0.25) $ 0.02 ========= ========== =========== ========== ========== =========== ========== FULLY DILUTED: Weighted Average Number of Common and Common Equivalent Shares Outstanding: Common Stock........... 5,666,400 6,493,091 6,508,424 6,507,846 6,509,214 6,508,319 6,422,537 Assumed Conversion of Preferred Stock....... 2,910,621 3,243,326 3,243,326 3,243,326 3,243,326 3,243,326 4,213,924 Common Equivalent Shares Resulting from stock options and warrants (treasury stock method)......... -- 464,201 -- 480,753 499,314 -- 1,465,817 SAB 83 Shares (treasury stock method)......... 858,747 858,747 858,747 858,747 858,747 858,747 858,747 --------- ---------- ----------- ---------- ---------- ----------- ---------- Total.................. 9,435,768 11,059,365 10,610,497 11,090,672 11,110,601 10,610,392 12,961,025 ========= ========== =========== ========== ========== =========== ========== Net Income (Loss) Ap- plicable to Common Stock................. $(125,423) $ 950,272 $(2,432,914) $ 411,723 $ 72,205 $(1,735,842) $ 302,500 ========= ========== =========== ========== ========== =========== ========== Fully Diluted Income (Loss) per Common Share................. $ (0.01) $ 0.09 $ (0.23) $ 0.04 $ 0.01 $ (0.16) $ 0.02 ========= ========== =========== ========== ========== =========== ==========
EX-23.1 17 CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No. 2 to Registration Statement No. 333-6589 of Lightbridge, Inc. of our report dated April 22, 1996 (except for Notes 4 and 11 as to which the dates are August 8, 1996 and July 15, 1996, respectively), appearing in this Prospectus, which is a part of such Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. Deloitte & Touche LLP Boston, Massachusetts August 27, 1996 -----END PRIVACY-ENHANCED MESSAGE-----