-----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, B5rt0WAJAT/8Bsaxcx+2EBss+jWkjTcsT0rmypvgq13GIP5JsMmc9TfNxCbalBTA 3NMVQ9ldQxbrYyDrw8/a8Q== 0000950146-99-000678.txt : 19990403 0000950146-99-000678.hdr.sgml : 19990403 ACCESSION NUMBER: 0000950146-99-000678 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS INC CENTRAL INDEX KEY: 0000867889 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 061295986 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-21519 FILM NUMBER: 99583596 BUSINESS ADDRESS: STREET 1: 225 HIGH RIDGE ROAD STREET 2: STE 205 CITY: STAMFORD STATE: CT ZIP: 06905 BUSINESS PHONE: 2033293300 MAIL ADDRESS: STREET 1: 225 HIGH RIDGE ROAD STREET 2: STE 205 CITY: STAMFORD STATE: CT ZIP: 06905 10-K 1 ITDS FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 or |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 [No Fee Required] For the transition period from to Commission File No. 0-21519 INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. (Exact name of registrant as specified in its charter) ---------------------------- Delaware 06-1295986 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 225 High Ridge Road, 06905 Stamford, Connecticut (Zip Code) (Address of principal executive offices) (203) 329-3300 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value per share (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this Chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| The aggregate market value of voting Common Stock held by nonaffiliates of the registrant as of March 22, 1999: Common Stock, $.01 par value -- $174,994,525.48 The number of shares outstanding of the issuer's common stock as of March 22, 1999: Common Stock, $.01 par value -- 17,341,894 shares -------------------- DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement relating to the Annual Meeting of Stockholders to be held May 19, 1999 are incorporated by reference into Part III of this Report. ================================================================================ Item 1--Business International Telecommunication Data Systems, Inc. ("ITDS" or the "Company") is a leading provider of comprehensive transactional billing and customer care solutions to providers of wireless and satellite telecommunications services. The Company uses its proprietary software technology to develop billing and customer care solutions which address customer requirements as they evolve, regardless of the market segment, geographic area or mix of network features and billing options. Typically, the Company provides its services under contracts with terms ranging from two to five years, and bills customers monthly, on a per-subscriber or fixed-fee basis. As a result, a substantial portion of the Company's revenue is recurring in nature, and increases as a provider's subscriber base grows. In recent years, the telecommunications services industry has experienced rapid growth and dramatic change, ranging from the introduction of such new technologies as cellular, PCS, dispatch and satellite communications, to new features and services, in a wide variety of combinations and at a great diversity of prices. The Company's systems are designed to respond to the dynamic requirements of this market for cost-effective transactional billing and customer care solutions by drawing on the Company's core technology and skilled human resources. The Company's software currently supports the predominant wireless telecommunications protocols, including Advanced Mobile Phone Systems ("AMPS"), an analog service predominant in the U.S., the Global System for Mobile Communication ("GSM"), Time Division Multiple Access ("TDMA") and Code Division Multiple Access ("CDMA"). In addition, the Company is the market leader in supporting carriers that deploy IDEN technology. The Company's advanced billing and customer care systems form the foundation for its suite of applications that provide not only subscriber billing and service support, but also subscriber activation, remittance processing, collections, data retrieval and reporting, electronic funds transfer, Authentication Key (A-Key) management, retail point of sale, credit management, inventory management, data archiving and electronic bill presentment and payment on the Internet. Its systems architecture permits providers to draw on those features and functions most appropriate to their specific requirements. The Company's software and services allow its customers to address the demands of a rapidly evolving marketplace by enabling them to develop and support innovative rate and feature offerings without the delay and cost associated with reconfiguring their billing and customer care systems; to identify and respond to subscriber demands through analysis of billing and subscriber databases; to reduce costs with accurate and timely receivables information; and to manage the subscriber relationship in a comprehensive and cost-effective manner. Industry Background General The U.S. telecommunications services industry currently generates approximately $352 billion in annual revenue and has experienced rapid change and greatly increased competition in recent years. Deregulation and rapid technological advances are resulting in convergence of previously separate segments of the telecommunications market. Markets that were once rigidly segmented by service within geographical areas are converging into a single, world-wide communications market, which includes both traditional service providers and a variety of new participants. Each segment of these converging markets is experiencing significant growth, increased complexity in service offerings and greater competition. Rapidly evolving technical changes have dramatically increased the features and services available to subscribers. These changes have ranged from the evolution of new communications media, such as the Internet, to innovative services, such as PCS, to a rapidly evolving and growing range of vertical services such as short message services, voice mail, paging and dispatch. For -2- example, many cellular providers are now offering such innovative features as group ringing, which initiates a call on all of an individual's lines (whether business, personal or mobile) and connects the call as soon as one line is answered, and cell site sensitive billing, which, for example, enables carriers to apply local wireline rates for calls to or from a telephone within the vicinity of the subscriber's home or business and apply cellular rates elsewhere. Improved switching technology is permitting local exchange telecommunications services providers to offer a variety of new features and services to their subscribers such as call delivery beyond the subscriber's home area, call waiting, voice mail and others. Internationally, privatization and deregulation are resulting in similar increases in competition, the emergence of newly authorized telecommunications providers, and the provision of additional features over a variety of media. Wireless Communications The Cellular Telecommunications Industry Association ("CTIA") estimates that the number of cellular subscribers in the United States increased from 500,000 in June 1986 to 60.8 million in June 1998. In the twelve months ended June 1998, wireless providers generated more than $29 billion in revenue in the United States. In addition to growth in the wireless telephone market, the emergence of new wireless communications technologies and services, such as PCS, dispatch and satellite-based telephony, is expected to increase the quality and capabilities of wireless communications, including, to varying degrees, seamless roaming, increased service coverage, improved signal quality and greater data transmission capacity. Other Segments Other segments of the telecommunications services industry are experiencing similar change and convergence. Industry sources estimate that wireline providers, including providers of local, long-distance, network access and related services, provide services to approximately 187 million customers in the U.S., generating an estimated $212 billion of revenues in 1998. Deregulation has spurred the creation of new entrants in both the local and long distance market, created an environment for mergers and consolidation and has increased competitive pricing pressures among all providers. Regional Bell Operating Companies (RBOCs) and long-distance providers compete with providers of wireless services through the purchase of wireless companies and PCS licenses, wireline providers are pursuing opportunities in the cable market and wireless providers are examining wireless local loop and the traditional long distance market. At the same time, utility companies are leveraging their existing electrical and fiber optic infrastructures to provide telecommunications services to their customers. In addition, on-line service providers, including companies such as America Online and Microsoft Network (MSN), have generated a large and rapidly growing market for the provision of a range of services including electronic mail, news, and other information, as well as home shopping and access to the Internet. Traditional Transactional Billing Transactional billing is the process of matching specific calling events with a subscriber database. Historically, this was primarily a billing process, used in order to generate invoices for wireless, long-distance and local service by individual and business users. The Company believes that recurring billing is the most significant recurring interface with the subscriber, and is therefore a critical element of attracting, communicating with, and retaining subscribers. Many telecommunications services providers in the U.S. have traditionally used transactional billing and customer care systems developed internally or through cooperative joint ventures for -3- operation on a provider's mainframe computer. These systems typically are difficult to maintain and modify, and often do not meet the multiple and evolving needs of a service provider. Such systems often cannot be integrated with other information sources within a provider's organization, or databases outside an organization. Introduction of changes in parameters such as price and service often requires significant reconfiguration or reprogramming. These traditional means of billing and monitoring service, referred to as "legacy systems," have proven inadequate to respond to the evolving and dynamic requirements of the telecommunications services marketplace. The enormous growth in the number of subscribers, and the proliferation and range of services offered, require highly capable, flexible and scalable support systems, which can adequately support the size and nature of customer offerings on a cost effective basis. Other service providers have elected to out-source billing and customer care-related functions because of the significant level of technological expertise and capital resources required to implement systems successfully. In addition, many emerging telecommunications service providers lack any transactional billing infrastructure at all. One of the primary challenges that these newer service providers face is to bring new services to market quickly. They typically focus their capital resources on developing networking and switching technology and on creating marketable services rather than on creating billing systems. These providers typically seek to outsource the billing functions because efficient flexible billing solutions are often too costly and time consuming to develop and staff internally. Recent Developments In February 1999, ITDS announced the formation of a strategic business alliance with Novazen, Inc. to include Novazen's Internet-based billing and customer care software in ITDS's suite of products and services. ITDS has the exclusive right to provide its clients with Novazen's advanced Internet-based billing and customer communication software. In addition, in February 1999, Lewis Bakes resigned as Executive Vice President, Chief Operating Officer and Secretary; Paul K. Kothari resigned as Chief Financial Officer; and Peter Masanotti resigned as Executive Vice President of Operations - Stamford. Also in February 1999, Susan L. Yezzi was promoted from Executive Vice President of Operations - Champaign to Chief Operating Officer; Peter L. Masanotti became Secretary and Acting Chief Financial Officer; and Kevin Piltz was elected as the Company's Chief Information Officer. On March 23, 1999, the Board of Directors authorized the repurchase of shares by the Company of its Common Stock in the open market and/or in privately negotiated transactions, for an aggregate purchase price of up to $10 million. Any repurchased shares will be used for the Company's stock incentive plans, employee stock purchase plan and other corporate purposes. As of March 29, 1999, the Company had not repurchased any shares pursuant to the repurchase plan. The ITDS Solution The Company's solutions are based upon software systems that not only provide reliable and accurate transactional billing and customer care support, but also include the means to automate subscriber activation, remittance processing, collections, data retrieval and reporting, electronic funds transfer, credit management, automation of inventory management, and data archiving, running in either -4- single or multiple telecommunications services markets, including wireless, ESMR, paging, dispatch and satellite. In comparison with traditional solutions, the Company's software and services: o permit providers to develop, validate, implement and support rate changes without the corresponding requirement to develop or change support systems, reducing the time to introduce new marketing or sales strategies; o permit providers to introduce new features or combinations of features, either directly or with others, on a timely basis; o assure that providers have immediate access to multiple databases on an integrated basis, to improve marketing and sales planning; o deliver accurate, timely and useful billing information to customers, regardless of mix or change in level of service and rates, to facilitate customer attraction and retention; o improve providers' cash flows and reduce bad debt by detecting fraud and delivering accurate and timely receivable and collection information across systems and service offerings; o support a robust retail support structure through the utilization of its Point of Sale product suite; o allow for a variety of bill presentment options, including Web-based presentment; and o complement a service provider's anti-fraud efforts by providing for management of the provider's Authentication Keys (A-Keys). Products and Services Core Systems The Company provides its customers with transactional billing and customer care solutions through the installation of its software systems and the provision of billing services. The Company's software is installed at a customer site to interface directly with the customer's systems and generate relevant subscriber billing and other data, as well as to support a wide range of transactional billing and subscriber management functions. The Company processes the billing information through the use of its software, eliminating the need for customers to maintain their own "back-office" data processing operation. Typically, customers contract for the use of the Company's software and the provision of the Company's services on a long-term basis, generally between two and five years, and are billed monthly on a per-subscriber or fixed-fee basis. The Company's suite of applications allows customers the flexibility of rapidly changing their billing services to implement, for example, immediate rate plan changes for access, toll usage or toll discounts without the need for programming. Drawing on its client/server architecture, the systems can be integrated with a customer's other communication and data systems to provide customers with the ability to generate up-to-date subscriber analysis and reports. To further assure its operational flexibility and usefulness, the systems support key industry standards such as the CIBER standard for the wireless clearinghouse for AMPS, CDMA and TDMA wireless systems in the U.S. and the TAP standard for international clearinghouse for GSM cellular systems. The Company also interfaces with major U.S. credit bureaus, the Federal Reserve system and various U.S. banks for electronic funds transfer and credit card transactions. The Company's solutions include a complete library of billing and financial reports for production as part of the month-end billing process. These reports provide -5- customers with critical transactional billing data and can be modified or configured by customers to respond most appropriately to their specific information requirements. ITDS has completed and recently introduced XCEDE, its newest billing and customer care solution. XCEDE has a Windows95 graphical user interface, runs on industry standard UNIX servers and supports Oracle's relational database management system. It is modular in architecture, intuitive in design and scaleable in capacity, capable of supporting millions of subscribers. The Company's solutions perform the following transactional billing, subscriber management and information functions, while updating the relevant customer database on a real-time basis: On-Line Customer Care and Management Support -- Provides end-to-end support for all subscriber interface requirements: Subscriber Acquisition Credit Bureau Interface Integrated Point of Sale Transactional Credit Card Billing Phone Number Assignment Rate & Feature Assignment Network Element Provisioning Interface Equipment Inventory Assignment & Tracking Lead Generation & Tracking Multiple Account Receivable Options Automatic Clearinghouse for Bank Automatic Call Credit Adjustments Draft Payments Multi-tiered Security Systems Multiple Search Keys at Account or Phone Level Automatic Notes and Reminders Management of Authentication Keys
Message Processing and Rating -- Includes the collection of raw call detail records from the customer's switch network, and the editing, formatting, rating and guiding of all traffic events necessary to produce subscriber invoices, traffic reports and other call related information: Data Collection from all Switch Types Polling or Receipt of Near Real Time Records Roamer In/Out Collect Processing Up to 999 Rate Plans per Market Error Management & Reporting Rating, Re-rating and "Pseudo Roaming" Support Discounts by Amount or Percentage Variable Time Periods for Air and/or Toll Selective or Global Exceptions Unlimited Toll Plans On-line
Billing & Invoicing -- Application of rated messages to invoices, summary files and reports: Multiple Bill Cycles by Market FIFO Overdue Payment Application Balance Forward Billing Invoice Format Options Multiple Level Invoices Global, Group or Individual Messages Full Lockbox Support Federal Reserve Bank Interface -6- Currency Conversion Language Options International Addressing Print Fulfillment Options Web-based Bill Presentment and Payment
Customers transmit call detail records from their switching network or other network provider directly to one of the Company's data centers. In addition, the Company extracts necessary data from the customer's file server. The Company formats, guides, rates, and taxes the call records in accordance with the appropriate subscriber parameters and produces print image data output and various reports. The Company's bill verification personnel provide an additional level of assurance that subscriber invoices and management reports are accurate and timely. The Company then arranges with third-party vendors for the printing and distribution of subscriber invoices on a monthly basis, or, through its new bill presentment and payment capability, the Company can enable end users to access and pay their invoices over the Web. In addition to the foregoing general features, the Company's systems incorporate a modular system architecture which can support a number of complementary applications to meet a customer's specific requirements, including the following: o XCEDE/NP is a direct multi-switch interface between XCEDE systems and all types of telecommunication switches, including cellular, paging and voice mail platforms. XCEDE/NP manages line and feature activation or deactivation in connection with XCEDE service order activity. o XCEDE CreditLink module interfaces with several U.S.-based credit bureaus to provide on-line credit analysis of potential subscribers. o XCEDE Collections module provides support for dedicated collections personnel. o XCEDE InventoryScan is a complete inventory management system which allows easy bar code scanning and on-line inventory record maintenance from the physical receipt of equipment to entry into the XCEDE inventory subsystem. Other Products and Enhancements Point of Sale System The Company offers a Point of Sale package, which is a highly capable sales tool designed to incorporate the entire sales process into a quick and convenient on-line function. The system can be used in-store or as a mobile unit, so that customers can market wireless products and services a true retail setting. The system enables sales clerks to quickly process initial service applications, on-line credit checks, inventory updates, assignment of telephone numbers, rate plan selection, invoicing and payments. Upon credit verification, the system immediately creates an entry in the customer's subscriber database and can activate telephone service at the switch. A-Key A-Key is the latest addition to the Company's product line for supporting the customer acquisition, billing, customer care, and process control efforts of wireless service providers. A-Key is compliant with the EDI A-Key Guidelines as published by CTIA. In addition, it is also capable of -7- utilizing private formats as requested by a wireless service provider, or a mobile unit manufacturer. The A-Key system encompasses six integrated modules which can be deployed with XCEDE or as a stand-alone product that interfaces with an existing service order/provisioning application. These modules include: o A-Key security and encryption o real-time EDI interface o reconciliation process o A-Key service order interface o obtain key o random key generation Customers As of December 31, 1998, the Company's solutions supported a variety of technologies (including AMPS, CDMA, GSM and TDMA), serving over seven million subscribers. In the year ended December 31, 1998, the Company's customers included a broad range of wireless telecommunications service providers, including Aliant Communications Co., Dobson Cellular Systems, MCI WorldCom, Inc., Nextel Communications, Omnipoint, Sygnet Communication and Western Wireless. Revenues from Nextel Communications and Western Wireless represented 30.2% and 11.9% of the Company's total revenue in 1998, respectively. The loss of any such customer could have a material adverse effect on the operating results of the Company. Customer Support The Company provides support from the time a customer converts to the Company's software, continuing through the on-going provision of transactional billing services. The Company assigns to each new customer a dedicated implementation team that specializes in facilitating the transition onto the Company's solutions by applying an implementation methodology which includes study of the customer's needs, definition of relevant conversion requirements, and on-site installation and training. This is followed up by systematic analysis of the implementation process, live conversion and follow-up training as required to meet the customer's requirements. Thereafter, the Company assigns a support team including an account manager, a customer service representative and a programmer/analyst for on-going support of the customer's requirements, including implementation of additional functionality if requested by the customer. In addition, the Company provides a fully-staffed customer service department and 24-hour, 7 day a week access to customer service representatives. The Company's service and support activities are supplemented by the provision of on-going training classes to customers, to assist customers in utilizing the system capabilities more effectively. In February 1999, the Company's customer service and support department consisted of 156 persons, with an additional 22 dedicated quality assurance employees. Sales and Marketing The Company's strategy has been to establish and maintain long-term customer relationships. As customers' subscriber bases grow and as customers add systems features to their existing ITDS solutions, the Company generates increased revenue. The Company's customer support programs enable it to understand customer needs and offer strategic solutions from its suite of products and -8- features. In addition, the flexible and scalable architecture of the Company's core technology enables the Company to maintain customer relationships as customers enter into additional telecommunications markets. In February 1999, the Company's sales and marketing department consisted of 9 persons. System Development The Company's research and development efforts are focused on enhancing existing products and services as well as developing products, features and services that can be integrated into the Company's core technology. The Company's product development team reviews product and service development proposals and establishes internal guidelines for efficient development. The Company's product management team also works closely with customers to perform customization of products to meet specific needs. In addition to internal development, the Company works with its strategic partners Hewlett-Packard, Oracle and Novazen to develop products compatible with their product offerings. Currently, the Company has a number of new releases under development to meet evolving customer requirements. The Company actively participates in industry standards associations, committees and forums to assure that its development efforts are in compliance with standards as they evolve and to assure that the Company's software can be used on a fully open and interoperable basis. The Company is currently represented at such regularly scheduled industry groups as CTIA's CIBERNET Advisory Group for Industry Standards, which evaluates proposed changes to standards for wireless industry data exchange; the CIBERNET Net Settlement Users Group, which evaluates proposed changes to the net settlement process; the CTIA Number Advisory Group, which addresses issues related to numbering; the CTIA Advisory Group for Network Issues, which addresses interoperability network issues; and the North American GSM Alliance BARG/TADIG, which evaluates proposed changes to the standards for data exchange within the GSM industry including the international market. In addition, the Company participates in or has participated in other groups and meetings as required including CIBERNET Data Message Handler Working Group, CTIA's International Forum for AMPS Standard, Bellcore Ordering and Billing forum, CTIA's sub-committee on ESN Exhaust and CTIA's sub-committee on Wireless Local Number Portability. In the years ended December 31, 1998, 1997 and 1996, the Company incurred cash expenditures on systems development, including the acquisition of ITDS Intelicom Services Inc. (formerly, CSC Intelicom, Inc.) ("Intelicom"), of $61.3 million, $5.8 million and $3.0 million, respectively, of which $23.5 million, $2.9 million and $858,827, respectively, were capitalized as software development costs in each of such years. In February 1999, the Company employed 366 people in product and systems programming and development and engaged 144 independent contractors in conjunction with the continued development of its software products. Competition The market for billing and customer care systems for the telecommunications service industry is highly competitive and the Company expects that the high level of growth within the telecommunications service industry will encourage new entrants, both domestically and internationally, in the future. The Company competes with both independent providers of transactional systems and services and with internal billing departments of telecommunications services providers. The Company believes its most significant competitors in the wireless telecommunications segment are, within the service bureau model, Alltel Information Systems, Inc., Convergys Corp. (formerly Cincinnati Bell Information Systems, Inc.), H.O. Systems Inc. and, within the licensing model, LHS Group, Inc. and Amdocs, Ltd. In the future, the Company may compete in both the wireless and wireline markets with additional companies that currently compete in market segments other than wireless. In addition, the -9- Company competes with several international providers of billing and customer care systems and, as the Company continues to expand into international markets, it will compete with additional providers abroad. The Company believes that principal competitive factors include the ability to provide timely products, features and services that are responsive to evolving customer needs in an industry characterized by rapidly changing technologies and ongoing deregulation. The Company must provide statement accuracy, meet billing cycle deadlines, offer competitive pricing and maintain high product and service quality. The Company believes that its architecture enables it to compete favorably in the telecommunications services industry by offering its customers a high degree of flexibility to quickly modify their billing and management systems as their needs and the needs of their subscribers change. In addition, the Company believes that its ability to compete successfully will depend in part on a number of factors outside its control, including the development by others of software that is competitive with the Company's products and services, the price at which others offer comparable products and services, the extent of competitors' responsiveness to customer needs and the ability of the Company's competitors to hire, retain and motivate key personnel. Many of the Company's current and potential future competitors have significant financial, technical and marketing resources and have greater name recognition than does the Company. In addition, many of the Company's competitors have established commercial relationships or joint ventures with major wireless and other telecommunications services providers. Proprietary Rights and Licenses The Company relies in part on trademark, copyright and trade secret laws to protect its proprietary rights. The Company distributes its products under service and software license agreements which typically grant customers non-exclusive licenses, subject to terms and conditions prohibiting unauthorized reproduction, transfer or use. The Company believes that because of the rapid pace of technological change in the telecommunications and software industries, the technological expertise of its personnel, the complexity of its system architecture and the frequency and timeliness of product and service offerings are more significant than the legal protections of its products. In addition, the Company enters into non-disclosure agreements with each employee and consultant and each third-party to whom the Company provides proprietary information. Access to the Company's core source code is greatly restricted. The Company licenses from third parties technology that is important to certain functionalities of its products. The Company is not aware of any patent infringement or any violation of other proprietary rights claimed by any third party relating to the Company or the Company's products. Employees In February 1999, the Company had a total of 673 employees, of whom 156 were engaged in customer service, 366 were engaged in systems programming and development, 22 in quality assurance, 31 in new customer conversions, 9 in sales and marketing and 89 in office administration, finance, human resources and training. None of the Company's employees are represented by labor unions. The Company believes that its employee relations are good. Item 2--Properties The Company subleases a 48,222 square foot facility and a 13,000 square foot facility in Stamford, Connecticut and a 60,400 square foot facility in Champaign, Illinois for systems and programming, client service, operations, quality assurance, documentation and training, and -10- administration. In addition, the Company has entered into a contract to lease an additional 25,000 square feet in Champaign, Illinois beginning the summer of 1999. The Company's headquarters are located at its Stamford facility. Substantially all of the Company's assets, including its equipment and inventory, are subject to a security interest in favor of the lenders who are parties to the Credit Agreement. Item 3--Legal Proceedings On April 2, 1998, the Company was served with a complaint in Connecticut Superior Court alleging that the Company had breached the terms of its employment contract with Alan K. Greene, the Company's former Chief Financial Officer, and breached other obligations to Mr. Greene. The Company intends to vigorously defend itself in the action and has filed a response to the claim and asserted a counterclaim against Mr. Greene. The parties are currently in the discovery phase of the litigation. In addition, on September 11, 1998, Mr. Greene filed an age discrimination suit against the Company in the Connecticut Commission on Human Rights and Opportunities and in the Equal Employment Opportunities Commission. The Company filed its Answer and Position Statement, disclaiming any liability relating to age discrimination, on November 5, 1998. In addition, Intelicom, a wholly-owned subsidiary of the Company acquired in January 1998 from Computer Sciences Corporation ("CSC") is party to litigation and has been threatened with litigation in connection with the operation of its business prior to its acquisition by the Company. Pursuant to the terms of the acquisition, CSC and certain of its affiliates are obligated to defend and indemnify the Company against obligations arising out of such litigation or threatened litigation. The Company does not believe that any liabilities relating to any of the legal proceedings to which it is a party are likely to be, individually or in the aggregate, material to its consolidated financial position or results of operations. Item 4--Submission of Matters to a Vote of Security Holders Not applicable. Executive Officers of the Registrant The following table sets forth the names, ages and positions of all executive officers of the Company.
Name Age Position Lewis D. Bakes 41 Chairman and Director Peter P. Bassermann 49 President, Chief Executive Officer and Director Susan L. Yezzi 49 Chief Operating Officer Peter L. Masanotti 44 Acting Chief Financial Officer, Executive Vice President, General Counsel, Secretary and Director Joseph A. Juliano 49 Executive Vice President of Strategic Product Management -11- Kevin M. Piltz 40 Chief Information Officer
Lewis D. Bakes co-founded the Company in 1990 and has served as a director since that time. He was elected Chairman of the Company in February 1998. Mr. Bakes served as Executive Vice President, Chief Operating Officer and Secretary from the Company's inception until February 1999. Mr. Bakes is also an attorney, licensed to practice in Connecticut. Peter P. Bassermann became President and Chief Executive Officer of the Company in September 1997 and became a director in November 1997. From 1987 until he joined the Company, Mr. Bassermann served as President of SNET Mobility, Inc., an affiliate of Southern New England Telecommunications Corporation. Susan L. Yezzi joined the Company in February 1998 as Executive Vice President of Operations -- Champaign. In February 1999, Ms. Yezzi was appointed Chief Operating Officer of the Company. Prior to joining the Company, Ms. Yezzi served as Vice President of Customer Billing for Bell Atlantic Corporation since 1996. Prior to that, Ms. Yezzi worked for NYNEX Corporation for 24 years, and served as that Company's Assistant Vice President of Customer Billing. Peter L. Masanotti joined the Company in 1996 as Vice President and General Counsel. He has served as Executive Vice President since January 1998, serving as Executive Vice President of Operations -- Stamford from January 1998 until February 1999. Mr. Masanotti was elected as a director in August 1997 and became Secretary and Acting Chief Financial Officer in February 1999. Prior to joining the Company, Mr. Masanotti served as Managing Partner of the law firm Kleban & Samor, P.C., where he worked as an attorney from 1980 until 1996. Joseph A. Juliano joined the Company in November 1996 and has served as Executive Vice President of Strategic Product Management since that time. Mr. Juliano has been involved with the wireless industry since 1983. He served as Industry Consultant-Wireless Strategies at GTE TSI, a service provider for wireless carriers, from December 1995 to October 1996 and as Director Industry Matters for SNET Cellular from 1983 until 1995. In recent years, Mr. Juliano has been a participant in a number of industry advisory boards, including the CIBERNET Advisory Committee, CIBERNET DMH Working Group, CTIA Roamer Committee, CTIA Fraud Task Force (including as Chairperson of the Fraud Technology Working Group), and CTIA Authentication Working Group. In addition, Mr. Juliano is a Certified Management Accountant. Kevin M. Piltz joined the Company in August 1997, serving initially as Vice President of Applications Development, and, from January 1998 until February 1999, as Senior Vice President of Applications Development. In February 1999, Mr. Piltz was elected as the Company's Chief Information Officer. Prior to joining the Company, Mr. Piltz served as Director of New Technology at Subscriber Computing Inc., a provider of wireless billing solutions, from May 1995 through August 1997. From May 1990 through May 1995, Mr. Piltz worked at Transamerica Insurance Group/TIG Insurance, initially as a Program Manager and then as Assistant Vice President of Systems. -12- PART II Item 5--Market for Registrant's Common Stock and Related Stockholder Matters Price Range of Common Stock The Common Stock has been quoted on the Nasdaq National Market under the symbol "ITDS" since the Initial Public Offering on October 24, 1996. The following table sets forth the high and low sales prices of the Common Stock on the Nasdaq National Market for the periods indicated (as adjusted to reflect the three-for-two stock split effected on March 9, 1998).
High Low Fiscal Year Ended December 1997: First Quarter................................................. $16.00 $10.67 Second Quarter................................................ $16.58 $ 6.92 Third Quarter................................................. $20.17 $15.17 Fourth Quarter................................................ $21.33 $14.33 Fiscal Year Ended December 1998: First Quarter................................................. $29.00 $20.83 Second Quarter................................................ $34.25 $22.00 Third Quarter................................................. $35.63 $19.63 Fourth Quarter................................................ $29.38 $11.38 Fiscal Year Ending December 1999: First Quarter (through March 22, 1999) $21.88 $ 9.19
On March 22, 1999, the last reported sale price for the Common Stock as reported by the Nasdaq National Market was $10.63 per share. As of March 22, 1999, there were approximately 64 holders of record of the Common Stock. Dividend Policy The Company paid no cash dividends in 1997 or 1998. The Company currently intends to retain earnings, if any, to support the development of its business and does not anticipate paying cash dividends for the foreseeable future. Payment of future dividends, if any, will be at the discretion of the Company's Board of Directors after taking into account various factors, including the Company's earnings, financial condition, operating results and current and anticipated cash needs as well as such economic conditions as the Board of Directors may deem relevant. Recent Sales of Unregistered Securities Set forth in chronological order below is information regarding the unregistered securities issued by the Registrant since January 1, 1996 (as adjusted to reflect the three-for-two stock split effected on March 9, 1998). Also included is the consideration, if any, received by the Registrant for such securities, and information relating to the section of the Securities Act of 1933, as amended (the "Securities Act"), or rule of the Securities and Exchange Commission under which exemption from registration was claimed. No sale of securities involved the use of an underwriter and no commissions were paid in connection with the sales of any securities. -13- On September 27, 1996 as part of the Company's recapitalization, (i) all of the Company's Series A Preferred Stock was converted into an aggregate of 787,212 shares of Common Stock and promissory notes in the aggregate amount of $450,000 and (ii) all of the Company's Series B Preferred Stock was converted into an aggregate of 492,006 shares of Common Stock and promissory notes in the aggregate amount of $375,000. Upon the consummation of the Company's initial public offering of Common Stock in October 1996, 129 shares of Class C Convertible Preferred Stock held by Connecticut Innovations Incorporated converted into an aggregate of 154,800 shares of Common Stock. On December 19, 1996, the Company loaned Mr. Masanotti and his wife $50,000, which is due on June 18, 1999, and on April 10, 1997, the Company loaned Mr. Masanotti and his wife $110,000, which is due on April 9, 1999. The interest rate on both of the loans is 8-1/2% per annum. The indebtedness is secured by a pledge in favor of the Corporation of Common Stock held by Mrs. Masanotti. On December 31, 1996 and January 1, 1997, the Company loaned Mr. Joseph Juliano an aggregate of $106,000, at an interest rate of 8.5% per annum pursuant to three promissory notes. Of the total amount, $40,000 was due on February 28, 1997 and was repaid in February 1997 and $12,000 plus interest was forgiven. As of December 31, 1998, Mr. Juliano owed $53,426, which is payable on demand. The loan is secured by a pledge in favor of the Company of 27,000 shares of Common Stock held by Mr. Juliano. On April 11, 1997, the Company loaned to Mr. Barry Lewis $32,000, which is due on April 10, 1999. On December 15, 1997, the Company loaned Mr. Lewis $6,960, which was due on December 14, 1999 and was repaid in May 1998. The interest rate on both of the loans is 8-1/2% per annum. On January 2, 1998, the Company loaned Mr. Lewis $36,240, which is due on demand. The indebtedness is secured by a pledge in favor of the Corporation of Common Stock held by Mr. Lewis. On December 1, 1997, the Company loaned Mr. Kevin Piltz $100,000 at an interest rate of 6% per annum, with interest payable monthly commencing on January 1, 1998. The principal amount outstanding under the loan is payable as to 20% on December 31, 2001 and as to 40% on December 31, 2004, and the remaining principal and interest is payable on December 1, 2008. On January 2, 1998, in connection with the Company's acquisition of all of the issued and outstanding shares of capital stock of Intelicom from CSC Domestic Enterprises, Inc. ("CSC Domestic"), an indirect subsidiary of Computer Sciences Corporation, the Company issued to CSC Domestic 606,673 shares (the "Purchase Shares") of Common Stock. The Purchase Shares represented $10,000,000 of the total purchase price of the acquired corporation. The shares of capital stock and securities issued in the above transactions were offered and sold in reliance upon the exemption from registration under Section 4(2) of the Securities Act or Regulation D or Rule 701 promulgated under the Securities Act, relative to sales by an issuer not involving a public offering. -14- Item 6--Selected Consolidated Financial Data SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data) The following selected financial information has been derived from the Company's Consolidated Financial Statements, which have been audited by Ernst & Young LLP, independent auditors, and, except for the statements of operations for the years ended December 31, 1995 and 1994 and the balance sheets as of December 31, 1996, 1995 and 1994, appear elsewhere in this Annual Report on Form 10-K. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and Notes thereto included elsewhere herein.
Year Ended December 31, 1998 (1) 1997 1996 1995 1994 --------------- --------------- --------------- --------------- ------------- Statements of Operations Data: Revenue........................................... $115,460 $23,429 $16,689 $10,821 $6,324 Costs and expenses: Operating expenses............................. 44,334 5,617 4,283 2,788 1,647 General, administrative and selling expenses... 20,798 6,760 6,523 4,601 2,410 Depreciation and amortization.................. 10,846 1,596 1,054 641 406 Systems development and programming costs...... 16,974 2,911 2,115 1,183 755 Personnel and indirect acquisition costs....... 4,713 - - - - In-process research and development............ 20,800 - - - - --------------- --------------- --------------- --------------- ------------- Total cost and expenses........................... 118,465 16,884 13,975 9,213 5,218 --------------- --------------- --------------- --------------- ------------- Operating income (loss) .......................... (3,005) 6,545 2,714 1,608 1,106 Other income...................................... 1,550 1,702 316 49 29 Interest expense.................................. (2,740) (120) (416) (453) (390) --------------- --------------- --------------- --------------- ------------- Income (loss) before income tax expense........... (4,195) 8,127 2,614 1,204 745 Income tax expense (benefit)...................... (1,095) 3,326 1,112 378 37 --------------- --------------- --------------- --------------- ------------- Income (loss) before extraordinary item........... (3,100) 4,801 1,502 826 708 Extraordinary loss (1995 net of $158 and 1998 net of $562 tax benefit).............................. (826) - - (224) - =============== =============== =============== =============== ============= Net income (loss) (2)............................. $(3,926) $ 4,801 $ 1,502 $ 602 $ 708 =============== =============== =============== =============== ============= Per common share (loss) data basic (3): Pro forma income (loss) before extraordinary item. $ (.20) $ .38 $ .15 $ .09 Extraordinary loss................................ (.05) - - (.03) --------------- --------------- --------------- --------------- Net income (loss)................................. $ (.25) $ .38 $ .15 $ .06 =============== =============== =============== =============== Shares used in determining pro forma basic income (loss) per common share........................ 15,607 12,728 9,890 9,291 =============== =============== =============== =============== Per common share (loss) data diluted (3): Pro forma income (loss) before extraordinary item. $ (.20) $ .36 $ .15 $ .09 Extraordinary loss................................ (.05) - - (.03) --------------- --------------- --------------- --------------- Net income (loss)................................. $ (.25) $ .36 $ .15 $ .06 =============== =============== =============== =============== Shares used in determining pro forma diluted income (loss) per common share................. 15,607 13,193 10,109 9,291 =============== =============== =============== ===============
(1) 1998 results include Intelicom which was acquired on January 2, 1998. (2) Excluding the $25.5 million ($15.8 million after tax) non-recurring in process research and development and personnel and indirect acquisition costs associated with the Company's January 2, 1998 acquisition of Intelicom and the extraordinary loss resulting from the early extinguishment of debt, earnings for the year ended December 31,1998 were $12.7 million or $0.77 per pro forma diluted share. (3) Computed on the basis described in Note 4 of Notes to Consolidated Financial Statements. -15-
Year Ended December 31, 1998 1997 1996 1995 1994 --------------- --------------- ---------------- --------------- ------------ Balance Sheet Data: Cash, cash equivalents and short term investments. $40,735 $ 28,967 $ 4,487 $1,468 $ 512 Securities available for sale, at estimated market value................................... - - 25,023 - - Working capital................................... 56,825 32,572 31,639 1,210 157 Current assets.................................... 78,131 34,936 33,942 3,117 1,457 Current liabilities............................... 21,306 2,364 2,303 1,907 1,300 Total assets...................................... 155,156 44,452 38,398 5,434 2,651 Total long-term debt and capital lease obligations 25 73 878 2,437 1,353 Redeemable Preferred Stock--Class C............... - - - 640 - Total stockholders' equity (deficit).............. 133,825 40,318 34,717 379 (186)
-16- Item 7--Management's Discussion and Analysis of Financial Condition and Results of Operations Overview ITDS is a leading provider of comprehensive transactional billing and management information solutions to providers of wireless and satellite telecommunications services. The Company uses its proprietary software technology to develop billing solutions which address customer requirements as they evolve, regardless of the market segment, geographic area or mix of network features and billing options. Typically, the Company provides its services under contracts with terms ranging from two to five years, and bills customers monthly, on a per-subscriber or fixed fee basis. As a result, a substantial portion of the Company's revenue is recurring in nature, and increases as a provider's subscriber base grows. On January 2, 1998, the Company acquired a subsidiary of Computer Sciences Corporation ("CSC"), a provider of billing and customer care software, by acquiring all of the outstanding Capital Stock of Intelicom. This acquisition was accounted for in accordance with the purchase method of accounting. The purchase price, after working capital adjustments aggregating approximately $14.2 million, aggregated $83.7 million, before direct costs of approximately $1.2 million and consisted of 606,673 shares of Common Stock of the Company valued at $10 million (before registration costs of approximately $100,000) and $73.8 million in cash. In addition, the Company made a $6 million payment in January 1999, which was contingent upon certain performance factors. The assets acquired and liabilities assumed were recorded at their estimated fair value on the date of acquisition and the purchase price in excess of the fair market value of the assets acquired of approximately $45.3 million is being amortized over 15 years. In connection with the acquisition, the Company received current assets of $5.9 million, product development costs of $16.6 million, and other non-current assets of $3 million and assumed accrued liabilities of $7.9 million. In addition, purchased research and development costs of $20.8 million, before income tax benefit, and personnel and other indirect transaction costs of $4.7 million, before income tax benefit, (principally hiring and temporary staff of $1.8 million, special bonuses paid to the Company's employees and management of $2.3 million and systems and other costs of $600,000) associated with the Intelicom acquisition have been expensed in 1998. All of the personnel and indirect acquisition costs were paid during 1998 with the exception of approximately $220,000. The operations of Intelicom are included with the Company's financial statements since the date of acquisition. A portion of the cash purchase price for Intelicom was obtained by the Company under a credit agreement dated January 2, 1998, with certain lenders and Lehman Commercial Paper, Inc., as Administrative Agent and Arranger (the "Credit Agreement"). The Company subsequently amended the Credit Agreement with an Amended and Restated Credit Agreement dated as of March 18, 1998 (the "Amended Credit Agreement") which provided for a $70 million term loan and a $30 million line of credit. The Amended Credit Agreement contains normal covenants which include meeting certain financial ratios. During the quarter ended March 31, 1998, the Company entered into a hedging agreement with a third party, expiring in March 2001, to limit exposure to interest rate volatility on the Amended Credit Agreement (the "Hedge Agreement"). On June 8, 1998 as a result of the follow-on offering described in Note 4, the Company retired the $70 million term loan and terminated the Hedge Agreement. In connection with this, the Company recorded an after tax extraordinary charge of $826,198. The $30 million line of credit remains outstanding at December 31, 1998. No amounts were drawn on the line of credit during 1998. Costs for acquired in-process research and development ("in-process R&D") for projects that did not have future alternative uses were $20.8 million. This allocation represents the estimated fair market value based on risk-adjusted cash flows related to the in-process R&D projects. At the date of acquisition, the development of these projects had not yet reached technological feasibility, and the in-process R&D had no alternative future uses. Accordingly, these costs were written off in the quarter ended March 31, 1998. On the date of its acquisition, Intelicom's in-process R&D value was comprised of three primary R&D programs that were expected to reach completion between late 1998 and 2000. These projects included the introduction of new technology aimed at customer care and billing. At the acquisition date, Intelicom's R&D programs ranged in completion from 35% to 80%, and total continuing R&D commitments to complete the projects were expected to be approximately $5.5 million. On the acquisition date, expenditures to complete Intelicom's projects were expected to be approximately $3 million, $2 million and $500,000 in 1998, 1999 and 2000, respectively. These estimates are subject to change, given the uncertainties of the development process, and no assurance can be given that deviations from these estimates will not occur. Additionally, these projects will require maintenance expenditures when and if they reach a state of technological and commercial feasibility. Based on the activities during 1998, the Company believes that the assumptions used in the valuation are reasonable. -17- Management believes the Company is positioned to complete each of the major R&D programs. However, there is risk associated with the completion of the projects, and there is no assurance that any project will meet with either technological or commercial success. The substantial delay or outright failure of the Intelicom R&D could adversely impact the Company's financial condition. The value assigned to purchased in-process R&D was determined by estimating the projected net cash flow from Intelicom's purchased in-process R&D projects once they had reached commercially viable products and discounting the net cash flows to their present value. The revenue estimates used to value the in-process R&D were based on estimates of relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by the Company and its competitors. The valuation anticipates revenues beginning in 1998. The rates utilized to discount the net cash flows to their present value are based on Intelicom's weighted average cost of capital. Given the nature of the risks associated with the estimated growth, profitability and developmental projects, Intelicom's weighted average cost of capital was adjusted. A discount rate of 30% was deemed appropriate for Intelicom's business enterprise. This discount rate is intended to be commensurate with Intelicom's maturity and the uncertainties in the economic estimates described above. The estimates used by the Company in valuing in-process R&D were based upon assumptions the Company believes to be reasonable but which are inherently uncertain and unpredictable. The Company's assumptions may be incomplete or inaccurate, and no assurance can be given that unanticipated events and circumstances will not occur. Accordingly, actual results may vary from the projected results. Any such variance may result in a material adverse effect on the financial condition and results of operations of the Company. The Company derives revenue (i) primarily from service contracts, whereby a customer contracts with the Company to operate and maintain its transactional billing system and (ii) to a lesser extent, from the development of new software and enhancement of existing installed systems together with the provision of related customer maintenance and training, which is largely based on a time and materials basis. Service revenue related to the operation of customers billing systems accounted for 85.4%, 93.2% and 96.6% of total revenue for 1998, 1997 and 1996, respectively. Services are generally billed monthly and service revenue is recognized in the period in which the services are provided. The remaining revenue relates primarily to development of new software and enhancement of existing installed systems. Operating expenses are comprised primarily of the salaries and benefits of technical service representatives, operations personnel and quality assurance representatives and costs to produce and distribute invoices for customers. General, administrative and selling expenses consist mainly of the salaries and benefits of management and administrative personnel and general office administration expenses (rent and occupancy, telephone and other office supply costs) of the Company. The Company capitalizes software development costs incurred in the development of software used in its product and service line only after establishing commercial and technical viability and ceases when the product is available for general release. The capitalized costs include salaries and related payroll costs incurred in the development activities. Software development costs are carried at cost less accumulated amortization. Amortization is computed by using the greater of the amount that results from applying the ratio that current revenue for the product bears to total revenue for the product or the straight-line method over the remaining useful life of the product. Generally, such deferred costs are amortized over five years. This Annual Report on Form 10-K contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects" and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth below under the caption "Certain Factors That May Affect Future Results." -18- Results of Operations The following table sets forth, for the periods indicated, certain financial data as a percentage of revenue for the years ended December 31, 1998, 1997 and 1996:
Year Ended December 31, 1998 1997 1996 ---------------- ----------------- ---------------- Revenue.............................................. 100.0% 100.0% 100.0% Costs and expenses: Operating expenses................................ 38.4 24.0 25.7 General, administrative and selling expenses...... 18.0 28.9 39.1 Depreciation and amortization..................... 9.4 6.8 6.3 Systems development and programming costs......... 14.7 12.4 12.6 Personnel and indirect acquisition costs.......... 4.1 - - In process research and development .............. 18.0 - - ---------------- ----------------- ---------------- Total costs and expenses............................. 102.6 72.1 83.7 ---------------- ----------------- ---------------- Operating income (loss).............................. (2.6) 27.9 16.3 Other income......................................... 1.3 7.3 1.9 Interest expense..................................... (2.4) (0.5) (2.5) ---------------- ----------------- ---------------- Income (loss) before income tax expense.............. (3.7) 34.7 15.7 Income tax expense (benefit)......................... (1.0) 14.2 6.7 ---------------- ----------------- ---------------- Income (loss) before extraordinary item.............. (2.7) 20.5 9.0 Extraordinary loss................................... 0.7 - - ================ ================= ================ Net income (loss).................................... (3.4)% 20.5% 9.0% ================ ================= ================
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Results of Operations Primarily as a result of the Intelicom Acquisition, the Company's revenues increased from $23.4 million for the year ended December 31, 1997 to $115.5 million for the year ended December 31, 1998. Service revenue related to the operation of customer billing systems accounted for 93.2% and 85.4% of total revenue for the years ended December 31, 1997 and 1998 respectively. Operating expenses for the twelve month period, excluding nonrecurring in process research and development and personnel and indirect costs associated with the Intelicom Acquisition aggregating $25.5 million, increased from $16.9 million in 1997 to $93.0 million in 1998. Additionally, interest expense for the twelve months ended December 31, 1998, increased to $2.7 million from $120,355 for the same period in 1997 primarily as a result of the Company's $70 million term loan obtained in connection with the Intelicom Acquisition. The Company's effective tax rate for the twelve month period decreased from 40.9% in 1997 to 26.1% in 1998 primarily due to the amount of tax benefit anticipated in connection with the nonrecurring costs associated with the Intelicom Acquisition. On a pro forma basis, assuming the Intelicom Acquisition occurred on January 1, 1997, revenues for the year ended 1998 increased 43.6% from $80.4 million in 1997 to $115.5 million on an actual basis in 1998. The increase is due primarily to the growth of recurring revenue from existing customers. Total pro forma operating and other expenses increased 38.6% from $67.1 million on a pro forma basis for 1997 to $93.0 million in 1998 excluding nonrecurring in process research and development and personnel and indirect costs associated with the Intelicom Acquisition. This increase is due primarily to the increased service and systems support necessary for the growing client base, provided in part by outside contractors. -19- For the year ended December 31, 1998 non-recurring charges of $25.5 million ($15.8 million after tax) for in-process research and development ($20.8 million) and personnel and indirect acquisition costs (principally hiring and temporary staff of $1.8 million, special bonuses paid to the Company's employees and management of $2.3 million and systems and other costs of $600,000) associated with the Intelicom Acquisition. All of the personnel and indirect acquisition costs were paid during 1998 with the exception of approximately $220,000. Earnings for the twelve months ended December 31, 1998 before nonrecurring and extraordinary items were $12.7 million or $0.77 per pro forma diluted share. Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Revenue Revenue increased 40.4% from $16.7 million in 1996 to $23.4 million in 1997, due primarily to the addition of new customers and the growth of recurring revenue from existing customers. Operating expenses Operating expenses increased 31.1% from $4.3 million in 1996 to $5.6 million in 1997, due primarily to the addition of new personnel required to support the growth of the Company's business. As a percentage of revenue, such expenses decreased from 25.7% in 1996 to 24.0% in 1997, due to the fixed nature of a portion of the Company's operating expenses. General, administrative and selling expenses General, administrative and selling expenses increased 3.6% from $6.5 million in 1996 to $6.7 million in 1997. This increase was primarily due to increases in salaries and employee related expenses resulting primarily from staff increases (other than senior management salaries and related expenses) of $592,504, increases in outside programming consultant costs of $778,005, increases in rent and office expenses of $322,379 and increases in marketing and trade show expenses of $205,492. These and other less significant expense increases were partially offset by a reduction in senior management costs of $1.8 million resulting primarily from the 1996 charge ($909,548) related to two newly hired senior executives and the full year benefit from the reduction in senior management's salaries and bonuses after the Company's initial public offering ("IPO") in October 1996. Depreciation and amortization Depreciation and amortization expenses increased 51.5% from $1 million in 1996 to $1.6 million in 1997 primarily due to the purchase of computer equipment and the increased capitalization related to product development costs to enhance the Company's solution system to support Unix based file servers and further development of its integrated billing and management information system. Depreciation and amortization expenses increased as a percentage of revenue from 6.3% in 1996 to 6.8% in 1997. Systems development and programming costs Systems development and programming costs increased 37.6% from $2.1 million in 1996 to $2.9 million in 1997, primarily due to increased programming support required by a larger customer base. As a percentage of revenue, system development and programming costs decreased from 12.6% in 1996 to 12.4% in 1997. In addition, the Company capitalized $858,827 and $2.9 million in software development costs in 1996 and 1997, respectively. Other income Other income increased 439% from $315,914 in 1996 to $1.7 million in 1997, primarily due to an increase in investment income of $1.3 million. Interest expense Interest expense decreased 71.1% from $416,148 in 1996 to $120,355 in 1997, as a result of the Company reducing outstanding debt and capital leases in the fourth quarter of 1996 and throughout 1997. -20- Income tax expense The Company's effective tax rate decreased from 42.5% in 1996 to 40.9% in 1997. This reduction is partially a result of the elimination of non-deductible expenses and reduced state income taxes. Liquidity and Capital Resources The Company has financed its operations primarily through placements of debt and equity securities, cash generated from operations and equipment financing leases. As of December 31, 1998, the Company had $40.7 million in cash and cash equivalents, $34.7 million in net trade accounts receivable and $56.8 million in working capital. For the year ended December 31, 1998, the Company generated cash of $10.6 million from operating activities. The increase in accounts receivable includes the build up of Intelicom receivables ($14 million) which were retained by CSC at the time of the acquisition. Had the receivables been included in the acquired assets, cash provided by operations would have been $24.6 million and cash used for investing activities would have been $98.5 million for the year ended December 31, 1998. The Company also generated cash of $85.6 million from financing activities, including the sale of Common Stock in June 1998 for $83.1 million in net proceeds. Using proceeds from the follow-on offering, the Company retired the $70 million term loan, obtained in connection with the Intelicom Acquisition. The offering and cash generated from operating activities also enabled the Company to fund its operations, apply $6.9 million to product development costs and make $3.7 million in capital expenditures. The Company believes that its existing capital resources are adequate to meet its cash requirements for the foreseeable future. There can be no assurance, however, that changes in the Company's plans or other events affecting the Company's operations will not result in accelerated or unexpected expenditures. The Company has a $30 million unused line of credit available for future cash requirements. The Company may seek additional funding through public or private financing. There can be no assurance, however, that additional financing will be available from any of these sources or will be available on terms acceptable to the Company. To date, inflation has not had a significant impact on the Company's operations. Year 2000 Disclosure The Company has established a Year 2000 Task Force (the "Task Force") which includes employees with various functional and divisional responsibilities, material third parties and outside consultants. The Task Force has identified five phases in becoming Year 2000 compliant: (I) awareness--locating, listing and prioritizing specific technology that is potentially subject to Year 2000 related challenges; (II) assessment--determining the level of risk that exists through inquiry, research and testing; (III) renovation--updating code to resolve Year 2000 related issues that were identified in previous phases by repair in a testing environment. (IV) validation--testing, monitoring, obtaining certification and verifying the correct manipulation of dates and date related data, including systems of material third parties; and (V) implementation--installation, integration and application of Year 2000 ready resolutions by replacement, upgrade, or repair of Information Technology systems, including those of material third parties. The Company is performing its Year 2000 analysis on both the front-end of its systems, which are located at its customers' sites, and the back-end of its systems, which are located at the Company. As of March 1, 1999, the awareness, assessment and renovation phases of all of the Company's systems have been completed in their entirety. With respect to the front-end portion of the systems, the Year 2000 Task Force is currently in the validation and implementation phases. The Company expects to be completed with all five of its phases of the front-end of the systems by mid 1999. At that point, upgrades and replacements will be provided to the Company's customers. However, there can be no assurance that customers will accept and install the upgrades and replacements in a timely manner. With respect to the back-end portion of the Company's systems, the Year 2000 Task Force is currently in the validation phase. The Company expects to be completed with the validation and implementation phases of the back-end systems by mid 1999. If validation and implementation of the Company's critical systems fail to meet the Company's expectations, or identify a risk of noncompliance with a particular functionality, the Company will perform the renovation phase to identify alternative solutions. As of March 1, 1999, approximately 80% of all validation activities and 50% of all implementation activities are complete. -21- The Company is in the process of developing a working contingency plan for the Year 2000 issue. The contingency plan is scheduled to be completed during the third quarter of 1999. The Company will perform testing on all subsequent upgrades of software deemed Year 2000 compliant to ensure continued compliance. In addition to internally generated systems, the Company relies on third parties for its system infrastructure, operating systems, human resources, financial, and supporting billing and customer care software, some of which are not yet Year 2000 compliant. The Company is in the process of obtaining assurances from third parties that their systems are or will be Year 2000 compliant in a timely manner. While the Company does not anticipate delays or postponements in implementing Year 2000 resolutions by the previously stated time frame, there can be no certainty that implementation of solutions will be made in a timely manner until the validation phase has been completed. The inability to address all issues in a timely and successful manner, could have a material adverse effect on the Company's business and results of operations. The failure of third parties to provide Year 2000 compliant software products could have a material adverse effect on the Company's financial condition and results of operations. Such risks include, but are not limited to, failure to accurately report and bill existing subscribers for phone usage, accept new orders, activate new subscribers, and the inability to perform other customer care tasks. Based on information developed to date as a result of the Task Force assessment efforts, Management believes that the costs of becoming Year 2000 compliant will be approximately $4.0 million. Through December 31, 1998, the Company has incurred $2.5 million toward this development effort. Although the Company does not expect the cost to have a material adverse effect on its business or results of operations, there can be no assurance that the Company will not be required to incur significant unanticipated costs in relation to its readiness obligations. The Company has not deferred any specific projects, goals or objectives relating to its domestic and international operations as a result of implementing the Company's Year 2000 compliance efforts. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in years beginning after June 15, 1999. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of the new Statement will have a significant effect on earnings or the financial position of the Company. Effective January 1, 1998, the Company adopted the FASB's Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131 superseded FASB Statement No. 14, Financial Reporting for Segments of a Business Enterprise. SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. SFAS 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. The adoption of Statement 131 did not affect results of operations or financial position. The operating results of the Company is regularly reviewed by the chief operating decision maker as one well-defined line of business. Therefore, the Company has determined that under the requirements of Statement 131, it continues to have only one operating segment. As of January 1, 1998, the Company adopted SFAS 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components. Certain Factors That May Affect Future Results The following important factors, among others, could cause actual results to differ materially from those indicated by forward-looking statements made in this Annual Report on Form 10-K and presented elsewhere by management from time to time. Reliance On Significant Customers For the year ended December 31, 1998, revenue from Nextel Communications represented 30.2% of the Company's total revenue and revenue from Western Wireless represented 11.9% of the Company's total revenue. As a result of the Company's acquisition of Intelicom in January of 1998, the Company has several new customers with substantially larger subscriber bases than its then existing customers. It is likely that certain of the Company's new customers, including each of Nextel and Western Wireless will continue to represent over 10 percent of the Company's revenues in the future. The Company has contracts with all of its significant customers, however the Company's relationships with its largest customers have only been established since January 1998, in connection with the Company's acquisition of Intelicom. There can be no assurance that any such customer will renew its contract with the Company at the end of the contract term or may not seek to terminate its contract on the basis of alleged contractual defaults or other grounds. Loss of all or a significant part of the business of any of the Company's substantial customers would have a material adverse effect on the Company's business, financial condition and results of operations. Additionally, the acquisition by a third party of one of the Company's substantial customers could result in the loss of that customer and have a material adverse effect on the business, financial condition and results of operations of the Company. Industry Consolidation There has been a tremendous amount of business consolidation within the wireless telecommunications industry. The down stream impact is that there are less wireless customers requiring the services of billing and customer care providers, increasing the level of competition in the industry. In addition, these consolidated wireless companies have also strengthened their purchasing power, putting pressure on reducing prices and challenging margin levels, and they strive to streamline their operations as they bring multiple billing systems onto one system, reducing the number of vendors needed. Although the Company has sought to address this situation by continuing to market its products and services to new customers, entering contracts up to five years to protect current price and margin levels and working with existing customers to provide the services they need to remain competitive in the market place, there can be no assurance that the Company will not lose significant customers as a result of industry consolidation. XCEDE May Not be Commercially Successful The Company has devoted substantial development and marketing efforts to complete and promote its XCEDE product. XCEDE has not yet been installed commercially, and it is currently anticipated that it will first be installed in the second quarter of 1999. There can be no assurance that XCEDE will be commercially successful. In addition, there can be no assurances that XCEDE will perform in accordance with customer expectations. Any unanticipated program development on the XCEDE system could result in substantial costs to the Company and could delay the Company's commercial introduction of the product. Such costs or delays could have a material adverse effect on the Company's business, financial condition and results of operations of the Company. -22- Rapidly Changing Telecommunications Market Over the last decade, the market for telecommunications services has been characterized by rapid technological developments, evolving industry standards, dramatic changes in the regulatory environment and frequent new product introductions. The Company's success will depend upon its ability to enhance its existing products and services, and to introduce new products and services which will respond to these market requirements as they evolve. To date, substantially all of the Company's revenues are attributable to wireless customers, many of whom are expanding their product offerings in the face of competition. There can be no assurances that the Company can develop products that will meet the evolving needs of its customers. In addition, technologies, services or standards may be developed which could require significant changes in the Company's business model, development of new products, or provision of additional services, at substantial cost to the Company. Such developments may also result in the introduction of additional competitors into the marketplace. Integration of Intelicom In January 1998, the Company acquired Intelicom, and substantially increased the size of the Company's operations. The future success of the Company will depend in part upon whether the integration of the two companies' businesses is achieved in an efficient and effective manner, and there can be no assurance that this will occur. The successful combination of the two companies will require, among other things, integration of the companies' respective product offerings and platforms and coordination of their sales and marketing and research and development efforts. There can be no assurance that integration will be accomplished smoothly or successfully. The difficulties of such integration may be increased by the necessity of coordinating geographically separated organizations with distinct cultures. The integration of certain operations has required, and will continue to require, the dedication of management resources which may temporarily distract attention from the day-to-day business of the combined company. Management of Growth The Company has experienced rapid growth and intends to continue to aggressively expand its operations. The Company's total revenues have increased from $3.1 million in 1993 to $115.5 million in 1998. In addition, the Company substantially increased the size of its operations, as well as the number of subscribers it serves, by acquiring Intelicom in early January 1998. The growth in the size and complexity of its business, as well as its customer base, has placed and is expected to continue to place significant demands on the Company's administrative, operational and financial personnel and systems. Additional expansion by the Company may further strain the Company's management, financial and other resources. The Company's future operating results will depend on the ability of its officers and key employees to manage changing business conditions and to implement and improve its operational, financial control and reporting functions. The number of the Company's employees has increased from 26 as of January 1993 to 673 as of February 1999. A substantial portion of the Company's current employees joined the Company in January 1998, in conjunction with the Company's acquisition of Intelicom. The Company anticipates that continued growth will require it to recruit and hire a substantial number of new development, managerial, finance, sales and marketing support personnel. There can be no assurance that the Company will be successful in hiring or retaining any of the foregoing personnel. The Company's ability to compete effectively and to manage future growth, if any, will depend on its ability to improve operational systems and to expand, train, motivate and manage its workforce. -23- New Products and Rapid Technological Change The market for the Company's products and services is characterized by rapid technological change. The Company believes that its future success depends in part upon its ability to enhance its current solutions and develop new products and services that address the increasingly complex needs of its customers. In addition, the introduction of new products or services by third parties could render the Company's existing solutions obsolete or unmarketable. The Company's ability to anticipate changes in technology and successfully develop and introduce new or enhanced products incorporating such technology on a timely basis will be significant factors in its ability to remain competitive. Dependence on Wireless Telephone Industry Although the Company's products have been designed to adapt to a variety of current and future technologies, substantially all of its revenues to date have been generated by sales of its solutions to service providers in the wireless telephone industry. A decrease in the number of wireless service products served by the Company's customers could result in lower revenues for the Company. Although the wireless market has experienced substantial growth in the number of subscribers in the past, there can be no assurance that such growth will be sustained. Dependence on Key Personnel; New Management The Company's performance depends substantially on the performance of its executive officers and key employees. The Company's long-term success will depend upon its ability to recruit, retain and motivate highly skilled personnel. Competition for such personnel is intense, and there can be no assurance that the Company will be able to attract, assimilate or retain highly skilled personnel in the future. In addition, several members of the Company's senior management team have only recently joined the Company. For example, Peter P. Bassermann, the Company's President, joined the Company in September 1997, and Susan Yezzi joined the Company in late 1997 and assumed the role of the Company's Chief Operating Officer in February 1999. The Company is currently seeking a Chief Financial Officer to replace Paul K. Kothari, who served in that capacity from February 1998 to February 1999. Peter L. Masanotti became the Company's Acting Chief Financial Officer in February 1999. Although the Company believes that the extensive industry experience of new members of management is essential to the Company's growth and outweighs short employment histories with the Company, there can be no assurances that the new officers will be successful in assimilating into their managerial roles with the Company. Competition The market for billing and customer care systems for the telecommunications services industry is highly competitive and the Company expects that the high level of growth within the telecommunications services industry will encourage new entrants, both domestically and internationally, in the future. The Company competes with independent providers of transactional systems and services, with the billing services of management consulting companies and with internal billing departments of telecommunications services providers. The Company anticipates continued growth in competition in the telecommunications services industry and consequently the entrance of new competitors into its market in the future. Dependence on Proprietary Technology The Company's success is dependent in part upon its proprietary software technology. The Company relies on trademark, copyright and trade secret laws, employee and third-party non-disclosure -24- agreements and other methods to protect its proprietary rights. There can be no assurance that its agreements with employees, consultants and others who participate in the development of its software will not be breached, that the Company will have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known to or independently developed by competitors. Furthermore, there can be no assurance that the Company's efforts to protect its rights through trademark and copyright laws will prevent the development and design by others of products or technology similar to or competitive with those developed by the Company. Fluctuations in Quarterly Performance The Company's revenues and operating results may fluctuate from quarter to quarter due to a number of factors including the timing, size and nature of the Company's contracts; long sales cycles typically associated with large customers, which require the Company to make a substantial investment in the conversion process prior to the generation of revenue; the hiring of additional staff; seasonal variations in wireless telephone subscriptions; the timing of the introduction and the market acceptance of new products or product enhancements by the Company or its competitors; changes in the Company's operating expenses; and fluctuations in economic and financial market conditions. Fluctuations in quarterly operating results may result in volatility in the price of the Common Stock. -25- Item 7A--Quantitative and Qualitative Disclosures About Market Risk At December 31, 1998, the Company does not have any derivatives, debt or hedges outstanding. In addition, because the Company's foreign operations are minimal, the risk of foreign currency fluctuation is not material to the Company's financial position or results of operations. The Company's available line of credit requires interest on outstanding borrowings at various rates. Therefore, the Company is not subject to interest rate risk, but could be subject to fluctuating cash flows on outstanding borrowings. -26- Item 8--Financial Statements and Supplementary Data INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Report of Independent Auditors.................................................................................. 28 Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 1998 and 1997.................................................... 29 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996.............................................................................. 31 Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended December 31, 1998, 1997 and 1996.............................................................................. 32 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996.............................................................................. 33 Notes to Consolidated Financial Statements...................................................................... 34
-27- REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders International Telecommunication Data Systems, Inc. We have audited the accompanying consolidated balance sheets of International Telecommunication Data Systems, Inc. as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of International Telecommunication Data Systems, Inc. at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Stamford, Connecticut February 16, 1999 -28- INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data)
December 31, 1998 1997 ----------------------------------- Assets Current assets: Cash and cash equivalents............................................................ $ 40,735 $28,967 Accounts receivable, net of allowances for doubtful accounts of $2,362 and $486, respectively................................................................. 34,713 5,008 Prepaid expenses, and other current assets........................................... 1,843 741 Deferred income taxes................................................................ 840 220 ----------------------------------- Total current assets.................................................................... 78,131 34,936 Property and equipment Computers, including leased property under capital leases of $1,150 and $1,105, respectively...................................................................... 9,506 4,844 Furniture and fixtures............................................................... 2,005 447 Equipment, including leased property under capital leases of $54 in 1998 and 1997.... 706 373 Leasehold improvements............................................................... 970 589 ----------------------------------- 13,187 6,253 Less: accumulated depreciation and amortization...................................... 5,450 2,319 ----------------------------------- 7,737 3,934 Other assets: Goodwill - net of accumulated amortization of $3,010 in 1998......................... 42,249 - Product development costs--at cost, net of accumulated amortization of $5,810 and $1,105 at December 31, 1998 and December 31, 1997, respectively ................... 22,511 3,698 Deferred income taxes................................................................ 4,138 - Other................................................................................ 390 1,884 ----------------------------------- 69,288 5,582 =================================== Total assets............................................................................ $155,156 $44,452 ===================================
See accompanying notes. -29- INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS--Continued
December 31, 1998 1997 ------------------------------------ Liabilities and stockholders' equity Current liabilities: Accounts payable............................................................. $ 10,921 $ 1,192 Accrued expenses and income taxes payable.................................... 2,919 560 Accrued compensation......................................................... 3,026 333 Customer advances and deferred revenue....................................... 3,862 - Current maturities of capital lease obligations.............................. 74 279 Other........................................................................... 504 - ------------------------------------ Total current liabilities....................................................... 21,306 2,364 Capital lease obligations....................................................... 25 73 Deferred income taxes........................................................... - 1,667 Other........................................................................... - 30 Stockholders' equity Common Stock, $.01 par value; 40,000,000 shares authorized, 17,313,231 and 12,786,740 shares issued and outstanding at December 31, 1998 and December 31, 1997, respectively........................................ 173 128 Additional paid-in capital................................................... 141,662 44,447 Retained deficit............................................................. (7,952) (4,026) Unearned compensation........................................................ (58) (231) ------------------------------------ Total stockholders' equity...................................................... 133,825 40,318 ==================================== Total liabilities and stockholders' equity...................................... $155,156 $44,452 ====================================
See accompanying notes. -30- INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data)
Year ended December 31, 1998 1997 1996 ---------------------------------------------------- Revenue $115,460 $23,429 $16,689 Costs and expenses: Operating expenses.............................................. 44,334 5,617 4,283 General, administrative and selling expenses.................... 20,798 6,760 6,523 Depreciation and amortization................................... 10,846 1,596 1,054 Systems development and programming costs....................... 16,974 2,911 2,115 Personnel and indirect acquisition costs........................ 4,713 - - In-process research and development ............................ 20,800 - - ---------------------------------------------------- Total costs and expenses........................................... 118,465 16,884 13,975 Operating income (loss)............................................ (3,005) 6,545 2,714 Other income....................................................... 1,550 1,702 316 Interest expense................................................... (2,740) (120) (416) ---------------------------------------------------- Income (loss) before income taxes and extraordinary item........... (4,195) 8,127 2,614 Income tax expense (benefit)....................................... (1,095) 3,326 1,112 ---------------------------------------------------- Income (loss) before extraordinary item............................ (3,100) 4,801 1,502 Extraordinary loss (net of $562 tax benefit)....................... (826) - - ---------------------------------------------------- Net income (loss).................................................. $ (3,926) $ 4,801 $ 1,502 ==================================================== Income (loss) per common share--basic: Income (loss) before extraordinary item......................... $ (.20) $ .38 $ .15 Extraordinary loss.............................................. (.05) - - ---------------------------------------------------- Net income (loss).................................................. $ (.25) $ .38 $ .15 ==================================================== Shares used in computing basic income (loss) per common share...... 15,607 12,728 9,890 ==================================================== Income (loss) per common share--diluted: Income (loss) before extraordinary item......................... $ (.20) $ .36 $ .15 Extraordinary loss.............................................. (.05) - - ---------------------------------------------------- Net income (loss).................................................. $ (.25) $ .36 $ .15 ==================================================== Shares used in computing diluted income (loss) per common share.................................................... 15,607 13,193 10,109 ====================================================
See accompanying notes. -31- INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (In thousands, except share and per share data)
Preferred Stock --------------------------------------------- Class A Class B Common Stock ---------------------- --------------------- ----------------------- Number Number Number of Shares $25,000 of Shares $250 of Shares Outstanding Par Value Outstanding Par Value Outstanding Par Value ---------------------- ---------------------- ----------------------- Balance at December 31, 1995 18 $ 400 1,500 $328 7,312,800 $ 76 Net income Net unrealized loss on securities available for sale Comprehensive income Preferred stock dividends declared Retirement of treasury (2) stock Recapitalization of Class A & B preferred stock (18) (400) (1,500) (328) 1,279,218 13 Compensation paid in common stock 106,152 1 Conversion of Class C convertible preferred stock 154,800 2 Exercise of warrants 501,786 5 Sale of common stock, net of expenses 3,300,000 32 ---------------------- --------------------- ----------------------- Balance at December 31, 1996 - - - - 12,654,756 127 Net income Net unrealized gain on securities available for sale Comprehensive income Secondary sale of common stock 75,000 1 Employee stock purchase plan 9,078 Exercise of stock options 47,906 Amortization of unearned compensation ---------------------- --------------------- ----------------------- Balance at December 31, 1997 - - - - 12,786,740 128 Net (loss) Comprehensive (loss) Shares issued in connection with Intelicom acquisition 606,673 6 Secondary sale of common stock 3,662,750 37 Employee stock purchase plan 24,300 - Exercise of stock options 232,768 2 Tax benefit from stock options Amortization of unearned compensation ---------------------- --------------------- ----------------------- Balance at December 31, 1998 - $ - - $ - 17,313,231 $ 173 ====================== ===================== =======================
Unearned Compensa- tion Accumulated Additional Treasury Retained Restricted Other Paid-in Stock at Earnings Stock Comprehensive Capital Cost (Deficit) Awards Income Total ----------------------------------------------------------------------- Balance at December 31, 1995 $(400) $ (25) $ 379 Net income 1,502 1,502 Net unrealized loss on securities available for sale $ (37) (37) -------------- Comprehensive income 1,465 -------------- Preferred stock dividends declared (79) (79) Retirement of treasury stock $ (398) 400 - Recapitalization of Class A & B preferred stock 10,115 (10,225) (825) Compensation paid in common stock 969 $ (336) 634 Conversion of Class C convertible preferred stock 638 640 Exercise of warrants 818 823 Sale of common stock, net of expenses 31,648 31,680 ----------------------------------------------------------------------- Balance at December 31, 1996 43,790 - (8,827) (336) (37) 34,717 Net income 4,801 4,801 Net unrealized gain on securities available for sale 37 37 -------------- Comprehensive income 4,838 -------------- Secondary sale of common stock 172 173 Employee stock purchase plan 113 113 Exercise of stock options 372 372 Amortization of unearned compensation 105 105 ----------------------------------------------------------------------- Balance at December 31, 1997 44,447 - (4,026) (231) - 40,318 Net (loss) (3,926) (3,926) -------------- Comprehensive (loss) (3,926) -------------- Shares issued in connection with Intelicom acquisition 9,894 9,900 Secondary sale of common stock 83,107 83,144 Employee stock purchase plan 456 456 Exercise of stock options 1,887 1,889 Tax benefit from stock options 1,871 1,871 Amortization of unearned compensation 173 173 ----------------------------------------------------------------------- Balance at December 31, 1998 $141,662 $ - $ (7,952) $ (58) $ - $133,825 =======================================================================
See accompanying notes. -32- INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year ended December 31, 1998 1997 1996 -------------------------------------------------- Operating activities Net income (loss)...................................................... $ (3,926) $ 4,801 $ 1,502 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Extraordinary loss................................................ 826 - - Write-off in process research and development..................... 20,800 - - Depreciation and amortization..................................... 10,846 1,596 1,054 Amortization of unearned compensation............................. 173 105 - Compensation paid in Common Stock................................. - - 634 Deferred income taxes............................................. (6,425) 1,084 612 Change in operating assets and liabilities: Accounts receivable............................................. (23,996) (1,775) (1,884) Prepaid expenses and other current assets....................... (900) 414 (875) Accounts payable and accrued expenses........................... 8,900 320 391 Customer advances............................................... 2,766 - - Other assets and liabilities, net............................... 1,580 (1,789) 12 -------------------------------------------------- Net cash provided by operating activities.............................. 10,644 4,756 1,446 Investing activities Capital expenditures................................................... (3,749) (2,738) (1,853) Purchase of securities available for sale.............................. - (25,329) (25,060) Purchase of investments held to maturity............................... - (3,062) (353) Proceeds from maturities of investments................................ - 3,411 300 Proceeds from maturities of securities available for sale.............. - 50,389 - Purchase of Intelicom.................................................. (73,832) - - Product development costs.............................................. (6,918) (2,872) (859) -------------------------------------------------- Net cash (used for) provided by investing activities................... (84,499) 19,799 (27,825) Financing activities Principal payments on long-term debt................................... (70,000) - (1,811) Proceeds from long-term debt........................................... 70,000 - - Tax benefit associated with stock options.............................. 1,871 - - Financing fee related to acquisition................................... (1,484) - - Payment to retire Preferred Stock...................................... - - (825) Principal payments on notes payable.................................... - - (77) Principal payments on capital lease obligations........................ (253) (385) (362) Proceeds from sale of Common Stock..................................... 85,489 658 32,502 Dividends paid......................................................... - - (82) -------------------------------------------------- Net cash provided by financing activities.............................. 85,623 273 29,345 Net increase in cash and cash equivalents.............................. 11,768 24,828 2,966 Cash and cash equivalents at beginning of year......................... 28,967 4,139 1,173 -------------------------------------------------- Cash and cash equivalents at end of year............................... $ 40,735 $ 28,967 $ 4,139 ================================================== Supplemental disclosures of cash flow information: Cash paid during the year for interest................................. $ 2,738 $ 120 $ 434 Cash paid during the year for taxes.................................... $ 1,420 $ 2,342 $ 820
Supplemental disclosure of noncash financing activities: Capital lease obligations totaling $685,604 in the year ended December 31, 1996, were incurred for the acquisition of new equipment. See accompanying notes. -33- INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Description of Business International Telecommunication Data Systems, Inc. ("ITDS" or the "Company") is a leading provider of comprehensive transactional billing and management information solutions to providers of wireless and satellite telecommunications services. The Company uses its proprietary software technology to develop billing solutions which address customer requirements as they evolve, regardless of the market segment, geographic area or mix of network features and billing options. Typically, the Company provides its services under contracts with terms ranging from two to five years, and bills customers monthly, on a per-subscriber and fixed fee basis. As a result, substantially all of the Company's revenue is recurring in nature, and increases as a provider's subscriber base grows. Basis of Presentation Property and Equipment Property and equipment are carried at cost, less accumulated depreciation computed using the straight-line method over the estimated useful lives of the assets. Amortization of assets under capital leases is included in depreciation expense. The Company capitalizes software development costs incurred in the development of software used in its product and service line only after establishing commercial and technical viability and ceases when the product is available for general release. The capitalized costs include salaries and related payroll costs incurred in the development activities. Software development costs are carried at cost less accumulated amortization. Amortization is computed by using the greater of the amount that results from applying the ratio that current revenue for the product bears to total revenue for the product or the straight-line method over the remaining useful life of the product. Generally, such deferred costs are amortized over five years. During the years ended December 31, 1998, 1997 and 1996, $4.7 million, $518,398 and $300,105, respectively, of capitalized software development costs were amortized. Revenue Recognition Revenues and costs associated with the recurring process of providing billing and other service / software solutions are recognized at the time services are performed. Custom programming contracts are accounted for upon completion of short-term projects. For longer-term custom programming projects, the percentage of completion method is used. Accounts receivable at December 31, 1998 and 1997 include $12.3 million and $2.3 million, respectively, for services rendered prior to December 31 which were billed in January of the following year when the billing cycles were complete. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Consolidation The financial statements include the accounts of ITDS and consolidated subsidiaries after elimination of intercompany accounts and transactions. -34- INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Advertising Costs The Company expenses advertising costs as incurred. Advertising expenses for the years ended December 31, 1998, 1997, and 1996 were $670,542, $233,673 and $194,097, respectively. Other Income Other income for the years ended December 31, 1998, 1997 and 1996 includes $1.4 million, $1.6 million and $313,132, respectively, of investment income, primarily interest income. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Major Customers Revenues generated from Nextel and Western Wireless accounted for approximately 30.2% and 11.9%, respectively, of 1998 revenues. For the year ended 1997 revenues from Aliant Communications and Sygnet Communications accounted for 18.4% and 11.7%, respectively, and for the year ended 1996 Aliant Communications and Horizon Cellular accounted for 19.1% and 12.5%, respectively, of revenues. The loss of either Nextel or Western Wireless could have an adverse impact on the financial condition and results of operations of the Company. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in years beginning after June 15, 1999. Because of the Company's limited use of derivatives, management does not anticipate that the adoption of the new Statement will have a significant effect on earnings or the financial position of the Company. Effective January 1, 1998, the Company adopted the FASB's Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131 superseded SFAS 14, Financial Reporting for Segments of a Business Enterprise. SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. SFAS 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. The adoption of SFAS 131 did not affect results of operations or financial position. The operating results of the Company are regularly reviewed by the chief operating decision maker as one well-defined line of business. Therefore, the Company has determined that under the requirements of SFAS 131, it continues to have only one operating segment. As of January 1, 1998, the Company adopted SFAS 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components. -35- INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 2. ACQUISITION On January 2, 1998, the Company acquired a subsidiary of Computer Sciences Corporation ("CSC"), a provider of billing and customer care software, by acquiring all of the outstanding Capital Stock of CSC Intelicom Inc. (now known as ITDS Intelicom Services, Inc.) ("Intelicom"). This acquisition was accounted for using the purchase method of accounting. The purchase price, after working capital adjustments aggregating approximately $14.2 million, aggregated $83.7 million, before direct costs of approximately $1.2 million and consisted of 606,673 shares of Common Stock of the Company valued at $10 million (before registration costs of $100,000) and $73.8 million in cash. In addition, the Company made a $6 million payment in January 1999, which was contingent upon certain performance factors. The assets acquired and liabilities assumed were recorded at their estimated fair value on the date of acquisition and the purchase price in excess of the fair market value of the assets acquired of approximately $45.3 million is being amortized over 15 years. In connection with the acquisition the Company received current assets of $5.9 million, product development costs of $16.6 million, and other non-current assets of $3 million and accrued liabilities of $7.9 million. In addition, purchased research and development costs of $20.8 million, before income tax benefit, and personnel and other indirect transaction costs of $4.7 million, before income tax benefit, (principally hiring and temporary staff of $1.8 million, special bonuses paid to the Company's employees and management of $2.3 million and systems and other costs of $600,000) associated with the Intelicom acquisition have been expensed in 1998. The operations of Intelicom are included with the Company's financial statements since the date of acquisition. All of the personnel and indirect acquisition costs were paid during 1998 with the exception of approximately $220,000. Assuming the acquisition occurred on January 1, 1997, revenues, net income and diluted earnings per share for 1997 would have been $80.4 million, $5.2 million and $0.37, respectively. A portion of the cash purchase price for Intelicom was obtained by the Company under a credit agreement dated January 2, 1998, with certain lenders and Lehman Commercial Paper, Inc., as Administrative Agent and Arranger (the "Credit Agreement"). The Company subsequently amended the Credit Agreement with an Amended and Restated Credit Agreement dated as of March 18, 1998 (the "Amended Credit Agreement") which provided for a $70 million term loan and a $30 million line of credit. The Amended Credit Agreement contains normal covenants which include meeting certain financial ratios. During the quarter ended March 31, 1998, the Company entered into a hedging agreement with a third party, expiring in March 2001, to limit exposure to interest rate volatility on the Amended Credit Agreement (the "Hedge Agreement"). On June 8, 1998 as a result of the follow-on offering described in Note 4, the Company retired the $70 million term loan and terminated the Hedge Agreement. In connection with repaying the $70 million term loan, and canceling the Hedge Agreement, the Company recorded an after tax extraordinary charge of $826,198. The $30 million line of credit remains outstanding at December 31, 1998. No amounts were drawn on the line of credit during 1998. Costs for acquired in-process research and development ("in-process R&D") for projects that did not have future alternative uses were $20.8 million. This allocation represents the estimated fair market value based on risk-adjusted cash flows related to the in-process R&D projects. At the date of acquisition, the development of these projects had not yet reached technological feasibility, and the in-process R&D had no alternative future uses. Accordingly, these costs were written off in the quarter ended March 31, 1998. On the date of its acquisition, Intelicom's in-process R&D value was comprised of three primary R&D programs that were expected to reach completion between late 1998 and 2000. These projects included the introduction of new technology aimed at customer care and billing technology. At the acquisition date, Intelicom's R&D programs ranged in completion from 35% to 80%, and total continuing R&D commitments to complete the projects were expected to be approximately $5.5 million. On the acquisition date, expenditures to complete the Intelicom's projects were expected to be approximately $3 million, $2 million and $500,000 in 1998 through 2000, respectively. These estimates are subject to change, given the uncertainties of the development process, and no assurance can be given that deviations from these estimates will not occur. Additionally, these projects will require maintenance expenditures when and if they reach a state of technological and commercial feasibility. Based on the activities during 1998, the Company believes that the assumptions used in the valuation are reasonable. -36- INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 2. ACQUISITION (continued) Management believes the Company is positioned to complete each of the major R&D programs. However, there is risk associated with the completion of the projects, and there is no assurance that any project will meet with either technological or commercial success. The substantial delay or outright failure of the Intelicom R&D could adversely impact the Company's financial condition. The value assigned to purchased in-process R&D was determined by estimating the costs to develop Intelicom's purchased in-process R&D into commercially viable products, estimating the resulting net cash flows from the projects and discounting the net cash flows to their present value. The revenue estimates used to value the in-process R&D were based on estimates of relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by the Company and its competitors. The valuation anticipates revenues beginning in 1998. The rates utilized to discount the net cash flows to their present value are based on Intelicom's weighted average cost of capital. Given the nature of the risks associated with the estimated growth, profitability and developmental projects, Intelicom's weighted average cost of capital was adjusted. A discount rate of 30% was deemed appropriate for Intelicom's business enterprise. This discount rate is intended to be commensurate with Intelicom's maturity and the uncertainties in the economic estimates described above. The estimates used by the Company in valuing in-process R&D were based upon assumptions the Company believes to be reasonable but which are inherently uncertain and unpredictable. The Company's assumptions may be incomplete or inaccurate, and no assurance can be given that unanticipated events and circumstances will not occur. Accordingly, actual results may vary from the projected results. Any such variance may result in a material adverse effect on the financial condition and results of operations of the Company. 3. LINE OF CREDIT The Amended Credit Agreement (see Note 2) provides for a $30 million line of credit which contains normal covenants including meeting certain financial ratios. This agreement requires the Company to pay interest at LIBOR plus up to two and one quarter percent and expires on December 31, 2002. As of December 31, 1998, no amounts were drawn on the line of credit. 4. CAPITAL STOCK Stock Split The Company effected a three-for-two stock split, in the form of a 50% stock dividend, distributed on March 9, 1998 to stockholders of record on February 23, 1998. Accordingly, all share and per share amounts have been adjusted to reflect this split. Public Offerings The Company completed its Initial Public Offering ("IPO") in October 1996. The Company sold 3 million shares at $10.67 per share, resulting in proceeds to the Company of approximately $28.7 million, after deducting expenses. In addition, on November 18, 1996 the Company received approximately $3.0 million, net of expenses, upon the exercise of the underwriters' over-allotment option to purchase 300,000 shares of Common Stock from the Company in connection with the IPO. In connection with the IPO, the Company's Certificate of Incorporation was amended to authorize the issuance of up to 40,000,000 shares of Common Stock, $.01 par value per share and the issuance of up to 2,000,000 shares of Preferred Stock, $.01 par value per share. -37- INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. CAPITAL STOCK (Continued) A portion of the proceeds from the Company's IPO were used to retire substantially all of the Company's outstanding debt. In addition, the Company's Class A and B Preferred Stock was retired and the holders of such shares were issued an aggregate of 1,279,218 shares of the Company's Common Stock and were paid an aggregate amount of $825,000. The distribution of the 1,279,218 shares of the Company's Common Stock, valued at $8 per share, for an aggregate of $10.2 million, resulted in a one-time, noncash charge to retained earnings and a corresponding increase to additional paid-in-capital. Further, immediately prior to the IPO, Connecticut Innovations Incorporated ("CII") exercised outstanding warrants to purchase 501,786 shares of the Company's Common Stock at an aggregate purchase price of $822,959. In addition, upon the closing of the IPO all of the outstanding shares of Series C Preferred Stock of the Company (all of which were held by CII) converted into an aggregate of 154,800 shares of Common Stock. Follow-on Offerings During April 1997, the Company received net proceeds of $172,876 from the sale of 75,000 shares of its Common Stock in a follow-on offering. In June 1998, the Company successfully completed a follow-on offering of 3,662,750 shares of Common Stock resulting in net proceeds to the Company of approximately $83.1 million, after deducting expenses of $579,834. With the proceeds, the Company retired the $70 million term loan obtained in connection with the January 2, 1998 Intelicom acquisition, and the remaining funds were used for working capital. In addition to the follow-on offering and shares issued in connection with the Intelicom acquisition, shares were issued in connection with the exercise of stock options during the year ended December 31, 1998. Earnings Per Share In February 1997, the FASB issued Statement of Financial Accounting Standards SFAS No. 128, "Earnings Per Share" ("SFAS 128"), which revises the methodology of calculating earnings per share. The Company adopted SFAS 128 in the fourth quarter of 1997. All earnings per share amounts for all prior periods have been presented in accordance with and where appropriate, restated to conform to the SFAS 128 requirements. In accordance with SFAS 128, all common stock equivalents that have a dilutive effect on earnings per share are included in the calculation for diluted income per share. The following table set forth the computation of basic and diluted earnings (loss) per share (in thousands, except per share amounts):
Year ended December 31, 1998 1997 1996 --------------------------------- Numerator: Numerator for basic and diluted earnings (loss) per share - earnings (loss) before extraordinary item................... $ (3,100) $ 4,801 $ 1,502 ================================= Denominator: Denominator for basic earnings (loss) per share - weighted-average shares..................................... 15,607 12,728 9,890 Effect of dilutive securities: Employee stock options...................................... - 465 219 --------------------------------- Denominator for diluted earnings (loss) per share - adjusted weighted-average shares and assumed conversions............. 15,607 13,193 10,109 ================================= Basic income (loss) per common share before extraordinary item... $ (.20) $ .38 $ .15 ================================= Diluted income (loss) per common share before extraordinary item. $ (.20) $ .36 $ .15 =================================
-38- INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. CAPITAL STOCK (Continued) Income per common share for the year ended December 31, 1996 is calculated using the weighted average number of shares of common stock outstanding after giving effect to the retirement of the Company's Class A and B Preferred Stock and the conversion of the Series C Preferred Stock in conjunction with the Company's IPO. 5. STOCK PLANS The Company's 1998, 1997 and 1996 Stock Plans authorize the grant of options to employees, directors and consultants for up to 1,125,000, 1,500,000 shares and 1,125,000 shares, respectively, of the Company's Common Stock. All options granted have 10 year terms and vest and become fully exercisable at the end of 4 years of continued service. In addition, a total of 300,000 shares of Common Stock have been authorized for issuance under the Company's 1996 Employee Stock Purchase Plan. The 1998 and 1996 plans are incentive plans, the 1997 is a non-qualified plan. Under the employee stock purchase plan, shares of the Company's Common Stock may be purchased at six-month intervals at 85% of the lower of the fair market value on the first or the last business day of each six-month period. Employees may purchase shares having a value not exceeding 10% of their gross compensation, up to $25,000 of fair market value of such Common Stock, during an offering period. A summary of the Company's activity in the stock option plans, and related information for the years ended December 31, 1998, 1997 and 1996 follows:
Weighted-Average Options Exercise Price Outstanding at December 31, 1995.................... -- -- Granted............................................. 590,550 $9.29 Forfeited........................................... 2,250 9.33 ----- ---- Outstanding at December 31, 1996.................... 588,300 9.29 Granted............................................. 2,607,643 12.33 Exercised........................................... 47,906 7.77 Cancelled........................................... 534,754 10.52 Forfeited........................................... 124,184 7.88 ------- ---- Outstanding at December 31, 1997.................... 2,489,099 12.33 Granted............................................. 1,037,800 25.69 Exercised........................................... 232,768 8.12 Forfeited........................................... 344,286 15.11 ------- ----- Outstanding at December 31, 1998.................... 2,949,845 $17.21 ========= ====== Options exercisable at December 31, 1998............ 682,521 $11.69 Options exercisable at December 31, 1997............ 111,583 $ 9.19 Options exercisable at December 31, 1996............ 24,093 $12.24
-39- INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. STOCK PLANS (Continued) In May 1997, 534,750 options previously issued were exchanged for new options covering an equal number of shares and an exercise price equal to the then current market price. The repriced options were included in the number of shares granted and cancelled for 1997.
Options Outstanding ------------------- Weighted-Average Range of Outstanding Remaining Weighted-Average Exercise Prices as of 12/31/98 Contractual Life Exercise Price --------------- -------------- ---------------- ---------------- $7.50--$10.00................ 612,997 8.0 $7.75 $10.00--$12.50............... 176,000 8.4 11.50 $12.50--$15.00............... 0 0 0 $15.00--$17.50............... 1,127,548 8.9 15.47 $22.50--$25.00............... 450,600 9.4 24.17 $25.00--$27.50............... 559,000 9.3 26.70 $27.50--$30.00............... 6,200 9.5 28.16 $30.00--$32.50............... 16,500 9.5 32.16 $32.50--$35.00............... 1,000 9.5 34.75 ----- --- ----- 2,949,845 8.8 $17.21 ========= === ======
Exercise prices for options outstanding as of December 31, 1998 ranged from $7.75 to $34.75 per share. The weighted average remaining contractual life of those options is 8.8 years. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, if the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of the Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:
1998 1997 1996 ---- ---- ----- Risk-free interest rate............................................ 5.5% 5.0% 5.0% Dividend yield..................................................... 0.0 0.0 0.0 Expected volatility of market price of company's common stock...................................................... .72 .63 .71 Expected option life............................................... 5 years 5 years 5 years Weighted average fair value per share of options granted during year....................................................... $16.47 $7.31 $4.86
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. -40- INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. STOCK PLANS (Continued) For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (in thousands, except per share amounts):
1998 1997 1996 ---- ---- ---- Pro forma net income (loss).............................. $(7,381) $3,441 $1,190 ======= ====== ====== Pro forma earnings per share: Pro forma basic earnings (loss) per share................ $(.47) $.27 $.12 Pro forma diluted earnings (loss) per share.............. $(.47) $.26 $.12
6. DEFERRED COMPENSATION In accordance with the terms of his employment agreement, as amended on September 30, 1996, an employee became entitled to receive a payment of $275,000 on or before December 31, 1996 and, as a result of the public offering of the Company's Common Stock, the right to purchase 27,500 shares of the Company's Common Stock for $.01 per share. In addition, during 1996 an employee was given the right to purchase 42,652 shares of the Company's Common Stock for $.01 per share. During 1996, these employees acquired the shares and the difference between the exercise price and the fair value on the date of grant was charged to compensation expense. In connection with an employment agreement entered into during 1996, an employee was awarded 36,000 shares of the Company's Common Stock with a fair value of $336,000 when awarded. The shares vest 25% on April 1, 1997, 25% on October 31, 1998, 25% on October 31, 1999, and 25% on October 31, 2000. The fair value of the shares on the date of award is being amortized as compensation expense over the vesting period. 7. CAPITALIZED LEASE OBLIGATIONS The Company leases computer equipment and office furniture under capital leases expiring in various years through 1999. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. Depreciation of assets under capital leases is included in depreciation expense. Maturities of capital lease obligations are as follows as of December 31, 1998 (in thousands): 1999............................................. $ 81 2000............................................. 13 2001............................................. 13 2002............................................. 2 --- Total lease obligations.......................... 109 Less: amount representing interest............... (10) --- Present value of minimum lease payments.......... $ 99 ====
8. COMMITMENTS On June 11, 1996, the Company entered into a noncancelable lease expiring on August 31, 2000 for 48,222 square feet of office space in Stamford, Connecticut. In connection therewith, the Company obtained a letter of credit in the initial amount of $362,000 as security for the lease. Minimum future rental payments due under such lease are $723,330 per year. In conjunction with the Intelicom acquisition of January 2, 1998, ITDS acquired from CSC two noncancelable leases expiring in August 2003 for 60,400 square feet of office space in Champaign, Illinois. The Company also leases Connecticut office facilities under a noncancelable operating lease expiring in April 1999. The Company recognizes rental expense on a straight line basis over the term of the lease. Rent expense was $1.6 million, $738,582 and $591,729 for the years ended December 31, 1998, 1997 and 1996, respectively. -41- International Telecommunication Data Systems, Inc. Notes to Consolidated Financial Statements (Continued) 8. COMMITMENTS (continued) Minimum future rental payments due under such leases as of December 31, 1998 are as follows (in thousands): 1999............................. $2,002 2000............................. 1,734 2001............................. 1,218 2002............................. 1,218 2003............................. 812 ------- 6,984 Less: sublease income............ (65) --------- $6,919
The Company is also obligated to pay utilities and property taxes above the landlords' base year costs. The Company has entered into employment contracts with various officers and other employees. The contracts expire in one to four years and require the Company to pay base compensation of approximately $2.1 million per year plus benefits. The contracts provide for discretionary bonuses if approved by the Board of Directors. In addition, as of December 31, 1998, the Company has loans and advances to officers aggregating $374,750 (including $29,324 in interest), which is included in Accounts Receivable. The Company maintains an employee savings plan that qualifies as a cash or deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the plan, participating employees may defer up to 15% of their pre-tax compensation, but not more than $10,000 for 1998 and 1997 calendar years. The Company does not contribute to the plan. 9. EXTRAORDINARY ITEM On June 8, 1998, as a result of the follow-on offering described in Note 4, the Company retired the $70 million term loan and terminated the Hedge Agreement obtained in conjunction with the Intelicom acquisition (see Note 2). In connection with repaying the $70 million term loan and canceling the Hedge Agreement, the Company recorded an after tax extraordinary charge of $826,198. 10. INCOME TAXES Significant components of income tax expense (benefit) before extraordinary item are as follows (in thousands):
Year ended December 31, 1998 1997 1996 ----------------------------- Current: Federal................... $ 4,661 $1,667 $ 382 State..................... 669 575 118 ----------------------------- 5,330 2,242 500 ----------------------------- Deferred: Federal................... (6,007) 806 437 State..................... (418) 278 175 ----------------------------- (6,425) 1,084 612 ----------------------------- Total tax expense (benefit).. $(1,095) $3,326 $1,112 =============================
-42- International Telecommunication Data Systems, Inc. Notes to Consolidated Financial Statements (Continued) 10. INCOME TAXES (Continued) A reconciliation of the applicable federal statutory rate to the Company's effective tax (benefit) rate from income before income tax expense and extraordinary item follows:
1998 1997 1996 ----------------- ----------------- ---------------- Statutory rate................................................ (35.0)% 34.0% 34.0% State income taxes, net of federal income tax benefit......... 3.9 6.9 7.4 Meals and entertainment....................................... 1.9 - - Other, net.................................................... 3.1 - 1.1 ----------------- ----------------- ---------------- (26.1)% 40.9% 42.5% ================= ================= ================
Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):
December 31 1998 1997 ---------------------------------------- Deferred tax assets: Deferred charges........................................ $ 13 $ 29 Depreciation and amortization........................... 1,623 820 Accrued compensation.................................... 74 4 Reserve for doubtful accounts........................... 748 199 Interest................................................ 4 4 Purchased software development costs.................... 845 - In process research and development..................... 7,435 - ---------------------------------------- Total deferred tax assets................................. 10,742 1,056 ---------------------------------------- Deferred tax liabilities: Software development costs.............................. 5,051 1,966 Capitalized leases...................................... 713 537 ---------------------------------------- Total deferred tax liabilities............................ 5,764 2,503 ---------------------------------------- Net deferred tax asset (liability)........................ $ 4,978 $ (1,447) ========================================
-43- International Telecommunication Data Systems, Inc. Notes to Consolidated Financial Statements (Continued) 11. LEGAL PROCEEDINGS On April 2, 1998, the Company was served with a complaint in Connecticut Superior Court alleging that the Company had breached the terms of its employment contact with Alan K. Greene, the Company's former Chief Financial Officer, and breached other obligations to Greene. The Company intends to vigorously defend itself in the action and has filed a response to the claim and asserted a counterclaim against Mr. Greene. The parties are currently in the discovery phase of the litigation. In addition, on September 11, 1998, Mr. Greene filed an age discrimination suit against the Company in the Connecticut Commission on Human Rights and Opportunities and in the Equal Employment Opportunities Commission. The Company filed its Answer and Position Statement, disclaiming any liability relating to age discrimination, on November 5, 1998. In addition, Intelicom, a wholly-owned subsidiary of the Company acquired in January 1998 from Computer Sciences Corporation ("CSC"), is party to litigation and has been threatened with litigation in connection with the operation of its business prior to its acquisition by the Company. Pursuant to the terms of the acquisition, CSC and certain of its affiliates are obligated to defend and indemnify the Company against any obligations arising out of such litigation or threatened litigation. The Company does not believe that any liabilities relating to any of the legal proceedings to which it is a party are likely to be, individually or in the aggregate, material to its consolidated financial position or results of operations. 12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31, 1998 (in thousands, except per-share data):
Three Months Ended 12/31/98 9/30/98 6/30/98 3/31/98 ------------- ------------- ------------- ------------- Revenue.................................................. $ 33,262 $28,832 $27,360 $26,006 Operating income (loss).................................. 6,308 6,003 5,068 (20,384) Income before extraordinary loss......................... 4,095 3,877 2,433 13,505 Net income (loss)........................................ 4,095 3,877 1,607 (13,505) Basic income (loss) per share before extraordinary loss.. .24 .22 .11 (1.01) Diluted income (loss) per share before extraordinary loss .23 .21 .11 (1.01) Three Months Ended 12/31/97 9/30/97 6/30/97 3/31/97 ------------- ------------- ------------- ------------- Revenue.................................................. $6,758 $6,039 $5,362 $5,270 Operating income......................................... 2,027 1,659 1,421 1,439 Net income............................................... 1,420 1,240 1,078 1,062 Basic net income per share............................... .11 .10 .08 .08 Diluted net income per share............................. .11 .09 .08 .08
The sum of the quarters' net income per share do not equal the full year per-share amounts due to differences resulting from changes in the number of shares of Common Stock outstanding. Excluding non-recurring in-process research and development and personnel and indirect acquisition costs associated with the Company's January 2, 1998 acquisition of Intelicom and the extraordinary loss, earnings for the quarter ended March 31, 1998 were $2 million or $.14 per pro forma diluted share. -44- International Telecommunication Data Systems, Inc. Notes to Consolidated Financial Statements (Continued) 13. SUBSEQUENT EVENTS (UNAUDITED) On February 8, 1999, the Company announced that it had formed a strategic alliance with Novazen Inc. to include internet-based billing and customer care software in the Company's proprietary suits or products and services. On March 24, 1999, the Board of Directors approved a stock buy-back program of up to $10 million. The purchased shares will be used for the Company's stock incentive plans, employee stock purchase plan and other corporate purposes. -45- Item 9--Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III Item 10--Directors and Officers of the Registrant The response to this item is contained in part under the caption "Executive Officers of the Company" in Part I of this Annual Report on Form 10-K and in the Company's proxy statement for the annual meeting of stockholders to be held on May 19, 1999 (the "1999 Proxy Statement") in the section entitled "Election of Directors," which section is incorporated herein by reference. In addition, in February 1999, Paul K. Kothari resigned as the Company's Chief Financial Officer. Item 11--Executive Compensation The response to this item is contained in the 1999 Proxy Statement in the section entitled "Election of Directors--Director Compensation" and "--Compensation of Executive Officers" which sections are incorporated herein by reference. Item 12--Security Ownership of Certain Beneficial Owners and Management The response to this item is contained in the 1999 Proxy Statement in the section entitled "Security Ownership of Certain Beneficial Owners and Management," which section is incorporated herein by reference. Item 13--Certain Relationships and Related Transactions The response to this item is contained in the 1999 Proxy Statement in the section entitled "Election of Directors--Certain Transactions," which section is incorporated herein by reference. PART IV Item 14--Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Documents filed as a part of this Report on Form 10-K: 1. The following documents are included as part of this Annual Report on Form 10-K: Report of Independent Auditors Consolidated Balance Sheets as of December 31, 1998 and 1997 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 -46- Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 Notes to the Consolidated Financial Statements 2. Financial Statement Schedules All schedules have been omitted because they are not required or because the required information is given in the Consolidated Financial Statements or Notes thereto. 3. Exhibits The exhibits filed as part of this Annual Report on Form 10-K are as follows:
EXHIBIT NUMBER DESCRIPTION - ------ ----------- *2 Stock Purchase Agreement, dated as of December 29, 1997 by and among the Registrant, CSC Intelicom, Inc. and CSC Domestic Enterprises, Inc. **3.1 Certificate of Incorporation of the Registrant, as amended. **3.2 By-Laws of the Registrant. **+10.1 Form of 1996 Equity Incentive Plan. **+10.2 1996 Employee Stock Purchase Plan. ***+10.3 1997 Stock Incentive Plan, as amended. +10.5 1999 Stock Incentive Plan. ***+10.6 Employment Agreement between the Registrant and Peter P. Bassermann, dated as of September 3, 1997, and amendment thereto, dated as of January 1, 1998. ***+10.7 Employment Agreement between the Registrant and Lewis D. Bakes, dated as of January 1, 1998. ***+10.8 Employment Agreement between the Registrant and Peter L. Masanotti, dated as of January 1, 1998. ***+10.9 Employment Agreement between the Registrant and Paul K. Kothari, dated as of December 29, 1997. +10.10 Employment Agreement between the Registrant and Susan Yezzi, dated as of December 23, 1997, and amendment thereto effective May 1, 1998. +10.11 Employment Agreement between the Registrant and Kevin M. Piltz, dated as of July 20, 1998. **10.12 Stock Purchase Agreement dated December 11, 1995, as amended, between the Registrant and Connecticut Innovations, Incorporated relating to Class C Convertible Preferred Stock. **10.13 Form of Lease between the Registrant and 969 Associates, dated December 1990. **10.14 Sublease dated June 11, 1996 between the Registrant and Learning International, relating to 225 High Ridge Road, Stamford, Connecticut ***10.15 Lease dated January 1996 between Par 3 Development, L.L.C. and CSC Intelicom, Inc. (now known as ITDS Intelicom Services, Inc.). ***10.16 Lease dated September 19, 1996 between Par 3 Development, L.L.C. and CSC Intelicom, Inc. (now known as ITDS Intelicom Services, Inc.) 10.17 Sublease dated November 15, 1998 between the Registrant and the University of Connecticut relating to 2777 Summer Street, Stamford, Connecticut.
-47- 10.18 Lease dated February 25, 1999 between the Registrant and Par 3 Development, L.L.C. relating to 2215 Fox Drive, Champaign, Illinois. ***10.19 Credit Agreement dated as of January 2, 1998 among the Registrant, the Subsidiary Guarantors Party thereto and Lehman Commercial Paper Inc. ***10.20 Security Agreement, dated as of January 2, 1998 among the Registrant, each of the subsidiaries of the Registrant, and Lehman Commercial Paper Inc. ***10.21 Guarantee Assumption Agreement, dated as of January 2, 1998 by ITDS Intelicom Services, Inc. in favor of Lehman Commercial Paper Inc. 21 Subsidiaries of the Registrant. 23 Consent of Ernst & Young LLP. 27 Financial Data Schedule.
- ----------------------- + Management contract or compensatory plan. * Incorporated by reference to the Registrant's Report on Form 8-K originally filed with the Securities and Exchange Commission on January 13, 1998. ** Incorporated by reference to the Registrant's Registration Statement on Form S-1 (File No. 333-11045), as amended, originally filed with the Securities and Exchange Commission on August 29, 1996. *** Incorporated by reference to the Registrant's Report on Form 10-K for the year ended December 31, 1997, as filed with the Securities and Exchange Commission on March 10, 1998. (b) Reports on Form 8-K No Reports on Form 8-K were filed during the last quarter of the Company's fiscal year ended December 31, 1998. [Remainder of page intentionally left blank.] -48- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. /s/ Peter P. Bassermann ------------------------------------ Peter P. Bassermann President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date /s/ Peter P. Bassermann President, Chief Executive - ---------------------------------------------- Officer and Director (Principal Peter P. Bassermann Executive Officer) March 29, 1999 /s/ Peter L. Masanotti Acting Chief Financial Officer, March 29, 1999 - ---------------------------------------------- Executive Vice President, Peter L. Masanotti General Counsel, Secretary and Director (Principal Financial and Accounting Officer) /s/ Lewis D. Bakes Director March 29, 1999 - ---------------------------------------------- Lewis D. Bakes /s/ Stuart L. Bell Director March 29, 1999 - ---------------------------------------------- Stuart L. Bell /s/ Stephen J. Saft Director March 29, 1999 - ---------------------------------------------- Stephen J. Saft /s/ Harvey M. Krueger Director March 30, 1999 - ---------------------------------------------- Harvey M. Krueger /s/ Samuel L. Jacob Director March 29, 1999 - ---------------------------------------------- Samuel L. Jacob
EX-10.5 2 1999 STOCK INCENTIVE PLAN International Telecommunication Data Systems, Inc. 1999 STOCK INCENTIVE PLAN ------------------------- 1. Purpose The purpose of this 1999 Stock Incentive Plan (the "Plan") of International Telecommunication Data Systems, Inc., a Delaware corporation (the "Company"), is to enhance the profitability of the Company for the benefit of the stockholders by providing equity ownership opportunities and performance-based incentives to attract, retain and motivate key employees, consultants and others who make important contributions to the Company, and to better align their interests with those of the stockholders. Except where the context otherwise requires, the term "Company" shall include all present and future subsidiaries of International Telecommunication Data Systems, Inc. as defined in Section 424(f) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the "Code") (a "Subsidiary"). 2. Eligibility All of the Company's employees, consultants and advisors (other than the officers and directors) are eligible to be granted options, stock appreciation rights, performance shares, restricted stock, or other stock based awards (each, an "Award") under the Plan. Any person who has been granted an Award under the Plan shall be deemed a "Participant". 3. Administration, Delegation (a) Administration by Board of Directors. The Plan will be administered by the Board of Directors of the Company (the "Board"). The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable from time to time, to interpret the provisions of the Plan, and to correct any defects in the Plan or an Award. No member of the Board shall be liable for any action or determination relating to the Plan made in good faith. All decisions by the Board shall be final and binding on all persons having or claiming any interest in the Plan or in any Award. (b) Delegation to Executive Officers. To the extent permitted by applicable law, the Board may delegate to one or more executive officers of the Company the power to make Awards and exercise such other powers under the Plan as the Board may determine, provided that the Board shall fix the maximum amount of such Awards to be made by such executive officers and a maximum amount for any one Participant. (c) Appointment of Committees. To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees, each consisting of not less than two members of the Board (a "Committee"). If and when the common stock, $.01 par value per share, of the Company (the "Common Stock") is registered under the Securities Exchange Act of 1934 (the "Exchange Act"), the Board shall appoint one such Committee, each member of which shall be a "outside director" within the meaning of Section 162(m) of Code ("Section 162(m)") and a "non-employee director" as defined in Rule 16b-3 promulgated under the Exchange Act. All references to the Board in the Plan shall mean a Committee or the Board or the Executive Officer referred to in Section 3(b) to the extent of such delegation. 4. Stock Available for Awards (a) Number of Shares. Subject to adjustment under Section 4(c) below, Awards may be made under the Plan for up to 500,000 shares of Common Stock. If any Award expires or is terminated, surrendered or canceled without having been fully exercised or is forfeited in whole or in part or results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards under the Plan. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares. (b) Per-Participant Limit. Subject to adjustment under Section 4(c), for Awards granted after the Common Stock is registered under the Exchange Act, the maximum number of shares with respect to which an Award may be granted to any Participant under the Plan shall be 250,000 per calendar year. The per Participant limit described in this Section 4(b) shall be construed and applied consistent with Section 162(m). (c) Adjustment to Common Stock. In the event that the Board, in its sole discretion, determines that any stock dividend, extraordinary cash dividend, recapitalization, reorganization, split-up, spin-off or other similar transaction affects the Common Stock such that an adjustment is required in order to preserve the benefits or potential benefits intended to be made available under the Plan, then the Board may equitably adjust any or all of (i) the total number and kind of shares issuable under the Plan, (ii) the number and kind of shares subject to Awards then outstanding, and (iii) the exercise, conversion price or other terms with respect to any outstanding Award. The number of shares resulting from any such adjustment shall always be a whole number. -2- 5. Stock Options (a) General. Subject to the provisions of the Plan, the Board may grant options to purchase Common Stock (an "Option") and determine the number of shares of Common Stock to be covered by each Option, the exercise price of such Option and the conditions and limitations applicable to the exercise of such Option, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. No option that the Board intends to be an "incentive stock option" as defined in Section 422 of the Code may be granted. (b) Exercise Price. The Board shall establish the exercise price at the time each Option is granted and specify it in the applicable option agreement. (c) Duration of Options. Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable option agreement. (d) Exercise of Option. Options may be exercised only by delivery to the Company of a written notice of exercise signed by the proper person together with payment in full as specified in Section 5(f) for the number of shares for which the Option is exercised. (e) Payment Upon Exercise. Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows: (1) in cash or by check, payable to the order of the Company; (2) except as the Board may otherwise determine or provide in an Option, delivery of an irrevocable and unconditional undertaking by a broker to deliver promptly to the Company sufficient funds to pay the exercise price, or delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price; (3) to the extent permitted by the Board at or after the grant of the Option (i) by delivery of shares of Common Stock owned by the Participant for at least six months and valued at their fair market value as determined by the Board in good faith ("Fair Market Value"), (ii) delivery of a promissory note of the Participant to the Company on terms determined by the Board, or (iii) payment of such other lawful consideration as the Board may determine; or (4) any combination of the above permitted forms of payment. -3- 6. Stock Appreciation Rights (a) Grant and Payment. The Board may grant Awards entitling recipients on exercise of such Awards to receive an amount, in cash or Common Stock or a combination thereof (such form to be determined by the Board), determined in whole or in part by reference to appreciation in the Fair Market Value of the Common Stock between the date of grant of the Award and the exercise of the Award (a "Stock Appreciation Right" or an "SAR"). The Board in its sole discretion shall determine the terms and conditions of any SAR. (b) Grant of SARs in Tandem with Options. SARs may be granted in tandem with, or independently of, Options granted under the Plan. If an SAR is granted in tandem with an Option, the exercise of the Option shall cause a proportional reduction in SARs outstanding to a Participant's credit which were granted in tandem with the Option; and the payment of SARs shall cause a proportional reduction of the shares of Common Stock under such Option. 7. Performance Shares The Board may make Awards entitling recipients to acquire shares of Common Stock on a future date upon the attainment of specified performance goals ("Performance Share Awards"). The Board may make Performance Share Awards independent of or in connection with the granting of any other Award under the Plan. The Board in its sole discretion shall determine the performance goals, the periods during which performance is to be measured, and all other terms and conditions applicable to a Performance Share Award. 8. Restricted Stock (a) Grants. The Board may grant Awards entitling recipients to acquire shares of Common Stock, subject to the right of the Company to repurchase all or part of such shares at their issue price (or to require forfeiture of such shares if issued at no cost) from the recipient in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award ("Restricted Stock Award"). (b) Terms and Conditions. The Board in its sole discretion shall determine the terms and conditions of any such Restricted Stock Award, including the conditions for repurchase (or forfeiture) and the issue price, if any. Any stock certificates issued in respect of a Restricted Stock Award shall be registered in the name of the Participant and, unless otherwise determined by the Board, deposited by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). At the expiration of the restriction period, the Company (or such -4- designee) shall deliver such certificates to the Participant or if the Participant has died, to the beneficiary designated by a Participant, in a manner determined by the Board, to receive amounts due or exercise rights of the Participant in the event of the Participant's death (the "Designated Beneficiary"). In the absence of an effective designation by a Participant, Designated Beneficiary shall mean the Participant's estate. 9. Other Stock Based Awards The Board shall have the right to grant other Awards based upon the Common Stock, including the grant of shares based upon certain conditions and the grant of securities convertible into Common Stock. 10. General Provisions Applicable to Awards (a) Transferability of Awards. Except as the Board may otherwise determine or provide in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the life of the Participant, shall be exercisable only by the Participant. References to Participant, to the extent relevant in the context, shall include references to authorized transferees. (b) Documentation. Each Award under the Plan shall be evidenced by an instrument in such form as the Board shall determine. Each Award may contain terms and conditions in addition to those set forth in the Plan. (c) Board Discretion. Except as otherwise provided by the Plan, each type of Award may be made alone, in addition to or in relation to any other type of Award. The terms of each type of Award need not be identical, and the Board need not treat Participants uniformly. (d) Termination of Status. The Board shall determine the effect on an Award of the disability, death, retirement, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, the Participant's legal representative, conservator, guardian or Designated Beneficiary may exercise rights under the Award. (e) Mergers, Etc. (1) Consequences of Mergers, etc. Upon the occurrence of an Acquisition Event (as defined below), all outstanding Awards shall terminate, provided that at least 10 days prior to the effective date of such Acquisition Event, -5- the Board shall either (i) if there is a surviving or acquiring corporation, arrange, subject to consummation of the Acquisition Event, to have that corporation or an affiliate of that corporation grant to Participants replacement Awards (or assume the Awards of the Company), or (ii) provide that all outstanding Awards will become exercisable, realizable or vested in full immediately prior to the effective date of such Acquisition Event. An "Acquisition Event" shall mean (a) any merger or consolidation which results in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) less than fifty percent of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; (b) any sale of all or substantially all of the assets of the Company or (c) the complete liquidation of the Company. (2) Assumption of Options Upon Mergers, etc. The Board may grant Awards under the Plan in substitution for stock and stock based-awards held by employees of another corporation who become employees of the Company as a result of a merger or consolidation of the employing corporation with the Company or the acquisition by the Company of property or stock of the employing corporation. The substitute Awards shall be granted on such terms and conditions as the Board considers appropriate in the circumstances. (f) Withholding. Each Participant shall pay to the Company, or make provision satisfactory to the Board for payment of, any taxes required by law to be withheld in respect of Awards to such Participant under the Plan no later than the date of the event creating the tax liability. In the Board's discretion, and subject to such conditions as the Board may establish, such tax obligations may be paid in whole or in part in shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value. The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to a Participant. (g) Amendment of Award. The Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization and accelerating the exercise or vesting of any Award, provided that the Participant's consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant. (h) Conditions on Delivery of Stock. The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of -6- the Company's counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws, stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws. 11. Miscellaneous (a) No Right To Employment or Other Status. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award. (b) No Rights As Stockholder. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder thereof. (c) Effective Date and Term of Plan. The Plan shall become effective on the date on which it is approved by the Board of Directors of the Company. No Awards shall be granted under the Plan after the completion of ten years from the earlier of the date on which the Plan was adopted by the Board, but Awards previously granted may extend beyond that date. (d) Amendment of Plan. The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that no amendment shall be made without stockholder approval if such approval is necessary to comply with any applicable tax or regulatory requirements, including any securities laws, stock exchange or stock market rules. Amendments requiring stockholder approval shall become effective when adopted by the Board, but no Award granted after the date of such amendment shall become exercisable or vested (to the extent that such amendment to the Plan was required to grant such Award to a particular Participant) unless and until such amendment shall have been approved by the Company's stockholders. If such stockholder approval is not obtained within twelve months of the Board's adoption of such amendment, any Award granted on or after the date of such amendment shall terminate to the extent that such amendment to the Plan was required to enable the Company to grant such Award to a particular Participant. (e) Stockholder Approval. For purposes of this Plan, stockholder approval shall mean approval by a vote of the stockholders in accordance with the bylaws of -7- the Company, unless otherwise required by applicable tax or regulatory laws, including Sections 162(m) and 422 of the Code, securities laws, and stock exchange and stock market rules. (f) Governing Law. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, without regard to any applicable conflicts of law. Approved by Board of Directors on February 16, 1999 -8- EX-10.10 3 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT made as of the 23rd day of December, 1997 between Susan Yezzi individual residing at 23 Norman Lane, Darien, CT 06820 (hereinafter referred to as "Employee") and ITDS Intelicom Services, Inc. a Delaware corporation (hereinafter referred to as "Corporation"). WHEREAS, the Corporation desires to employ the Employee, and the Employee desires to serve as an employee of Corporation on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and promises of the parties hereto, the Corporation and the Employee agree as follows: 1. Employment: The Corporation hereby agrees to employ the Employee as Executive Vice-President of Operations, and the Employee hereby agrees to function as such for the Corporation on the terms and conditions hereinafter stated, subject to the directives of the Board of Directors of the Corporation (the "Board"). 2. Term of Employment. The term of this Agreement shall begin on or about February 1, 1998 (but no later than March 1, 1998) and shall continue in full force and effect until January 31, 2001, unless sooner terminated as provided herein. 3. Compensation: (a) During the term of this Agreement, for all services rendered by Employee under this Agreement, the Corporation shall pay the Employee an annual base salary of Two Hundred and Twenty Five Thousand dollars ($225,000.00) per annum, payable in arrears at a rate of Eighteen Thousand, Seven Hundred and Fifty dollars ($18,750.00) on the last day of each month or more frequently in the discretion of the Board. All compensation payable under this Agreement shall be subject to applicable federal and state withholding tax requirements and other deductions approved by Employee as well as an annual salary adjustment based upon changes in the Consumer Price Index. (b) In addition to the annual base salary described in Section 3(a) hereof, the Corporation grants Employee a right to immediately become eligible to participate in the ITDS Employee Stock Option Plan and the Employee Stock Purchase Plan (collectively, the "Plan"), copies of which are attached hereto and made a part hereof as Attachment "A," upon the commencement of this Agreement with Corporation. On the execution of this Agreement, Employee shall be entitled to receive options to purchase fifty thousand (50,000) shares of Common Stock of the Corporation, at market value on the date of grant, vesting over a 4 year period pursuant to the terms of the Plan. (c) In addition to the base salary and stock options as set forth above, on February 1, 1997 the Employee shall receive a one time signing bonus equal to One Hundred Twenty-Five Thousand Dollars ($125,000.00). (d) In addition to the aforesaid benefits, Employee is eligible to receive an annual bonus based on Employee and Corporation performance subject to Board approval. (e) The Corporation agrees to assume Employee's existing Flexible Premium Adjustable Life Insurance Policy and pay associated premiums. 4. Fringe Benefits: (a) Subject to applicable waiting periods and Employee's insurability, Corporation shall provide the Employee, at no cost to Employee, with medical and hospitalization insurance coverage similar to that offered to other Vice-Presidents of the Corporation. Subject to applicable waiting periods, during the term hereof, Corporation shall provide the Employee, at no cost to the Employee, with long term disability insurance coverage similar to that offered to other officers of the Corporation. (b) Subject to applicable waiting periods, Employee will be eligible to participate in the Corporation's 401K plan. 5. Duties and Extent of Services: Upon the execution of this Agreement and throughout its term, the duties of the Employee shall include, but are not limited to, the following: (a) Provide managerial and executive supervision and support to the Corporation; (b) Responsibility for the delivery of all products and services of the Corporation to customers pursuant to contractual obligations or otherwise; (c) Provide day to day on site executive management of the Corporation's operations in Champaign, Illinois; (d) Such other duties and responsibilities as may be assigned by the Board from time to time; (e) Employee will work exclusively for the Corporation during the term of this Agreement, Employee shall exert her best efforts and shall devote no less than the greater of: (i) fifty (50) hours per week, or (ii) the amount of time necessary for Employee to perform her duties with regard to the business and affairs of the Corporation in accordance with this Agreement. During the term of this Agreement, Employee shall not, directly or indirectly, alone or as a member of the partnership, or as an officer, director, shareholder, owner, agent or employee of any other corporation, be engaged in or concerned with any other compensable duties or pursuits whatsoever requiring her personal services without the prior written consent of the Corporation, which consent may be withheld for any reason or for no reason. 6. Vacation: During each year of the term of this Agreement, the Employee shall be entitled to four (4) weeks' vacation, the time of which shall be determined after consultation with the Board of the Corporation. For purposes of this Section 6, Employee shall be entitled to carry forward any unused vacation time from one period to another and any unused accrued vacation will be paid to Employee upon termination. 7. Termination: The Employee's employment hereunder shall terminate on the date set forth in Section 2 hereof, or sooner upon the occurrence of any of the following events: (a) The Employee's death; (b) The termination of the Employee's employment hereunder by Corporation, at its option, to be exercised by written notice from Corporation to the Employee, upon the Employee's incapacity or inability to perform her services as contemplated herein for a period of at least seventy-five (75) consecutive days or an aggregate of one hundred (100) consecutive or non-consecutive days during any twelve (12) month period during the term hereof due to the fact that her physical or mental health shall have become impaired so as to make it impossible or impractical for her to perform the duties and responsibilities contemplated for her hereunder; or (c) The termination for "cause" of the Employee's employment hereunder by Corporation, at its option, to be exercised by written notice from Corporation to the Employee. The term "cause," as used herein, shall mean: (i) the Employee's inability or incapacity to perform her duties and/or services in accordance with the reasonable expectation of the Corporation, (ii) the Employee's willful misconduct or gross negligence in the performance of her duties on behalf of the Corporation, or the Employee's dishonesty in the performance of his duties on behalf of the Corporation, (iii) the neglect, failure or refusal of the Employee to carry out any reasonable request of the Board for the provision of services hereunder, (iv) the material breach of any provision of the Agreement by the Employee or (v) the Employee's plea of guilty or nolo contendere to, or conviction of any crime involving moral turpitude, common law fraud, dishonesty, theft, or unethical conduct. (d) Cessation of the Corporation's business. In the event of any such termination, Corporation shall pay to Employee such portion of his annual base salary payable to Employee to the date such termination becomes effective, and thereafter Employee shall have no claim for any further compensation hereunder. 8. Restrictions On Employee: During the period commencing on the date hereof and ending two (2) years after the termination of the Employee's employment by Corporation for any reason, the Employee shall not directly or indirectly induce or attempt to induce any of the employees of Corporation to leave the employ of Corporation. 9. Covenant Not to Compete: During the period commencing on the date hereof, and ending one (1) year after the termination of the Employee's employment for any reason, the Employee shall not, except as a passive investor in publicly held companies, directly or indirectly engage in, associate with, or own or control any interest in, or act as principal, director, officer, agent, or employee of, or consultant to: (i) Cincinnati Bell Information Systems, Systematics, Saville Systems, Cable Services Group, Computer Sciences Corporation, Electronic Data Systems, Alltel, Comsoft, LHS, Danet, Subscriber Computing, H.O. Software, Baja Systems or their successors or assigns, or (ii) any person, firm or corporation, located in the eastern third of the United States, whose activity is (a) a venture or business, substantially similar to that of Corporation, and/or (b) which is in direct competition with the Corporation. Notwithstanding anything to the contrary contained herein, to the extent Corporation (i) makes an absolute assignment of the bulk of its assets for the benefit of creditors, (ii) consents to the appointment of a bankruptcy trustee, (iii) institutes bankruptcy proceedings, or (iv) experiences a cessation, the provisions of this Section 9 shall lapse. 10. Proprietary Information: (a) For purposes of this Agreement, "proprietary information" shall mean any information relating to the business of Corporation or any entity in which Corporation has an ownership interest that has not previously been publicly released by duly authorized representatives of Corporation and shall include (but shall not be limited to) information encompassed in all proposals, marketing and sales plans, financial information, costs, pricing information, computer programs, customer information, customer lists, and all methods, concepts or ideas in or reasonably related to the business of Corporation or any entity in which Corporation has an interest. The Employee agrees to regard and preserve as confidential all proprietary information, whether he has such information in his memory or in writing or other physical form. The Employee will not, without written authority from Corporation to do so, directly or indirectly, use for her benefit or purposes, nor disclose to others, either during the term of his employment hereunder or thereafter, except as required by the conditions of his employment hereunder, any proprietary information. The Employee agrees not to remove from the premises of Corporation or any subsidiary or affiliate of Corporation, except as an employee of Corporation in pursuit of the business of Corporation or any of its subsidiaries, affiliates or any entity in which Corporation has an ownership interest, or except as specifically permitted in writing by Corporation, any document or object containing or reflecting any proprietary information. The Employee recognizes that all such documents and objects, whether developed by her or someone else during the term of her employment with Corporation, are the exclusive property of Corporation. (b) All proprietary information and all of the Employee's interest in trade secrets, trademarks, computer programs, customer information, customer lists, employee lists, products, procedure, copyrights and developments hereafter to the end of the period of employment hereunder developed by Employee as a result of, or in connection with, her employment hereunder, shall belong to Corporation; and without further compensation, but at Corporation's expense, forthwith upon request of Corporation, Employee shall execute any and all such assignments and other documents and take any and all such other action as Corporation may reasonably request in order to vest in Corporation all Employee's right, title and interest in and all of the aforesaid items, free and clear of liens, charges and encumbrances. (c) The Employee expressly agrees that the covenants set forth in Sections 9, 9 and 10 of this Agreement are being given to Corporation in connection with the employment of the Employee by Corporation and that such covenants are intended to protect Corporation against the competition by the Employee, within the terms stated, to the fullest extent deemed reasonable and permitted in law and equity. In the event that the foregoing limitations upon the conduct of the Employee are beyond those permitted by law, such limitations, both as to time and geographical area, shall be, and be deemed to be, reduced in scope and effect to the maximum extent permitted by law. 11. Injunctive Relief: The Employee acknowledges that the injury to Corporation resulting from any violation by her of any of the covenants contained in this Agreement will be of such a character that it cannot be adequately compensated by money damages, and, accordingly, Corporation may, in addition to pursuing its other remedies, obtain an injunction from any court having jurisdiction of the matter restraining any such violation; and no bond or other security shall be required in connection with such injunction. 12. Representation of Employee: The Employee represents and warrants that neither the execution and delivery of this Agreement nor the performance of his duties hereunder violates the provisions of any other agreement to which she is a party or by which she is bound. 13. Parties; Non-Assignability: As used herein, the term "Corporation" shall mean and include Corporation and any subsidiary or affiliate thereof and any successor thereto unless the context indicates otherwise. This Agreement and all rights hereunder are personal to the Employee and shall not be assignable by her and any purported assignment shall be null and void and shall not be binding on Corporation. 14. Entire Agreement: This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated herein and supersedes all previous representations, negotiations, commitments, and writing with respect thereto. 15. Amendment or Alteration: No amendment or alteration of the terms of this Agreement shall be valid unless made in writing and signed by all of the parties hereto. 16. Choice of Law: This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut, except a provision of that law which would refer resolution of any issue to another jurisdiction. The forum for resolution of any dispute shall be the State of Connecticut. 17. Arbitration: Any controversy, claim, or breach arising out of or relating to this Agreement or the breach thereof may, in the sole discretion of the Corporation, be settled by arbitration in Stamford, Connecticut in accordance with the rules of the American Arbitration Association and the judgment upon the award rendered shall be entered by consent in any court having jurisdiction thereof. 18. Waiver of Breach: The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by any of the parties hereto. 19. Binding Effect: The terms of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective personal representatives, heirs, administrators, successors, and permitted assigns. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. CORPORATION: ITDS Intelicom Services, Inc. By /s/ Peter P. Bassermann ----------------------- Peter P. Bassermann President EMPLOYEE: /s/ Susan L. Yezzi ------------------ Susan Yezzi AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment to the Employment Agreement dated as of December 23, 1997 between Susan Yezzi ("Employee") and ITDS Intelicom Services, Inc. ("Corporation") is hereby effective May 1, 1998 as follows: 1. The following new Section 20 is hereby added: "20. Change in Control. (a) In the event of a Change in Control (as hereinafter defined), (i) all unvested stock options and other benefits shall become fully vested and immediately exercisable and shall remain so for a period of six months thereafter or, if longer, for the period during which such option or other benefit would otherwise be exercisable in accordance with its terms or the terms of the applicable plan and (ii) Employee shall be entitled to thirty-six (36) months of base salary (as defined in Section 3(a)) in a single lump sum payout within thirty (30) days after the Change in Control; provided, however, that prior to the occurrence of the Change in Control the Employee may elect to defer payment of any amounts payable pursuant to this Section until the calendar year beginning at least 30 days after the Change in Control. (b) Change in Control shall mean (i) any transfer or other transaction whereby the right to vote more than fifty percent (50%) of the then issued and outstanding capital stock of (A) International Telecommunication Data Systems, Inc. (the "ITDS") or (B) any subsidiary of ITDS to which ITDS shall have transferred all or substantially all of its business, is transferred to any party or affiliated group of parties, (ii) any merger or consolidation of ITDS (or a subsidiary of ITDS of the type described in clause (i)(B) above) with any other business entity, at the conclusion of which transaction the persons who were holders of all the voting stock of ITDS immediately prior to the transaction hold less than fifty percent (50%) of the total voting stock of the successor entity immediately following the transaction, or (iii) any sale, lease, transfer or other disposition of all or substantially all the assets of ITDS (or a subsidiary of the type described in clause (i)(B) above). (c) Notwithstanding any other provision of this Agreement, in the event that any payment or benefit received or to be received by the Employee (i) is deemed to be in connection with a Change in Control (whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with ITDS, its successors, any person whose actions result in a Change in Control or any corporation ("Affiliates") affiliated ( or which, as a result of the completion of the transactions causing a Change in Control will become affiliated) with ITDS within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended (the "Code") (collectively with the payments and benefits pursuant to this Agreement if deemed to be paid pursuant to a Change in Control, "Total Payments")) and (ii) is determined by ITDS's independent certified accounting firm (the "Tax Advisor") that an excise tax is payable by Employee under Section 4999 of the Code, then ITDS will pay to the Employee additional compensation which will be sufficient to enable Employee to pay such excise tax as well as the income tax, medicare tax and excise tax on such additional compensation, such that, after the payment of income, medicare and excise taxes, Employee is in the same economic position in which he would have been if the provisions of Section 4999 of the Code had not been applicable. The additional compensation required by this Section 20(c) will be paid to Employee promptly after the date or dates on which the amount of such additional compensation is determinable, in whole or in part by the Tax Advisor." IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the 1st day of May, 1998. ITDS INTELICOM SERVICES, INC. EMPLOYEE By /s/ Peter P. Bassermann /s/ Susan L. Yezzi ------------------------------ ----------------------------- Peter P. Bassermann Susan Yezzi EX-10.11 4 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of July 20, 1998 by and between International Telecommunication Data Systems, Inc., a Delaware corporation (the "Company"), and Kevin M. Piltz (the "Executive"). W I T N E S S E T H: WHEREAS, the Company and the Executive have previously entered into an employment agreement dated July 21, 1997; and WHEREAS, the Executive's position has been changed officially as of July 20, 1998 to be Chief Information Officer; and WHEREAS, the Executive has been serving in such capacity for a period of time prior to July 20, 1998; and WHEREAS, the Company and the Executive desire to revise the prior employment agreement to reflect such change and make other changes, all in accordance with the terms and conditions set forth below; NOW, THEREFORE, for and in consideration of the premises hereof and the mutual covenants contained herein, the parties hereto hereby covenant and agree as follows: 1. Employment. The Company hereby employs the Executive as its Senior Vice President and Chief Information Officer, and the Executive hereby agrees to function as such for the Company, for the period set forth in Section 2 hereof, all upon the terms and conditions hereinafter set forth. 2. Term of Employment. (a) Unless (i) earlier terminated as provided in Section 7 hereof or (ii) renewed as provided in Section 2(b) hereof, the term of the Executive's employment under this Agreement shall be for a period beginning on July 20, 1998 and ending on August 14, 2000 (the "Initial Term"). (b) The term of the Executive's employment under this Agreement shall be automatically renewed for additional one-year terms (each, a "Renewal Term") upon the expiration of the Initial Term or any Renewal Term unless the Company or the Executive delivers to the other, at least 120 days prior to the expiration of the Initial Term or the then current Removal Term, as the case may be, a written notice specifying that the term of the Executive's employment will not be renewal at the end of the Initial Term or such Renewal Term, as the case may be. (c) The period from July 20, 1998 until August 14, 2000 or, in the event that the Executive's employment hereunder is earlier terminated as provided in Section 7 hereof or renewed as provided in Section 2(b) hereof, such shorter or longer period, as the case may be, is hereinafter called the "Employment Term." (d) In the event that the Executive continues in the full-time employ of the Company after the end of the Employment Term (it being expressly understood and agreed that the Company does not now, nor hereafter shall have, any obligation to continue the Executive in its employ whether or not on a full-time basis, after the Employment Term ends), then the Executive's continued employment by the Company shall, notwithstanding anything to the contrary expressed or implied herein, be terminable by the Company at will. 3. Duties. (a) The Executive shall be employed as Senior Vice President and Chief Information Officer of the Company and shall faithfully and competently perform such duties as the Board of Directors of the Company shall from time to time determine, which duties shall be consistent with such position. The Executive shall perform his duties at the offices of the Company in Stamford, Connecticut and/or Champaign, Illinois, with travel to such other locations time to time as the Board of Directors of the Company may reasonably prescribe. Except as may otherwise be approved in advance by the Board of Directors of the Company, and except during vacation periods and personal days and reasonable periods of absence due to sickness, personal injury or other disability, the Executive shall devote his full time throughout the Employment Term to the services required of him hereunder. The Executive shall render his services exclusively to the Company during the Employment Term and shall use his best efforts, judgment and energy to improve and advance the business and interests of the Company in a manner consistent with the duties of his position. (b) The Executive's duties shall include but not be limited to the following: (1) Provide managerial and executive services to the Company. (2) Provide management for the product development efforts of the Company. (3) Provide a research, development and advisory function to the Company with regards to all technology aspects of servicing the wireless and wireline telecommunications industry. (4) Provide support for the development, implementation and distribution of the products and services of the Company. 2 (5) Support and manage the internal and external data processing environments of the Company. 4. Compensation. (a) Salary. As compensation for the complete and satisfactory performance by the Executive of the services to be performed by the Executive hereunder during the Employment Term, the Company shall pay the Executive a base salary at the annual rate of $150,000 increased (but not reduced) from time to time in such amounts as the Company may, in its reasonable discretion, deem to be appropriate (said amount, together with any such increases, being hereinafter referred to as the "Salary"). Any Salary payable hereunder shall be paid in regular intervals in accordance with the Company's payroll practices from time to time in effect. All compensation payable under this Agreement shall be subject to applicable federal and state withholding tax requirements and other deductions approved by the Executive. (b) Bonus Payments. For each calendar year during the Employment Term, the Executive is eligible to receive an annual bonus in the reasonable discretion of the Board of Directors subject to the satisfaction of such reasonable performance criteria as shall be established for him with respect to such year. (c) Loan. The Company previously has loaned the Executive $24,000 on the commencement of employment and Executive has agreed to repay said loan to the Company, in full, on the earlier of Executive not being employed by the Company or before February 15, 1999, with interest at the rate of 8% per annum, provided however, the Company already has forgiven $17,000 of principal and if Executive is employed by the Company on February 15, 1999, the Company will forgive the remaining $7,000 of principal and all accrued interest, all as more specifically set forth on the promissory note attached hereto. 5. Benefits. During the Employment Term, the Executive shall: (a) be eligible to participate in executive fringe benefits that may be provided by the Company for its executive employees in accordance with the provisions of any such plan, as the same may be in effect from time to time. (b) be eligible to participate in any medial and health plans (at no cost to the Executive) or other executive welfare benefit plans that may be provided by the Company for its executive employees in accordance with the provisions of any such plans, as the same may be in effect from time to time. (c) be entitled to annual paid vacation in accordance with the Company 3 policy that may be applicable to executive employees from time to time, such vacation to be in no event less than two weeks in each calendar year. (d) be entitled to sick leave and sick pay in accordance with any Company policy that may be applicable to executive employees from time to time; (e) be entitled to life insurance coverage (payable to his designated beneficiary) of not less than $500,000 and long term disability insurance coverage provided by the Company to executive employees; provided that the Executive shall be entitled to receive term life insurance in an amount equal to that provided other officers; (f) be entitled to reimbursement for all reasonable and necessary out-of-pocket business expenses incurred by the Executive in the performance of his duties hereunder in accordance with the Company's policies for executive employees; (g) received reimbursement for documented and approved expenses related to the relocation of the Executive to Connecticut, which did not exceed $32,0000, provided however, Executive will reimburse the Company for 37% of said expenses, if Executive is not employed by the Company for any reason on February 15, 1999; and (h) has received a second mortgage loan in an amount not to exceed $100,000, at 6% per annum, interest only, with principal payments of 20% of the outstanding principal balance and interest prior to the third anniversary of the loan, 40% prior to the 6th anniversary and 100% prior to the 10th anniversary. Said loan will be due in full immediately if Executive ceases to be employed by the Company for any reason. Said loan will have additional terms and conditions customary for mortgage loans in Connecticut. 6. Stock Plans and Options. During the Employment Term, the Executive shall be eligible to participate in any stock option, incentive and similar plans established by the Company from time to time and at any time and the Company shall grant to the Executive or cause to be granted to him stock options and other benefits similar to the options and benefits granted to other executive officers subject in all cases to the satisfaction by the Executive of the terms and conditions of such plans and to the reasonable exercise by the Board of Directors of any discretion granted to it or them thereunder. 7. Termination: Effect of Termination. (a) The Executive's employment hereunder shall be terminated upon the occurrence of any of the following: 4 (i) death of the Executive; (ii) termination of the Executive's employment hereunder by the Company because of the Executive's inability to perform his duties on account of disability or incapacity for a period of one hundred (100) or more days, whether or not consecutive, or seventy-five (75) consecutive days, occurring within any period of twelve (12) consecutive months; (iii) written notice by the Company to the Executive of the termination of his employment hereunder by the Company at any time "for cause," (iv) written notice by the Executive to the Company of the termination of the Executive's employment hereunder by the Executive because of a material diminution of the Executive's duties, authority or responsibility or a materially impairment by action of the Company of his ability to perform his duties or responsibilities, regardless of whether such diminution of duties or impairment is accompanied by a change in the Executive's title of Senior Vice President and Chief Information Officer; (v) written notice by the Executive to the Company of a material breach by the Company of any provision of this Agreement if such breach continues for thirty (30) days after written notice thereof to the Company; or (vi) written notice by the Executive to the Company of the termination of the Executive's employment hereunder by the Executive at any time for any reason whatsoever (including, without limitation, resignation or retirement) other than a breach of any provision of this Agreement by the Company (as described in clause (iv) above. The following, and only the following, actions, failures or events by or affecting the Executive shall constitute "cause" for termination within the meaning of clause (iii) above: (1) conviction of having committed a felony, (2) acts of dishonesty or moral turpitude that are materially detrimental to the Company, (3) willful acts or omissions which the Executive knew were likely to materially damage the business of the Company, (4) failure by the Executive to obey the reasonable and lawful orders of the Board of Directors or the Chief Executive Officer (5) willful breach by the Executive of his obligations under this Agreement, or (6) failure by the Executive to perform duties in accordance with the reasonable directions of the Board of Directors or the Chief Executive Officer. (b) In the event that the Executive's employment with the Company is 5 terminated by the Executive pursuant to the clause (v) above, then the Company shall pay to the Executive, as severance pay in a single lump sum payment, an amount equal to 12 months of Base Salary within thirty (30) days after the Executive's termination of employment, based on the Executive's Base Salary immediately preceding the event specified in clause (v), without reduction or offset for any other monies which the Executive may thereafter earn or be paid. (c) In the event that the Executive's employment with the Company terminates pursuant to clauses (i), (ii) or (iii) above, then notwithstanding anything to the contrary expressed or implied herein, except as required by applicable law and Section 8 hereof, the Company shall not be obligated to make any payments to the Executive or on his behalf of whatever kind or nature by reason of the Executive's cessation of employment (including, without limitation, by reason of termination of the Executive's employment by the Company for "cause"), other than (i) such amounts, if any, of his Salary as shall have accrued and remained unpaid as of the date of said cessation and (ii) such other amounts which may be then otherwise payable to the Executive from the Company's benefit plans or reimbursement policies, if any. 8. Change in Control. (a) In the event of a Change in Control (as hereinafter defined), (i) all unvested stock options and other benefits shall become fully vested and immediately exercisable and shall remain so for a period of six months thereafter or, if longer, for the period during which such option or other benefit would otherwise be exercisable in accordance with its terms or the application plan and (ii) Executive shall be entitled to the compensation provided in Section 7(b) hereof within thirty (30) days after the Change in Control; provided, however, that prior to the occurrence of the Change in Control the Executive may elect to defer payment of any amounts payable pursuant to this Section until the calendar year beginning at least 30 days after the Change in Control. (b) Change in Control shall mean (i) any transfer or other transaction whereby the right to vote more than fifty percent (50%) of the then issued and outstanding capital stock of (A) the Company or (B) any subsidiary of the Company to which the Company shall have transferred all or substantially all of its business, is transferred to any party or affiliated group of parties, (ii) any merger or consolidation of the Company (or a subsidiary of the Company of the type described in clause (i)(B) above) with any other business entity, at the conclusion of which transaction the persons who were holders of all the voting stock of the Company immediately prior to the transaction hold less than fifty percent (50%) of the total voting stock of the successor entity immediately following the transaction, or (iii) any sale, lease, transfer or other disposition of all or substantially all the assets of the Company (or a subsidiary of the type described in clause (i)(B) above). 6 (c) Notwithstanding any other provision of this Agreement, in the event that any payment or benefit received or to be received by the Executive (i) is deemed to be in connection with a Change in Control (whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, its successors, any person whose actions result in a Change in Control or any corporation ("Affiliates") affiliated (or which, as a result of the completion of the transactions causing a Change in Control will become affiliated) with the Company within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended (the "Code") (collectively with the payment sand benefits pursuant to this Agreement if deemed to be paid pursuant to a Change in Control, "Total Payments") and (ii) is determined by the Company's independent certified accounting firm (the "Tax Advisor") that an excise tax is payable by Executive under Section 4999 of the Code, then the Company will pay to the Executive additional compensation which will be sufficient to enable Executive to pay such excise tax as well as the income tax, medicare tax and excise tax on such additional compensation, such that, after the payment of income, medicare and excise taxes, Executive is in the same economic position in which he would have been if the provisions of Section 4999 of the Code had not been applicable. The additional compensation required by this Section 8(c) will be paid to Executive promptly after the date or dates on which the amount of such additional compensation is determinable, in whole or in part by the Tax Advisor. 9. Restrictions on Executive. During the period commencing on the date hereof and ending one (1) year after the termination of the Executive's employment by the Company for any reason, the Executive shall not directly or indirectly induce or attempt to induce any of the employees of the Company to leave the employ of the Company. 10. Covenant Not To Compete. During the period commencing on the date hereof, and ending one (10 year after the termination of the Executive's employment due to Sections 7(a)(iii) or 7(a)(vi) hereof, except if termination is a result of a Change in Control, the Executive shall not, except as a passive investor in publicly held companies, or directly or indirectly engage in, associate with, or own or control any interest in, or act as principal, director, officer, agent, or employee of, or consultant to: (i) Cincinnati Bell Information Systems, Systematics, Saville Systems, Cable Services Group, Computer Sciences Corporation, Electronic Data Systems, Alltel, Comsoft, LHS, Danet, Subscriber Computing, HO Software and Baja Systems or their successors or assigns, or (ii) any person, firm or corporation, located in the eastern third of the United States, whose activity is (a) a venture or business, substantially similar to that of Company and/or (b) which is in competition with the Company. Notwithstanding anything to the contrary contained herein, to the extent the Company (i) makes an absolute assignment of the bulk of its assets for the benefit of creditors, (ii) consents to the appointment of a bankruptcy trustee, (iii) institutes 7 bankruptcy proceedings or (iv) experiences a cessation, the provisions of this Section 10 shall lapse. 11. Proprietary Information. (a) For purposes of this Agreement, "proprietary information" shall mean any information relating to the business of Company or any entity in which Company has an ownership interest that has not previously been publicly released by duly authorized representatives of the Company and shall include (but shall not be limited to) information encompassed in all proposals, marketing and sales plans, financial information, costs, pricing information, computer programs, customer information, customer lists, and all methods, concepts or ideas in or reasonably related to the business of Company or any entity in which Company has an interest. The Executive agrees to regard and preserve as confidential all proprietary information, whether he has such information in his memory or in writing or other physical form. The Executive will not, without written authority from Company to do so, directly or indirectly, use for his benefit or purposes, nor disclose to others, either during the term of his employment hereunder or thereafter, except as required by the conditions of his employment hereunder or a otherwise required by law, any proprietary information. The Executive agrees not to remove from the premises of the Company or any subsidiary or affiliate of Company, except as an executive of the Company in pursuit of the business of the Company or any of its subsidiaries , affiliates or any entity in which the Company has an ownership interest, or except as specifically permitted in writing by the Company any document or object containing or reflecting any proprietary information. The Executive recognizes that all such documents and objects, whether developed by him or by someone else during the term of his employment with the Company are the exclusive property of the Company. (b) All proprietary information and all of the Executive's interests in trade secrets, trademarks, computer programs, customer information, customer lists, employee lists, products, procedure, copyrights and developments hereafter to the end of the period of employment hereunder developed by Executive as a result of, or in connection with, his employment hereunder, shall belong to the Company; and without further compensation, but at the Company's expense, forthwith upon request of the Company, Executive shall execute any and all such assignments and other documents and take any and all such other action as the Company may reasonably request in order to vest in the Company all Executive's right, title and interest in and all of the aforesaid items, free and clear of liens, charges and encumbrances. (c) The Executive expressly agrees that the covenants set forth in Sections 9, 10, and 11 of this Agreement are being given to the Company in connection with the employment of the Executive by the Company and that such covenants are intended to protect the Company against the competition by the Executive, within the terms 8 stated, to the fullest extent deemed reasonable and permitted in law and equity. In the event that the foregoing limitations upon the conduct of the Executive are beyond those permitted by law, such limitations, both as to time and geographical area, shall be, and be deemed to be, reduced in scope and effect to the maximum extent permitted by law. 12. Injunctive Relief. The Executive acknowledges that the injury to the Company resulting from any violation by him of any of the covenants contained in this Agreement will be of such a character that it cannot be adequately compensated by money damages, and, accordingly, the Company may, in addition to pursuing its other remedies, obtain an injunction from any court having jurisdiction of the matter restraining any such violation; and no bond or other security shall be required in connection with such injunction. 13. Non-Assignability. (a) Neither this Agreement nor any right or interest hereunder shall be assigned by the Executive, his beneficiaries, or legal representatives without the Company's prior written consent; provided, however, that nothing in this Section shall preclude the Executive from designating a beneficiary to receive any benefit payable hereunder upon his death or incapacity. Notwithstanding the foregoing, in the case of a Change in Control, this Agreement and any right or interest of the Company hereunder shall be assignable by the Company without the consent of the Executive; provided, however, that in the event of such an assignment without the consent of the Executive, the Company shall remain liable for the payment of all amounts payable to the Executive hereunder and the transferee shall agree to be bound by all of the provisions hereof in a writing delivered to the Executive. (b) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to exclusion, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and no effect. 14. Binding Effect. Without limiting or diminishing the effect of Section 9 hereof, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and assigns. 15. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and either delivered in person or sent by first class certified or registered mail, postage prepaid, if to the Company, at the Company's principal place of business, and if to the Executive, at his home address or addresses as either party shall have designated in writing to the other party hereto. 9 16. No Set-Off. The company will pay promptly when due all sums to be paid the Executive under this Agreement without abatement, deduction or reduction of any kind or without any kind of setoff against any such sums; it being the intention of the parties that all such sums shall continue to be payable in all events unless the Company's obligation to pay such sums shall be terminated pursuant to the express provisions of this Agreement. 17. Law Governing. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut. 18. Severability. If any part of this Agreement is held by a court of competent jurisdiction to be invalid, illegible or incapable of being enforced in whole or in part by reason of any rule of law or public policy, such part shall be deemed to be severed from the remainder of this Agreement for the purpose only of the particular legal proceedings in question and all other covenants and provisions of this Agreement shall in every other respect continue in full force and effect and no covenant or provision shall be deemed dependent upon any other covenant or provision. 19. Arbitration. Any controversy, claim, or breach arising out of or relating to this Agreement or the breach thereof may, in the sole discretion of the Company, be settled by arbitration in Stamford, Connecticut in accordance with the rules of the American Arbitration Association and the judgment upon the reward rendered shall be entered by consent in any court having jurisdiction thereof. 20. Waiver. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. 21. Entire Agreement; Modifications. This Agreement constitutes the entire and final expression of the agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. This Agreement may be modified or amended only by an instrument in writing signed by both parties hereto. 22. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall deemed an original, but all of which together shall constitute one and the same instrument. 23. General Releases. The parties agree to exchange mutual general releases in the event of a lump sum payment to the Executive pursuant to the Change of 10 Control provisions or Section 7(b). IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. INTERNATIONAL TELECOMMUNICATIONS EXECUTIVE DATA SYSTEMS, INC. By: /s/ Lewis D. Bakes /s/ Kevin M. Piltz --------------------------------- ------------------------ Lewis D. Bakes Kevin M. Piltz COO 11 EX-10.17 5 SUBLEASE CONTRACT SUBLEASE WHEREAS the University of Connecticut is authorized by a certain Standard Form of Office Lease and Rider [Exhibit A], dated March 31, 1995 ["Master Lease"], with Northeast Summer Limited Partnership, the interest of the Owner in which the Lease was assigned on April 28, 1995 to K/B Realty Advisors, Inc., and is now held by K/B Fund II, hereinafter called the "OWNER" and specifically by a consent to sublease in the November 4, 1997 letter from Mark Halan, Senior Manager for K/B Realty Advisors, Inc. to Larry Schilling, the University's Director of Facilities Management, Exhibit B hereto, to sublease approximately 13,000 square feet of space located on the fourth floor of the building at 2777 Summer Street, Stamford, Connecticut, as evidenced now therefore: This sublease is made and entered into as of the 15th day of November, 1998, by and between the University of Connecticut, hereafter called the SUBLESSOR, acting herein by Dale M. Dreyfuss, its Vice Chancellor for Business and Administration pursuant to the provisions of Public Act 93-201, Section 3, and International Telecommunications Data Systems, Inc., [ITDS], a Connecticut corporation, hereinafter called the SUBLESSEE, acting herein by Peter L. Masanotti, its Executive Vice President for Operations -- Stamford and General Counsel, duly authorized. WITNESSETH: The parties hereto, for the consideration hereinafter mentioned, covenant and agree to sublease the SUBLESSOR'S interest in the "Master Lease" to the SUBLESSEE as follows: 1. The SUBLESSOR hereby subleases unto the SUBLESSEE approximately 13,000 square feet of space, located on the fourth floor of the building located at 2777 Summer Street, Stamford, Connecticut, as shown on Exhibit D, together with the right to means of ingress into and egress out of the leased premises. All terms and conditions of the "Master Lease" are incorporated herein by reference except as modified herein. The premises are to be used by the SUBLESSEE as office space. 2. The term of the lease shall be December 15, 1998 through March 14, 2000. 3. The SUBLESSEE shall pay no rent for the period November 15, 1998 through December 15, 1998. Commencing on December 15, 1998, the SUBLESSEE shall pay the SUBLESSOR the rental of Thirteen Thousand Five Hundred Forty-One Dollars and Sixty-Seven Cents [$13,541.67] per month, payable in advance. A Check in payment of rent shall be made payable to the order of the University of Connecticut, -1- and shall be sent to the Accounts Receivable Office, Box U-73, Storrs, Connecticut 06269-2073. If the SUBLESSEE fails to pay the rent by the tenth of each month, the SUBLESSEE shall pay the SUBLESSOR a late payment charge of $50.00 per occurrence. 4. The SUBLESSOR warrants and represents to the SUBLESSEE that the "Master Lease" has not been amended or modified except as expressly set forth herein, that the SUBLESSOR is not now, as of the commencement of the Term hereof will not be in default or breach of any provisions of the "Master Lease", and that the SUBLESSOR has no knowledge of any claim by the OWNER that the SUBLESSOR is in default or breach of any provisions of the "Master Lease". 5. The parties hereto agree that this Sublease is not to be assigned and that the leased premises are not to be sublet, in whole or in part, by the SUBLESSEE without the prior written consent of the University of Connecticut's Vice Chancellor for Business and Administration and the OWNER, and otherwise in compliance with the terms and conditions of the "Master Lease". In the event such consent is given, it shall be a condition of the aforementioned consent that the SUBLESSEE provide the SUBLESSOR with the name, address, financial statement and description of the business of the proposed assignee or SUBLESSEE. The SUBLESSEE shall remain fully liable under all the terms, covenants and conditions of this Sublease, including, but not limited to, the provisions of payment of rent, until there is a proper assignment or subletting. 6. The parties hereto agree that if the "Master Lease" requires the SUBLESSOR to pay to OWNER all or portion of the expenses of operating the building and/or project of which the Premises are a part ["Operating Costs"], including but not limited to taxes, utilities, or insurance, then the SUBLESSEE shall pay to SUBLESSOR as additional rent any increases in operating and taxes over a 1999 base year. Such additional rent shall be payable as and when Operating Costs are payable by the SUBLESSOR to the OWNER. If the "Master Lease" provides for the payment by the SUBLESSOR of Operating Costs on the basis of an estimate thereof, then as and when adjustments between estimated and actual Operating Costs are made under the "Master Lease", the obligations of the SUBLESSOR and SUBLESSEE shall be adjusted in a like manner; and if such adjustment shall occur after the expiration or earlier termination of this Sublease, then the obligations of the SUBLESSOR and SUBLESSEE under this Section shall survive such expiration or termination. SUBLESSOR shall, upon request by SUBLESSEE, furnish SUBLESSEE with copies of all statements submitted by OWNER of actual or estimated Operating Costs during the term of this Sublease. 7. Notices from the SUBLESSOR or OWNER to the SUBLESSEE shall be sufficient if delivered to the SUBLESSEE in care of Telecommunication Data Systems, Inc., -2- 225 High Ridge Road, Stamford, CT 06905, or if placed with the United Postal Service properly addressed to the SUBLESSEE in care of its Executive Vice President for Operations -- Stamford and General Counsel. Notices from the SUBLESSEE to the SUBLESSOR shall be sufficient of place with the United States Postal Service, certified mail, postage prepaid, addressed to the Vice Chancellor for Business and Administration, University of Connecticut, 352 Mansfield Road, U-72, Storrs, CT 06269-2072 and copied to the OWNER at its offices at 2777 Summer Street, Stamford, CT 06905. 8. All applicable terms and conditions of the "Master Lease" are incorporated into and made a part of the Sublease as if the SUBLESSEE were the SUBLESSOR thereunder, the SUBLESSEE the SUBLESSOR thereunder, and the Premises the Master Premises. SUBLESSEE assumes and agrees to perform the SUBLESSOR's obligations under the "Master Lease" during the Term to the extent that such obligations are applicable to the Premises, except that the obligations to pay the rent to the OWNER under the "Master Lease" shall be considered performed by the SUBLESSEE to the extent and in the amount rent is paid to SUBLESSOR in accordance with Section 3 of this Sublease. SUBLESSEE shall commit or suffer any act or omission that will violate any of the provisions of the "Master Lease". SUBLESSOR shall exercise due diligence in attempting to cause the OWNER to perform its obligations under the "Master Lease" for the benefit of the SUBLESSEE. If the "Master Lease" terminates, this Sublease shall terminate and the parties shall be relieved of any further liability or obligation under the Sublease, provided however, that if the "Master Lease" terminates as a result of a default or breach by SUBLESSOR or SUBLESSEE under this Sublease and/or the "Master Lease", then the defaulting party shall be liable to the nondefaulting party for the damage suffered as a result of such termination. Notwithstanding the foregoing, if the "Master Lease" gives SUBLESSOR any right to terminate the "Master Lease" in event of the partial or total damage, destruction, or condemnation of the Master Premises or the building or project of which the Master Premises are a part, the exercise of such right by the SUBLESSOR shall not constitute a default or breach hereunder. SUBLESSOR agrees to observe and perform its obligations under the terms of the "Master Lease". SUBLESSOR shall not do or permit anything to be done which would cause the "Master Lease" to be terminated or forfeited for reason of any right or termination or forfeiture reserved or vested on OWNER or SUBLESSOR including without limitation the provisions of Article 58 -- Option to Terminate of the Master Lease [option to terminate]. Anything contained herein to the contrary notwithstanding, the following Articles of the Master Lease are hereby deemed deleted for purposes of incorporation by -3- reference of this Sublease: The fixed rent referenced in the first recitals; Article 2 -- Occupancy; Article 34 -- Security; Article 38 -- Term: Preparation for Occupancy and Possession; Article 41 -- Operation Expense and Tax Escalation, [except that the definition of taxes and operation expenses shall be used to determine operating costs for purposes of calculating Sublessee's payments as described in Paragraph 7 of the Sublease]; Articles 44[c, e and f] - -- electricity and Article 46 -- Broker. 9. This Sublease shall be of no force or effect unless consented to by the OWNER within 10 days after the execution hereof, if such consent is required under the terms of the "Master Lease". All other Sections of the "Master Lease" remain intact and in accordance with the terms of said lease. Notwithstanding anything to the contrary herein, this Agreement shall not modify the "Master Lease" in any way as between the OWNER and SUBLESSOR and SUBLESSOR remains primarily liable to the OWNER under the "Master Lease". -4- IN WITNESS WHEREOF, the parties have hereunto set their hands. Signed in the presence of: International Telecommunications Data Systems, Inc. /s/ Susan M. Vickers ) - -----------------------------------) Susan M. Vickers ) by /s/ Peter L. Masanotti ) ---------------------- ) Peter L. Masanotti ) Its Executive Vice President for /s/ Kavita Kuppuswamy ) Operations--Stamford and General Counsel - -----------------------------------) duly authorized Kavita Kuppuswamy Date signed: 11/19/98 --------------------------- University of Connecticut /s/ Barbara M. Simmons ) by /s/ Dale M. Dreyfuss - -----------------------------------) ------------------------------------- Barbara M. Simmons ) Dale M. Dreyfuss ) Its Vice Chancellor for Business and /s/ Rose P. Lacasse ) Administration - -----------------------------------) duly authorized Rose P. Lacasse Date signed: 12/1/98 --------------------------- State of Connecticut County of Fairfield The foregoing instrument was acknowledged before me this 19th day of November, 1998 by Peter L. Masanotti, Executive Vice President for Operations -- Stamford and General Counsel of International Telecommunications Data Systems, Inc., a Connecticut corporation, on behalf of the corporation. In witness whereof I hereunto set my hand. /s/ Susan M. Vickers ------------------------------------------ Notary Public My commission expires: October 31, 1999 -5- State of Connecticut County of Tolland On this the 1st day of December, 1998, before me Isabelle Atwood, the undersigned officer, personally appeared Dale M. Dreyfuss, of the University of Connecticut, known to me to be the person described in the foregoing instrument, and acknowledged that he executed the same in the capacity therein stated and for the purposes therein contained. In witness whereof I hereunto set my hand /s/ Isabelle Atwood ----------------------------------------- Notary Public My commission expires: 4/30/2001 Approved /s/[illegible signature] Date: 12/14/98 - ------------------------------ ----------------------------------- Associate Attorney General -6- Attachment A STANDARD FORM OF OFFICE LEASE AND RIDER Table of Contents
Article Page - ------- ---- 1. Rent............................................................................1 2. Occupancy.......................................................................1 3. Tenant Alterations..............................................................2 4. Maintenance and Repairs.........................................................2 5. Window Cleaning.................................................................3 6. Requirements of Law, Fire Insurance, Floor Loads................................3 7. Subordination...................................................................5 8. Property--Loss, Damage, Reimbursement, Indemnity................................5 9. Destruction, Fire and Other Casualty............................................5 10. Eminent Domain..................................................................6 11. Assignment, Mortgage, Etc.......................................................6 12. Electric Current................................................................7 13. Access to Premises..............................................................7 14. Vault, Vault Space, Area........................................................8 15. Occupancy.......................................................................8 16. Bankruptcy......................................................................8 17. Default.........................................................................9 18. Remedies of Owner and Waiver of Redemption.....................................10 19. Fees and Expenses..............................................................11 20. Building Alterations and Management............................................11 21. No Representations by Owners...................................................12 22. End of Term....................................................................12 23. Quiet Enjoyment................................................................12 24. Failure to Give Possession.....................................................12 25. No Waiver......................................................................13 26. Waiver of Trial by Jury........................................................13 27. Inability to Perform...........................................................14 28. Bills and Notices..............................................................14 29. Services Provided by Owners....................................................14 30. Captions.......................................................................14 31. Definitions....................................................................15 32. Adjacent Excavation-Shoring....................................................15 34. Security.......................................................................15 35. Estoppel Certificate...........................................................16 36. Successors and Assigns.........................................................16 37. Additional Definitions.........................................................18 38. Term: Preparation for Occupancy and Possession................................19 39. Rent...........................................................................21 40. Parking........................................................................22 41. Operating Expense and Tax Escalation...........................................23 42. Cleaning; Trash Removal........................................................28 43. Heating, Ventilation and Air-Conditioning......................................29 44. Electricity....................................................................30 45. Amendments for Financing; Information for Mortgagees...........................34 46. Broker.........................................................................35 47. Building Name; Tenant Signs; Directory.........................................35 48. Holdover.......................................................................35 49. Insurance and Indemnity........................................................35 50. Exculpation....................................................................37 5.1 Partnership....................................................................37 52. Restrictions on Use............................................................38 53. Rules and Regulations..........................................................38 54. Tenant's Alterations...........................................................39 55. Notice.........................................................................39 56. Miscellaneous..................................................................40 57. Amendments to Printed Form.....................................................42 58. Option to Terminate............................................................43 59. Attorney General Approval......................................................44 60. Non-discrimination.............................................................44
Exhibit A - Rules and Regulations Exhibit B - Cleaning Specifications Exhibit C - Work Specifications Exhibit D - Floor Plan STANDARD FORM OF OFFICE LEASE The Real Estate Board of New York, Inc. AGREEMENT OF LEASE, made as of this 31st day of March 1995, between NORTHEAST SUMMER LIMITED PARTNERSHIP, a Connecticut limited partnership, having an office at 100 Clearbrook Road, Elmsford, New York 10523 party of the first part, hereinafter referred to as OWNER, and UNIVERSITY OF CONNECTICUT, having an address at Box U-122, Storrs, Connecticut 06269 party of the second part, hereinafter referred to as TENANT, Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner the area of the 4th floor shown on the floor plan annexed hereto as Exhibit D (the "demised premises") (approximately 13,000 square feet, the "Rentable Area") in the building known as 2777 Summer Street (the "Building") in the borough of Stamford, Connecticut, for the term of five (5) years (or until such term shall sooner cease and expire as hereinafter provided), at an annual rental rate of (the "Fixed Annual Rent") of $266,500.00 per annum which Tenant agrees to pay in lawful money of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, in equal monthly installments in advance on the first day of each calendar month during said term, at the office of Owner or such other place as Owner may designate, without any set off or deduction whatsoever, except that Tenant shall pay the first monthly installment(s) on the execution hereof (unless this lease be a renewal). In the event that, at the commencement of the term of this lease, or thereafter, Tenant shall be in default in the payment of rent to Owner pursuant to the terms of another lease with Owner or with Owner's predecessor in interest, Owner may then and without notice to Tenant add the amount of such arrears shall be added to any monthly installment of rent payable hereunder and the same shall be payable to Owner as additional rent. The parties hereto, for themselves, their heirs, distributees, executors, administrators, legal representatives, successors and assigns, hereby covenant as follows: 1. Rent: Tenant shall pay the rent as above and as hereinafter provided. 2. Occupancy: Tenant shall use and occupy demised premises for general office use and classrooms for graduate and post graduate studies only and for no other purpose. Notwithstanding anything contained herein to the contrary, Tenant shall not have more than 52 occupants in the demised premises between the hours of 8:00 a.m. and 6:00 p.m. on business days and 55 occupants in the demised premises between the hours of 8:00 a.m. and 6:00 p.m. every other Friday. -1- 3. Tenant Alterations: Tenant shall make no changes in or to the demised premises of any nature without Owner's prior written consent. Subject to the prior written consent of Owner, and to the provisions of this article, Tenant at Tenant's expense, may make alterations, installations, additions or improvements which are non-structural and which do not affect utility services or plumbing and electrical lines, in or to the interior of the demised premises by using contractors or mechanics first approved by Owner. Tenant shall, before making any alterations, additions, installations or improvements, at its expense, obtain all permits, approvals and certificates required by any governmental or quasi-governmental bodies and (upon completion) certificates of final approval thereof and shall deliver promptly duplicates of all such permits, approvals and certificates to Owner and Tenant agrees to carry and will cause Tenant's contractors and sub-contractors to carry such workmen's compensation, general liability, personal and property damage insurance as Owner may require. If any mechanic's lien is filed against the demised premises, or the building of which the same forms a part, for work claimed to have been done for, or materials furnished to, Tenant, whether or not done pursuant to this article, the same shall be discharged by Tenant within ten days thereafter, at Tenant's expense, by filing the bond required by law. All fixtures and all paneling, partitions, railings and like installations, installed in the premises at any time, either by Tenant or by Owner in Tenant's behalf, shall, upon installation, become the property of Owner and shall remain upon and be surrendered with the demised premises unless Owner, by notice to Tenant no later than twenty days prior to the date fixed as the termination of this lease, elects to relinquish Owner's right thereto and to have them removed by Tenant, in which event the same shall be removed from the premises by Tenant prior to the expiration of the lease, at Tenant's expense. Nothing in this Article shall be construed to give Owner title to or to prevent Tenant's removal of trade fixtures, moveable office furniture and equipment, but upon removal of any such from the premises or upon removal of other installations as may be required by Owner, Tenant shall immediately and at its expense, repair and restore the premises to the condition existing prior to installation and repair any damage to the demised premises or the building due to such removal. All property permitted or required to be removed, by Tenant at the end of the term remaining in the premises after Tenant's removal shall be deemed abandoned and may, at the election of Owner, either be included as Owner's property or may be removed from the premises by Owner, at Tenant's expense. (See Article 54) 4. Maintenance and Repairs: Tenant shall, throughout the term of this lease, take good care of the demised premises and the fixtures and appurtenances therein. Tenant shall be responsible for all damage or injury to the demised premises or any other part of the building and the systems and equipment thereof, whether requiring structural or nonstructural repairs caused by or resulting from carelessness, omission, neglect or improper conduct of Tenant, Tenant's subtenants, agents, employees, invitee or licensees, or which arise out of any work, labor, service or equipment done for or supplied to Tenant or any subtenant or arising out of the -2- installation, use or operation of the property or equipment of Tenant or any subtenant. Tenant shall also repair all damage to the building and the demised premises caused by the moving of Tenant's fixtures, furniture and equipment. Tenant shall promptly make, at Tenant's expense, all repairs in and to the demised premises for which Tenant is responsible, using only the contractor for the trade or trades in question, selected from a list of at least two contractors per trade submitted by Owner. Any other repairs in or to the building or the facilities and systems thereof for which Tenant is responsible shall be performed by Owner at the Tenant's expense. Owner shall maintain in good working order and repair the exterior and the structural portions of the building, including the structural portions of its demised premises, and the public portions of the building interior and the building plumbing, electrical, heating and ventilating systems (to the extent such systems presently exist) serving the demised premises. Tenant agrees to give prompt notice of any defective condition in the premises for which Owner may be responsible hereunder. There shall be no allowance to Tenant for diminution of rental value and no liability on the part of Owner by reason of inconvenience, annoyance or injury in business arising from Owner or others making repairs, alterations, additions or improvements in or to any portion of the building or the demised premises or in and to the fixtures, appurtenances or equipment thereof. It is specifically agreed that Tenant shall not be entitled to any setoff or reduction of rent by reason of any failure of Owner to comply with the covenants of this or any other article of this lease. Tenant agrees that Tenant's sole remedy at law in such instance will be by way of an action for damages for breach of contract. The provisions of this Article 4 shall not apply in the case of fire or other casualty which are dealt with in Article 9 hereof. Nothing contained herein shall be deemed a waiver of Tenant's [illegible] law right to claim constructive eviction to the extent permitted by laws and requirements of public authorities if Owner shall fail to perform any of its material obligations under this Lease. (See Article 57) 5. Window Cleaning: Tenant will not clean nor require, permit, suffer or allow any window in the demised premises to be cleaned from the outside in violation of Section 202 of the Labor Law or any other applicable law, or of any other Board or body having or asserting jurisdiction. 6. Requirements of Law, Fire Insurance, Floor Loads: Prior to the commencement of the lease term, if Tenant is then in possession, and at all times thereafter, Tenant, at Tenant's sole cost and expense, shall promptly comply with all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, commissions and boards and any direction of any public officer pursuant to law, and all orders, rules and regulations of the Connecticut Board of Fire Underwriters, Insurance Services Office, or any similar body which shall impose any violation, order or duty upon Owner or Tenant with respect to the demised premises, whether or not arising out of Tenant's use or manner of use thereof (including Tenant's permitted use) or, with respect to the -3- building if arising out of Tenant's use or manner of use of the premises or the building (including the use permitted under the lease). Nothing herein shall require Tenant to make structural repairs or alterations unless Tenant has, by its manner of use of the demised premises or method of operations therein, violated any such laws, ordinances, orders, rules, regulations or requirements with respect thereto. Tenant may, after securing Owner to Owner's satisfaction against all damages, interest, penalties and expenses, including, but not limited to, reasonable attorney's fees, by cash deposit or by surety bond in the amount and in a company satisfactory to Owner, context and appeal any such laws, ordinances, orders, rules, regulations or requirements provided same is done with all reasonable promptness and provided such appeal shall not subject Owner to prosecution for a criminal offense of constitute a default under any lease or mortgage under which Owner may be obligated, or cause the demised premises or any part thereof to be condemned or vacated. Tenant shall not do or permit any act or thing to be done in or to the demised premises which is contrary to law, or which will invalidate or be in conflict with public liability, fire or other policies of insurance at any time certified by or for the benefit of Owner with respect to the demised premises or the building of which the demised premises forms a part, or which shall or might subject Owner to any liability or responsibility in any person or for property damage. Tenant shall not keep anything in the demised premises except as now or hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance Rating Organization or other authority having jurisdiction, and then only in such manner and such quality so as not to increase the rate for fire insurance applicable to the building, nor use the premises in a manner which will increase the insurance rate for the building or any property located therein over that in effect prior to the commencement of Tenant's occupancy. Tenant shall pay all costs, expenses, fines, penalties, or damages, which may be imposed upon Owner by reason of Tenant's failure to comply with the provisions of this article and if by reason of such failure the fire insurance rate shall, at the beginning of this lease or at any time thereafter, be higher than it otherwise would be, then Tenant shall reimburse Owner, as additional rent hereunder, for that portion of all the insurance premiums thereafter aid by Owner which shall have been charged because of such failure by Tenant. In any actions or proceeding wherein Owner and Tenant are parties, a schedule or "make-up" of rule for the building on demised premises issued by the Connecticut Fire Insurance Exchange, or other entity risking life insurance rates applicable to said premises shall be conclusive evidence of the facts therein stated and of the several items until charges in the fire insurance rates then applicable to said premises. Tenant shall not place a load upon any floor of the demised premises exceeding the floor load per square foot area which it was designed to carry and which is allowed by law. Owner reserves the right to prescribe the weight and position of all safes, business machines and mechanical equipment. Such installations shall be placed and maintained by Tenant, at Tenant's expense. In selling sufficient, in Owner's judgment, to absorb and prevent vibration, noise and annoyance. -4- 7. Subordination: This lease is subject and subordinate to all ground or underlying leases and to all mortgages which may now hereafter affect such leases or the real property of which demised premises are a part and to all renewals, modifications, consolidations, replacements and extensions of any such underlying leases and mortgages. This clause shall be self-operative and no further instrument of subordination shall be required by any ground or underlying lessor or by any mortgagee, affecting any lease or the real property of which the demised premises are a part. In confirmation of such subordination, Tenant shall execute promptly any certificate that Owner may request. (See Article 57) 8. Property--Loss, Damage, Reimbursement, Indemnity: Owner or its agents shall not be liable for any damage to property of Tenant or of others entrusted to employees of the building, nor for loss of or damage to any property of Tenant by theft or otherwise, nor for any injury or damage to persons or property resulting from any cause of whatsoever nature, unless caused by or due to the negligence of Owner, its agents, servants or employees. Owner or its agents will not be liable for any such damage caused by other tenants or persons in, upon or about said building or caused by operations in construction of any private, public or quasi public work. If at any time any windows of the demised premises are temporarily closed, darkened or bricked up (or permanently closed, darkened or bricked up, if required by law) for any reason whatsoever including, but not limited to Owner's own acts, Owner shall not be liable for any damage Tenant may sustain thereby and Tenant shall not be entitled to any compensation therefor nor abatement or diminution of rent nor shall the same release Tenant from its obligations hereunder nor constitute an eviction. 9. Destruction, Fire and Other Casualty: (a) If the demised premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give immediate notice thereof to Owner and this lease shall continue in full force and effect except as hereinafter set forth. (b) If the demised premises are partially damaged or rendered partially unusable by fire or other casualty, the damages thereto shall be repaired by and at the expense of Owner and the rent, until such repair shall be substantially completed, shall be apportioned from the day following the casualty according to the part of the premises which is usable. (c) If the demised premises are totally damaged or rendered wholly unusable by fire or other casualty, then the rent shall be proportionately paid up to the time of the casualty and thenceforth shall cease until the date when the premises shall have been repaired and restored by Owner subject to Owner's right to elect not to restore the same as hereinafter provided. (d) If the demised premises are rendered wholly unusable or (whether or not the demised premises are damaged in whole or in part) if the building shall be so damaged that Owner shall decide to demolish it or to rebuild it, then, in any of such events, Owner may elect to terminate this lease by written notice to Tenant, given within [illegible] days after such fire or casualty, specifying a date for the expiration of the lease, which date shall not be more than 60 days after the -5- giving of such notice, and upon the date specified in such notice the term of this lease shall expire as fully and completely as if such date were the date set forth above for the termination of this lease and Tenant shall forthwith quit, surrender and vacate the premises without prejudice however, to Landlord's rights and remedies against Tenant under the lease provisions in effect prior to such termination, and any rent owing shall be paid up to such date and any payments of rent made by Tenant which were on account of any period subsequent to such date shall be returned to Tenant. Unless Owners shall serve a termination notice as provided for herein, Owner shall make the repairs and restorations under the conditions of (b) and (c) hereof, with all reasonable expedition, subject to delays due to adjustment of insurance claims, labor troubles and causes beyond Owner's control. After any such casualty, Tenant shall cooperate with Owner's restoration by removing from the premises as promptly as reasonably possible, all of Tenant's salvageable inventory and movable equipment, furniture, and other property. Tenant's liability for rent shall resume five (5) days after written notice from Owner that the premises are substantially ready for Tenant's occupancy. (e) Nothing contained hereinabove shall relieve Tenant from liability that may exist as a result of damage from fire or other casualty. Notwithstanding the foregoing, each party shall look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty, and to the extent that such insurance is in force and collectible and to the extent permitted by law, Owner and Tenant each hereby releases and waives all right of recovery against the other or any one claiming through or under each of them by way of subrogation or otherwise. The foregoing release and waiver shall be in force only if both Releasers' insurance policies contain a clause providing that such a release or waiver shall not invalidate the insurance. If, and in the extent, that such waiver can be obtained only by the payment of additional premiums, then the party benefitting from the waiver shall pay such premium within ten days after written demand or shall be deemed to have agreed that the party obtaining insurance coverage shall be free of any further obligation under the provisions hereof with respect to waiver of subrogation. Tenant acknowledges that Owner will not carry insurance on Tenant's furniture and/or furnishings or any fixtures or equipment, improvements, or appurtenances removable by Tenant and agrees that Owner will not be obligated to repair any damages thereto or replace the same. 10. Eminent Domain: If the whole or any part of the demised premises shall be acquired or condemned by Eminent Domain for any public or quasi public use or purpose, then and in that event, the term of this lease shall cease and terminate from the date of title vesting in such proceeding and Tenant shall have no claim for the value of any unexpired term of said lease and assigns to Owner, Tenant's entire interest in any such award. 11. Assignment, Mortgage, Etc.: Tenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors and assigns, expressly -6- covenants that it shall not assign, mortgage or encumber this agreement, nor underlet, or suffer or permit the demised premises or any part thereof to be used by others, without the prior written consent of Owner. In each instance, Transfer of the stock of a corporate Tenant shall be deemed an assignment. If this lease be assigned, or if the demised premises or any part thereof be underlet or occupied by anybody other than Tenant, Owner may, after default by Tenant, collect rent from the assignee, under-tenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, underletting, occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, under-tenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. The consent by Owner to an assignment or underletting shall not in any wise be construed to relieve Tenant from obtaining the express consent in writing of Owner to any further assignment or underletting. 12. Electric Current: Rates and conditions in respect to submetering or rent inclusion, as the case may be, to be added in RIDER attached hereto. Tenant covenants and agrees that at all times its use of electric current shall not exceed the capacity of existing feeders to the building or the risers or wiring installation and Tenant may not use any electrical equipment which, in Owner's opinion, reasonably exercised, will overload such installations or interfere with the use thereof by other tenants of the building. The change at any time of the character of electric service shall in no wise make Owner liable or responsible to Tenant, for any loss, damages or expenses which Tenant may sustain. (See Article 44) 13. Access to Premises: Owner or Owner's agents shall have the right (but shall not be obligated) to enter the demised premises in any emergency at any time, and, at other reasonable times, to examine the same and to make such repairs, replacements and improvements as Owner may deem necessary and reasonably desirable to the demised premises or to any other portion of the building or which Owner may elect to perform. Tenant shall permit Owner to use and maintain and replace pipes, ducts and conduits in and through the demised premises and to erect new pipes, ducts and conduits therein provided they are concealed within the walls, floor, or ceiling. Owner may, during the progress of any work in the demised premises, take all necessary materials and equipment into said premises without the same constituting an eviction nor shall the Tenant be entitled to any abatement of rent while such work is in progress nor to any damages by reason of loss or interruption of business or otherwise. Throughout the term hereof Owner shall have the right to enter the demised premises at reasonable hours for the purpose of showing the same to prospective purchasers or mortgagees of the building, and during the last six months of the term for the purpose of showing the same to prospective tenants. If Tenant is not present to open and permit an entry into the premises, Owner or Owner's agents may enter the same whenever such entry may be necessary or permissible by master key or forcibly and provided reasonable care is -7- exercised to safeguard Tenant's property, such entry shall not render Owner or its agents liable therefor, nor in any event shall the obligations of Tenant hereunder be affected. If during the last month of the term Tenant shall have removed all or substantially all of Tenant's property therefrom, Owner may immediately enter, alter, renovate or redecorate the demised premises without limitation or abatement of rent, or incurring liability to Tenant for any compensation and such act shall have no effect on this lease or Tenant's obligations hereunder. 14. Vault, Vault Space, Area: No vaults, vault space or area, whether or not enclosed or covered, not within the property line of the building is leased hereunder, anything contained in or indicated on any sketch, blue print or plan, or anything contained elsewhere in this lease to the contrary notwithstanding. Owner makes no representation as to the limitation of the property line of the building. All vaults and vault space and all such areas not within the property line of the building, which Tenant may be permitted to use and/or occupy, is to be used and/or occupied under a revocable license, and if any such license be revoked, or if the amount of such space or area be diminished or required by any federal, state or municipal authority or public utility, Owner shall not be subject to any liability nor shall Tenant be entitled to any compensation or diminution or abatement of rent, nor shall such revocation, diminution or requisition be deemed constructive or actual eviction. Any tax, fee or charge of municipal authorities for such vault or area shall be paid by Tenant. 15. Occupancy: Tenant will not at any time use or occupy the demised premises in violation of the certificate of occupancy issued for the building of which the demised premises are a part. Tenant has inspected the premises and accepts them as is, subject to the riders annexed hereto with respect to Owner's work, if any. In any event, Owner makes no representation as to the condition of the premises and Tenant agrees to accept the same subject to violations, whether or not of record. 16. Bankruptcy: (a) Anything elsewhere in this lease to the contrary notwithstanding, this lease may be cancelled by Owner by the sending of a written notice to Tenant within a reasonable time after the happening of any one or more of the following events: (1) the commencement of a case in bankruptcy or under the laws of any state naming Tenant as the debtor; or (2) the making by Tenant of an assignment or any other arrangement for the benefit of creditors under any state statute. Neither Tenant nor any person claiming through or under Tenant, or by reason of any statute or order of court, shall thereafter be entitled to possession of the premises demised but shall forthwith quit and surrender the premises. If this lease shall be assigned in accordance with its terms, the provisions of this Article 16 shall be applicable only to the party then owning Tenant's interest in this lease. -8- (b) It is stipulated and agreed that in the event of the termination of this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any other provisions of this lease to the contrary, be entitled to recover from Tenant as and for liquidated damages an amount equal to the difference between the rent reserved hereunder for the unexpired portion of the term demised and the fair and reasonable rental value of the demised premises for the same period. In the computation of such damages the difference between any installment of rent becoming due hereunder after the date of termination and the fair and reasonable rental value of the demised premises for the period for which such installment was payable shall be discounted to the date of termination at the rate of four percent (4%) per annum. If such premises or any part thereof be relet by the Owner for the unexpired term of said lease, or any part thereof, before presentation of proof of such liquidated damages in any court, commission or tribunal, the amount of rent reserved upon such reletting shall be deemed to be the fair and reasonable rental value for the part or the whole of the premises so relet during the term of the reletting. Nothing herein contained shall limit or prejudice the right of the Owner to prove for and obtain as liquidated damages by reason of such termination, 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, such damages are to be proved, whether or not such amount be greater, equal to, or less than the amount of the difference referred to above. 17. Default: (1) If Tenant defaults in fulfilling any of the covenants of this Lease other than the covenants for the payment of rent or additional rent; or if the demised premises becomes vacant or deserted; or if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the demised premises shall be taken or occupied by someone other than Tenant; or if this lease be rejected under ss. 235 of Title 11 of the U.S. Code (bankruptcy code); or if Tenant shall fail to move into or take possession of the premises within fifteen (15) days after the commencement of the term of this lease, then, in any one or more of such events, upon Owner serving a written five (5) days notice upon Tenant specifying the nature of said default and upon the expiration of said five (5) days, if Tenant shall have failed to comply with or remedy such default, or if the said default or omission complained of shall be of a nature that the same cannot be completely cured or remedied within said five (5) day period, and if Tenant shall not have diligently commenced curing such default without such five (5) day period, and shall not thereafter with reasonable diligence and in good faith, proceed to remedy or cure such default, then Owner may serve a written five (5) day's notice of cancellation of this lease upon Tenant, and upon the expiration of said five days this lease and the term thereunder shall end and expire as fully and completely as if the expiration of such five (5) day period were the day herein definitely fixed for the end and expiration of this Lease and the term thereof and Tenant shall then quit and surrender the demised premises to Owner but Tenant shall remain liable as hereinafter provided. Any further proceedings by Owner to recover possession of -9- the demised premises shall be in accordance with Connecticut statutes pertaining to summary process. (2) If the notice provided for in [illegible] shall have been given, and the term shall expire as aforesaid; or if Tenant shall make default in the payment of the rent reserved herein or any item of additional rent herein mentioned or any part of either or in making any other payment herein required; then and in any of such events Owner may dispossess Tenant by summary proceedings or other lawful means, and the legal representative of Tenant or other occupant of demised premises and remove their effects and hold the premises as if this lease had not been made, and Tenant hereby waives the service of notice of intention to re-enter or to institute legal proceedings to that end. If Tenant shall make default hereunder prior to the date fixed as the commencement of any renewal or extension of this lease, Owner may cancel and terminate such renewal or extension agreement by written notice. (See Article 57) 18. Remedies of Owner and Waiver of Redemption: In case of any such default, expiration and/or dispossess by summary proceedings or otherwise, (a) the rent shall become due thereupon and be paid up to the time of such dispossess and/or expiration, (b) Owner may re-let the premises or any part or parts thereof, either in the name of Owner or otherwise, for a term or terms, which may at Owner's option be less than or exceed the period which would otherwise have constituted the balance of the term of this lease and may grant concessions or free rent or charge a higher rental than that in this lease, and/or (c) Tenant or the legal representatives of Tenant shall also pay Owner as liquidated damages for the failure of Tenant to observe and perform said Tenant's covenants herein contained, any deficiency between the rent hereby reserved and/or covenanted to be paid and the net amount, if any, of the rents collected on account of the lease or leases of the demised premises for each month of the period which would otherwise have constituted the balance of the term of this lease. The failure of Owner to re-let the premises or any part or parts thereof shall not release or affect Tenant's liability for damages. Notwithstanding the foregoing, to the extent required by laws and requirements of public authorities, in the event of a default by Tenant, Owner shall use its reasonable efforts to mitigate its damages. In computing such liquidated damages there shall be added to the said deficiency such reasonable expenses as Owner may incur in connection with re-letting, such as legal expenses, attorney's fees, brokerage, advertising and for keeping the demised premises in good order or for preparing the same for re-letting. Any such liquidated damages shall be paid in monthly installments by Tenant on the rent date specified in this lease and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of Owner to collect the deficiency for any subsequent month by a similar proceeding. Owner, in putting the demised premises in good order or preparing the same for re-rental may, at Owner's option, make such alterations, repairs, replacements, and/or decorations in the demised premises as Owner, in Owner's sole -10- judgment, considers advisable and necessary for the purpose of re-letting the demised premises, and the making of such alterations, repairs, replacements, and/or decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever for failure to re-let the demised premises, or in the event that the demised premises are re-let, for failure to collect the rent thereof under such re-letting, and in no event shall Tenant be entitled to receive any excess, if any, of such net rents collected over the sums payable by Tenant to Owner hereunder. In the event of a breach or threatened breach by Tenant of any of the covenants or provisions hereof. Owner shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for. Mention in this lease of any particular remedy, shall not preclude Owner from any other remedy, in law or in equity. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause, or in the event of Owner obtaining possession of demised premises, by reason of the violation by Tenant of any of the covenants and conditions of this lease, or otherwise. 19. Fees and Expenses: If Tenant shall default in the observance or performance of any term or covenant on Tenant's part to be observed or performed under or by virtue of any of the terms or provisions in any article of this lease, then, unless otherwise provided elsewhere in this lease, Owner may immediately or at any time thereafter and without notice perform the obligation of Tenant thereunder. If Owner, in connection with the foregoing or in connection with any default by Tenant in the covenant to pay rent hereunder, makes any expenditures or incurs any obligations for the payment of money, including but not limited to reasonable attorney's fees, in instituting, prosecuting or defending any action or proceeding, then Tenant will reimburse Owner for such sums so paid or obligations incurred with interest and costs. The foregoing expenses incurred by reason of Tenant's default shall be deemed to be additional rent hereunder and shall be paid by Tenant to Owner within five (5) days of rendition of any bill or statement to Tenant thereof. If Tenant's lease term shall have expired at the time of making of such expenditures or incurring of such obligations, such sums shall be recoverable by Owner as damages. 20. Building Alterations and Management: Owner shall have the right at any time without the same constituting an eviction and without incurring liability to Tenant therefor to change the arrangement and/or location of public entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets or other public parts of the building and to change the name, number or designation by which the building may be known. There shall be no allowance to Tenant for diminution of rental value and no liability on the part of Owner by reason of inconvenience, annoyance or injury to business arising from Owner or other Tenants making any repairs in the building or any such alterations, additions and improvements. Furthermore, Tenant shall not have any claim against Owner by reason of Owner's -11- imposition of such controls of the manner of access to the building by Tenant's social or business visitors as the Owner may deem necessary for the security of the building and its occupants. 21. No Representations by Owners: Neither Owner nor Owner's agents have made any representations or promises with respect to the physical condition of the building, the land upon which it is erected or the demised premises, the rents, leases, expenses of operation or any other matter or thing affecting or related to the premises except as herein expressly set forth and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in the provisions of this lease. Tenant has inspected the building and the demised premises and is thoroughly acquainted with their condition and agrees to take the same "as is" and acknowledges that the taking of possession of the demised premises by Tenant shall be conclusive evidence that the said premises and the building of which the same form a part were in good and satisfactory condition at the time such possession was so taken. All understandings and agreements heretofore made between the parties hereto are merged in this contract, which alone fully and completely expresses the agreement between the Owner and Tenant and any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of it in whole or in part, unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought. 22. End of Term: Upon the expiration or other termination of the term of this lease, Tenant shall quit and surrender to Owner the demised premises, broom clean, in good order and condition, ordinary wear and damages which Tenant is not required to repair as provided elsewhere in this lease excepted, and Tenant shall remove all its property. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of this lease. 23. Quiet Enjoyment: Owner covenants and agrees with Tenant that upon Tenant paying the rent and additional rent and observing and performing all the terms, covenants and conditions, on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the premises hereby demised, subject, nevertheless, to the terms and conditions of this lease including, but not limited to Article 20 hereof and to the ground leases, underlying leases and mortgages hereinbefore mentioned. 24. Failure to Give Possession: If Owner is unable to give possession of the demised premises on the date of the commencement of the term hereof, because of the holding-over or retention of possession of any tenant, undertenant or occupants or if the demised premises are located in a building being constructed, because such building has not been sufficiently completed to make the premises ready for occupancy or because of the fact that a certificate of occupancy has not been procured -12- or for any other reasons, Owner shall not be subject to any liability for failure to give possession on said date and the validity of the lease shall not be impaired under such circumstances, nor shall the same be construed in any wise to extend the term of this lease, but the rent payable hereunder shall be abated (provided Tenant is not responsible for Owner's inability to obtain possession) until after Owner shall have given Tenant written notice that the premises are substantially ready for Tenant's occupancy. If permission is given to Tenant to enter into the possession of the demised premises or to occupy premises other than the demised premises prior to the date specified as the commencement of the term of this lease. Tenant covenants and agrees that such occupancy, shall be deemed to be under all the terms, covenants, conditions and provisions of this lease, except as to the covenant to pay rent. 25. No Waiver: The failure of Owner to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this lease or of any of the Rules or Regulations, set forth or hereafter adopted by Owner, shall not prevent a subsequent act which would have originally constituted a violation from having all the force and effect of an original violation. The receipt by Owner of rent will knowledge of the breach of any covenant of this lease shall not be deemed a waiver of such breach and no provision of this lease shall be deemed to have been waived by Owner unless such waiver be in writing signed by Owner. No payment by Tenant or receipt by Owner of a lesser amount than the monthly sum herein stipulated shall be deemed to be other than on account of the earlier stipulate rent, nor, shall any endorsement or statement of any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Owner may accept such check or payment without prejudice to Owner's right to recover the balance of such rent or pursue any other remedy in this lease provided. No act or thing done by Owner or Owner's agents during the term hereby demised shall be deemed an acceptance of a surrender of said premises, and no agreement to accept such surrender shall be valid unless in writing signed by Owner. No employee of Owner or Owner's agent shall have any power to accept the keys of said premises prior to the terminate of the lease and the delivery of keys to any such agent or employee shall not operate as a termination of the lease or a surrender of the premises. 26. Waiver of Trial by Jury: It is mutually agreed by and between Owner and Tenant that the respective parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other (except for personal injury or property damage) on any matters whatsoever arising out of or in any way connected with this lease, the relationship of Owner and Tenant, Tenant's use of or occupancy of said premises, and any emergency statutory or any other statuary remedy. -13- 27. Inability to Perform: This lease and the obligation of Tenant to pay rent hereunder and perform all of the other covenants and agreements hereunder on part of Tenant to be performed shall in no wise be affected, impaired or excused because Owner is unable to fulfill any of its obligations under this lease or to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make, or is delayed in making any repair, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Owner is prevented or delayed from so doing by reason of strike or labor troubles or any cause beyond Owner's reasonable control including, but not limited to, government preemption in connection with a National Emergency or by reason of any rule, order or regulation of any department or subdivision thereof of any government agency or by reasons of the conditions of supply and demand which have been or are affected by war or other emergency. 28. Bills and Notices: Intentionally omitted. 29. Services Provided by Owners: As long as Tenant is not in default under any of the covenants of this lease, Owners shall provide: (a) necessary elevator facilities on business days from 8:00 a.m. to 6 p.m. and on Saturdays from 8:00 am. to 6:00 p.m. and have one elevator subject to call at all other times; (b) heat the demised premises when and as required by law, on business days from 8:00 a.m. to 6:00 p.m.; (c) water for [illegible] lavatory purposes, but if Tenant [illegible] water for any other purposes or in unusual quantities (of which Owner shall be the sole judge), Owner may install a water meter at Tenant's expense which Tenant shall thereafter maintain at Tenant's expense in good working order and repair to register such water consumption and Tenant shall pay for water consumed as shown on said meter as additional rent as and when bills are rendered; (d) (crossed out); (e) (illegible) Owner will furnish the same at Tenant's expense. RIDER to be added in respect to rates and conditions for such additional service; (1) Owner reserves the right to stop services of the heating, elevators, plumbing, air-conditioning, power systems or cleaning or other services, if any, when necessary by reason of accident or for repairs, alternations, replacements or improvements necessary or desirable in the judgment of Owner for as long as may be reasonably required by reason thereof. If the building of which the demised premises are a part supplies manually operated elevator service, Owner at any time may substitute automatic control elevator service and upon ten days written notice to Tenant, proceed with alterations necessary therefor without in any wise affecting this lease or the obligation of Tenant hereunder. The same shall be done with a minimum of inconvenience to Tenant and Owner shall pursue the alteration with due diligence. (See Articles 42, 43 and 57) 30. Captions: The Captions are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this lease nor the intent of any provisions thereof. -14- 31. Definitions: The term "office", or "offices", wherever used in this lease, shall not be construed to mean premises used as a store or stores, for the sale or display, at any time, of goods, wares or merchandise, of any kind, or as a restaurant, shop, booth, [illegible] or other stand, barber shop, or for other similar purpose or for manufacturing. The term "Owner" means a landlord or lessor, and as used in this lease means only the owner, or the mortgagee in possession, for the time being of the land and building (or the owner of a lease of the building or of the land and building) conveyance of which the demised premises form a part so that in the event of any sale or sales of said land and building or of said lease, or in the event of a lease of said building, or of the land and building, the said Owner shall be and hereby is entirely freed and relieved of all covenants and obligations of Owner hereunder, and it shall be deemed and construed without further agreement between the parties or their successors in interest, or between the parties and the purchaser, at any such sale, or the said lessee of the building, or of the land and building, that the purchaser or the lessee of the building has assumed and agreed to carry out any and all covenants and obligations of Owner, hereunder. The words "re-enter" and "re-entry" as used in this lease are not restricted to their technical legal meaning. The term "business days" as used in this lease shall exclude Saturdays, Sundays and all days observed by the State or Federal Government as legal holidays and those designated as holidays by the applicable building service union employees service contract or by the applicable Operating Engineers contract with respect to HVAC service. (See Article 57). 32. Adjacent Excavation-Shoring: If an excavation shall be made upon land adjacent to the demised premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the demised premises for the purpose of doing such work as said person shall deem necessary to preserve the wall or the building of which demised premises form a part from injury or damage and to support the same by proper foundations without any claim for damages or indemnify against Owner, or diminution or abatement of rent. 33. Rules and Regulations: Omitted. (See Article 53) 34. Security: Tenant has deposited with Owner the sum of $23,833.33 as security for the faithful performance and observance by Tenant of the terms, provisions and conditions of this lease; it is agreed that in the event Tenant defaults in respect of any of the terms, provisions and conditions of this lease, including, but not limited to, the payment of rent and additional rent, Owner may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any rent and additional rent or any other sums as to which Tenant is in default or for any sum which Owner may expend or may be required to expend by reason of Tenant's default in respect of any of the terms, covenants and conditions of this lease, including but not limited to, any damages or deficiency in the re-letting of -15- the premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry by Owner. In the event that Tenant shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this lease, the security shall be returned to Tenant after the date fixed as the end of the lease and after delivery of entire possession of the demised premises to Owner. In the event of a sale of the land and building or leasing of the building, of which the demised premises form a part, Owner shall have the right to transfer the security to the vendee or lessee or transferee and Owner shall thereupon be released by Tenant from all liability for the return of such security; and Tenant agrees to look to the new Owner solely for the return of said security, and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new Owner. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as security and that neither Owner nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance, conveyance or transfer. (See Article 57). 35. Estoppel Certificate: Tenant, at any time, and from time to time, upon at least 10 days' prior notice by Owner, shall execute, acknowledge and deliver to Owner, and/or to any other person, firm or corporation specified by Owner, a statement certifying that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifications), stating the dates to which the rent and additional rent have been paid, and stating whether or not there exists any default by Owner under this Lease, and, if so, specifying each such default. 36. Successors and Assigns: The covenants, conditions and agreements contained in this lease shall bind and inure to the benefit of Owner and Tenant and their respective heirs, distributees, executors, administrators, successors, and except as otherwise provided in this lease, their assigns. IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed this Lease as of the day and year first above written. NORTHEAST SUMMER LIMITED PARTNERSHIP BY: 2777 Summer Street Corp., general partner Witness for Owner: /s/ Gary T. Wagner By: /s/ [illegible] [L.S.] - ----------------------------- ------------------------------------ Gary T. Wagner President Witness for Tenant: UNIVERSITY OF CONNECTICUT -16- /s/ Lyn D. Pearl By: /s/ [illegible] - ----------------------------- ------------------------------------------- Lynd D. Pearl Vice President of Finance & Administration ACKNOWLEDGEMENTS CORPORATE OWNER STATE OF NEW YORK, County of Westchester On this 29th day of March, 1995, before me personally came Martin S. Berger to me known, who being by me duly sworn, did depose and say that he resides in New York, New York that he is the President of 2777 Summer Street Corp. the corporation described in and which executed the foregoing instrument, as OWNER; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation, and that he signed his name-thereto by like order. /s/ [illegible] ------------------------------------------- INDIVIDUAL OWNER STATE OF NEW YORK, Count of ________ On this _________ day of ________________, 19_____, before me personally came _____________________ to be known and known to me to be the individual _____________ described in and who, at OWNER, executed the foregoing instrument and acknowledged to me that _______________________ be executed the same. ----------------------------------------------- APPROVED AS TO FORM: /s/ William B. Gundling 4/19/95 - ----------------------------- ------- WILLIAM B. GUNDLING DATE ASSOCIATE ATTORNEY GENERAL TENANT STATE OF CONNECTICUT Count of [illegible] On this [illegible] day of March, 1995, before me personally came Wilber R. James to me known, who being by me duly sworn, did depose and say that he resides in [illegible], Connecticut, that he is the Vice President of the University of -17- Connecticut, the corporation described in and which executed the foregoing instrument, as TENANT; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so alleged by order of the Board of Directors of said corporation, and that he signed his name thereto by like order. /s/[name illegible ----------------------------------------------- INDIVIDUAL TENANT STATE OF NEW YORK County of [Illegible] On this ______ day of _______________, 19__, before me personally came ___________________ to me known and known to me to be the individual ______________ described in and who, as TENANT, executed the foregoing instrument and acknowledged to me that _________ be executed the same -18- UNANIMOUS CONSENT OF THE BOARD OF DIRECTORS OF 2777 SUMMER STREET CORP. AS GENERAL PARTNER OF NORTHEAST SUMMER LIMITED PARTNERSHIP The undersigned, being all of the directors of 2777 Summer Street Corp. (the "Corporation"), the sole general partner of Northeast Summer Limited Partnership, do hereby adopt the following resolutions in behalf of the Corporation: RESOLVED, that the President or any Vice President of the Corporation be, and each of them hereby is authorized, empowered and directed to execute, acknowledge and deliver an Agreement of Lease in the name and on behalf of the Corporation (on behalf of Northeast Summer Limited Partnership ("NSLP")), whereby NSLP agrees to lease approximately 13,000 square feet of space at 2777 Summer Street, Stamford, Connecticut, to the University of Connecticut, subject to such conditions and agreements otherwise deemed acceptable to the signing officer; and it is further RESOLVED, that the President or any Vice President of the Corporation be, and each of them hereby is authorized, empowered and directed to take such further actions and to execute and deliver all such further instruments and documents, in the name and on behalf of the Corporation, in its capacity as general partner of NSLP, as shall in their judgment be necessary or proper, to carry out and effectuate the Agreement of Lease and the purposes of the foregoing resolution, and each of them and the actions of such officers in respect of the fulfillment of the intent of these resolutions is herein approved, ratified and confirmed. -------------------------------- MARTIN S. BERGER /s/ Robert F. Weinberg -------------------------------- ROBERT F. WEINBERG /s/ Charles J. Persico -------------------------------- CHARLES J. PERSICO -19- OFF/MAS/1991 Striking out or deletion of any portion of this lease (and the insertion of asterisks at various points) was done as a matter of convenience in preparing the lease for execution. The language omitted (as well as the use or placement of such asterisks) is not to be given any effect in construing this lease. RULES & REGULATIONS - Exhibit A CLEANING SPECIFICATIONS - Exhibit B WORK SPECIFICATIONS - Exhibit C FLOOR PLAN - Exhibit D STANDARD FORM OF RIDER TO STANDARD FORM OF OFFICE LEASE Date of Lease: March 31, 1995 Owner: NORTHEAST SUMMER LIMITED PARTNERSHIP Tenant: UNIVERSITY OF CONNECTICUT Building: 2777 Summer Street, Stamford, Connecticut Rentable Area: approximately 13,000 square feet 37. Additional Definitions. For all purposes of this lease, and all agreements supplemental hereto, the terms defined in this Article shall have the meanings specified unless the context otherwise requires: (a) The term law and requirements of public authorities shall mean laws and ordinances of federal, state, city, and county governments, and rules, regulations, orders and directives of departments, subdivisions, bureaus, agencies or offices thereof, or any other governmental, public or quasi-public authorities having jurisdiction of the Building, and the directions of any public office pursuant to law. (b) The word invitee shall mean any employee, agent, visitor, customer, contractor, licensee, or other party claiming under or in the Building, or in the Park, if applicable, by permission or sufferance of, Owner or Tenant. (c) The term requirements of insurance bodies shall mean rules, regulations, orders and other requirements of the Connecticut Board of Fire Underwriters or Connecticut Fire Insurance Rating Organization or any similar body performing the same or similar functions. (d) The term unavoidable delays shall mean delays due to strikes or labor troubles, fire or other casualty, governmental restrictions, enemy action, civil commotion, war or other emergency, acts of God or nature or any cause beyond the reasonable control of either party whether or not similar to any of the causes stated -20- OFF/MAS/1991 above, but not the inability of either party to obtain financing which may be necessary to carry out its obligations. (e) The term Real Property shall mean the land and Building of which the demised premises is a part. (f) The term lease year shall mean the 12 month period commencing with the Commencement Date (as defined in Article 38), and ending the date preceding the first anniversary of the Commencement Date (except that if the Commencement Date shall occur on a day other than the first day of a calendar month, such period shall commence with the Commencement Date and end with the last day of the 12th full calendar month thereafter) and each 12 month period thereafter, all or part of which falls within the term of this lease. 38. Term: Preparation for Occupancy and Possession. (a) The term of this lease and the estate hereby granted shall commence on a date (the "Commencement Date") which shall be the earlier of the day (i) on which the demised premises shall be deemed to be completed (of which date Tenant shall be given 5 days notice) as such term is defined in paragraph (c) of this Article, or (ii) Tenant (or anyone claiming under or through Tenant) shall occupy the demised premises for the conduct of business. The term shall expire on the last day of the month five (5) years after the month in which the Commencement Date occurs (the "Expiration Date") or on such earlier date upon which said term may expire or be terminated pursuant to any provision of this lease or law. Promptly following the determination of the Commencement Date, the parties shall enter into a supplementary written agreement setting forth the Commencement and Expiration Dates. (b) The demised premises shall be completed and initially prepared by Owner in the manner, and subject to the provisions of the attached Work Specifications and Floor Plans. Tenant and its contractors shall be entitled to access to the demised premises prior to the completion of Owner's work only so long as they work in conformity with and do not interfere, in Owner's judgment, with Owner or its contractors in the completion of Owner's work, and provided they accept the administrative supervision of Owner. If Tenant's work interferes with Owner's work, Owner may withdraw the license granted to Tenant pursuant to this paragraph upon 24 hours notice. Worker's Compensation, public liability and property damage insurance, as set forth in Article 49, shall be maintained by Tenant and/or its contractors, and certificates of such insurance shall be furnished to Owner prior to the commencement of Tenant's work. Tenant's selection of contractors must be in compliance with the provisions of this lease. -21- OFF/MAS/1991 (c) The demised premises shall be deemed complete on the earliest date on which Owner's work in the demised premises has been substantially completed, notwithstanding the fact that minor or insubstantial details of construction, mechanical adjustment or decoration remain to be performed, the non-completion of which would not materially interfere with Tenant's use of the demised premises. If completion of the demised premises is delayed by reason of: (i) any act or omission of Tenant or any of its employees, agents or contractors, including failure of Tenant to comply with any of its obligations under the Work Specifications, or (ii) failure to plan or execute Tenant's work with reasonable speed and diligence, or (iii) failure to make selections required by the Work Specifications, or (iv) changes by Tenant in its drawings or specifications or changes or substitutions requested by Tenant, or (v) failure to submit or approve drawings, plans or specifications timely, (vi) Tenant's failure to deliver to Owner the first month's rent (if required by the provisions on the first page of this lease), and the security deposit required by Article 34 (if any), then the demised premises shall be deemed complete (and Tenant shall commence paying rent) on the date when it would have been completed but for such delay, and Tenant shall pay Owner all costs and damages which Owner may sustain by reason of such delay. (d) Floor Plans attached hereto are subject to revision based on laws and requirements of public authorities and requirements of insurance bodies. Any changes in door swings, arrangements of exits and/or passages so mandated shall be binding on Owner and Tenant as if they had been incorporated into the Floor Plans. If any common foyers or exit foyers or exit passages mandated by such regulations are used by more than one tenant, the size of such areas or passages and the rent therefore shall be apportioned among the tenants in relation to the total square footage which they proportionately occupy, and Tenant's share of such charges shall be payable as additional rent. -22- OFF/MAS/1991 (e) Owner may change the arrangement and/or location of (including the closing off of) exits, entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets or other parts of the Building whenever necessary to comply with laws and requirements of public authorities and requirements of insurance bodies. Tenant shall pay the cost thereof where the requirement for such addition is due solely to Tenant's use of the demised premises. 39. Rent. (a) If the Commencement Date is other than the first day of a calendar month, the first monthly installment of Fixed Annual Rent shall be prorated to the end of said calendar month. (b) All rent shall be paid by currently dated, unendorsed check of Tenant, payable to the order of Owner or to an agent designated by Owner, and drawn on a bank or trust company which is a member of the Connecticut Clearing House. (c) Tenant shall pay the Fixed Annual Rent without notice or demand. If no date shall be set forth herein for the payment of any other sums due Owner, then such sums shall be due and payable within 10 business days after the date upon which Owner makes written demand for such payment. The Fixed Annual Rent and such other sums due Owner are referred to in this lease as "rent". (d) If at any time during the term the rent, or any part thereof, shall not be fully collectible by reason of any law and requirement of public authorities, Tenant shall enter into such agreements and take such actions as Owner may request to permit Owner to collect the maximum rents which may, during continuance of such legal rent restrictions, be legally permissible (but not in excess of the amounts reserved under this lease). Upon termination of such rent restriction prior to the Expiration Date (i) the rent shall become and thereafter be payable in accordance with the amounts reserved in this lease for the period of the term following such termination, and (ii) Tenant shall pay Owner, if legally permissible, an amount equal to (y) the rent which would have been paid pursuant to this lease but for such legal rent restriction less (z) the rents paid by Tenant for the period during which such rent restriction was in effect. (e) If any installment of Fixed Annual Rent is not paid when due, or if any other monies owing by Tenant are not paid within 10 business days of the date due and payable, Tenant shall pay Owner, without prejudice to any of Owner's rights and remedies, in compensation for the additional administrative, bookkeeping and collection expenses incurred by reason of such overdue sum, a sum calculated by multiplying the late payment by three percentage points above the prime rate or its -23- OFF/MAS/1991 equivalent then established by Chemical Bank, or its successors, dividing the product by 365 and multiplying the quotient by the number of days between the date such payment was due and the date such payment is in fact paid. Nothing herein shall be intended to violate any applicable law, code or regulation, and in all instances all such charges shall be automatically reduced to any maximum applicable legal rate or charge. Such compensation shall be without prejudice to any of Owner's rights and remedies hereunder. (f) If any check tendered by Tenant, for any payment due, shall be dishonored by the payor bank, Tenant shall pay Owner, without prejudice to any of Owner's rights and remedies, in compensation for the additional administrative, bookkeeping and collection expenses incurred by reason of such dishonored check, the sum of $100. If during any twelve month period during the term of this lease, two or more checks tendered by Tenant, for any payment due, shall be dishonored by the payor bank, Owner may at any time thereafter require that all future payments of rent by Tenant shall be made by certified or official bank checks. 40. Parking. (a) Throughout the term, so long as Tenant shall have performed all of the agreements on Tenant's part to be performed, Owner shall make available to Tenant the following number of parking spaces, on a non-exclusive basis. 52 spaces between the hours of 8:00 a.m. and 6:00 p.m. on regular business days and 200 spaces at all other times. Tenant, at its sole cost and expense, shall hire its own security staff to patrol the Building and parking area on days other than regular business days and during hours other than between 8:00 a.m. and 6:00 p.m. on regular business days. The security staff hired by Tenant shall be reputable and professional. Owner shall have no liability for any damage to any person or property during such times that Tenant is required to have security on duty.* If Tenant or its invitees use more than the specified number of spaces, after 5 days notice from Owner, Tenant shall, at the option of Owner, either (i) pay Owner's then current charge per month for each additional space used on a month to month basis, which may be revoked by Owner at any time upon 30 days notice (as of the date of this lease, Owner's current monthly charge is $40.00 per space), or (ii) cease and desist immediately from using said additional spaces. (b) As necessary, Owner shall light (between 8:00 a.m. and 10:30 p.m. on business days and 8:00 a.m. and 6:00 p.m. on Saturdays), clean, remove snow from and maintain, the parking area. Tenant shall be responsible for repairing damage -24- OFF/MAS/1991 caused by tenant or its invitees. Owner shall not be obligated to remove snow unless the accumulation exceeds 3 inches. In no event shall Owner be obligated to remove snow from areas obstructed by parked vehicles at the time Owner's equipment is servicing such areas.* (c) Tenant shall require its invitees to park in areas designated by Owner, and not to obstruct the areas of other tenants nor park in undesignated areas. Tenant shall, upon request, furnish to Owner the license numbers of the automobiles operated by Tenant, its officers and employees. Owner may use any lawful means to enforce the parking regulations established pursuant to Article 53, including the towing away of improperly parked or unauthorized cars and the pasting of warning notices on car windows and windshields. (d) Owner may temporarily close any common area (i.e. areas not leased to Tenant) to make repairs or changes therein, to prevent the acquisition of public rights in such area, or to discourage unauthorized parking. Owner may do such other acts in and to the common areas as, in its judgment, may be desirable to improve the convenience thereof. 41. Operating Expense and Tax Escalation. (a) Tenant's Proportionate Share shall mean 12.04%. (b) Tax Escalation. (i) Definitions. As used in this lease: (x) "Taxes" shall mean the total amount of real estate taxes and assessments now or hereafter levied, imposed, confirmed or assessed against the Real Property, (or, during any period the Real Property is owned by an industrial development agency, such as would be levied, imposed, confirmed or assessed as if Owner named herein were the fee owner), including city, county, town, village, school and transit taxes, water fees and sewer and refuse disposal charges, or taxes, assessments or charges levied, imposed, confirmed or assessed against, or a lien on, the Real Property by any taxing authority whether general or specific, ordinary or extraordinary, foreseen or unforeseen and whether for public betterments or improvements or otherwise. If, due to any change in the method of taxation, any franchise, capital stock, capital, income, profit, sales, rental, use and occupancy tax or charge shall be levied, assessed, confirmed or imposed upon any owner of the Real Property in lieu of, or in addition to any real estate taxes or assessments upon or -25- OFF/MAS/1991 with respect to the Real Property, such tax shall be included in the term Taxes. Penalties and interest on Taxes (except to the extent imposed upon timely payments of assessments that may be, and are in fact, paid in installments) and income, franchise, transfer, inheritance and capital stock taxes shall be deemed excluded from Taxes except to the extent provided in the immediately preceding sentence. (y) "Base Tax" is the product of the tax rates set forth on tax bills rendered for each Tax for the Tax Year during which January 1, 1995 occurs multiplied by the assessed valuations of the Real Property for the Tax Year during which January 1, 1995 occurs. "Tax Year" shall mean the fiscal period for each Tax. Any and all tax abatements shall be for the benefit of Owner.* (ii) Tax Payments. (a) If Taxes for any Tax Year during the term ("Tax Comparison Year") shall exceed the Base Tax, Tenant shall pay Owner as additional rent for each such Tax Comparison Year, Tenant's Proportionate Share of such excess ("Tax Payment"). (b) Subsequent to Owner's receipt of the tax bills for each Tax Comparison Year, Owner shall submit to Tenant a statement showing (i) the Tax Payments due for such Tax Comparison Year, and (ii) the basis of calculations ("Owner's Tax Statement"). Tenant shall (y) pay Owner the unpaid portion (if any) of the Tax Payment within 30 days after receipt of Owner's Tax Statement, and (z) on account of the immediately following Tax Comparison Year, pay Owner commencing as of the first day of the month during which Owner's Tax Statement is rendered, and on the first day of each month thereafter until a new Owner's Tax Statement is rendered, 1/12th of the total payment of the current Tax Comparison Year. The monthly payments based on the total payment for the current Tax Comparison Year shall be adjusted from time to time to reflect Owner's reasonable estimate of increases in Taxes for the immediately following Tax Comparison Year. (iii) Reduction of Comparison Year Taxes. If Taxes for a Tax Comparison Year are reduced, the amount of Owner's costs and expenses of obtaining such reduction (including legal, appraisers' and consultants' fees) shall be added to and deemed part of Taxes for such Tax Comparison Year. If Owner obtains a refund of Taxes for a Tax Comparison Year for which a Tax Payment has been made, Owner shall credit against Tenant's next succeeding Tax Payment(s), Tenant's Proportionate Share of the refund (but not more than the Tax Payment -26- OFF/MAS/1991 that was the subject of the refund) after deducting from such refund the expenses incurred by Owner in obtaining the refund, including legal, appraisers' and consultants' fees. If no Tax Payment shall thereafter be due, Owner shall pay Tenant's Proportionate Share of such refund to Tenant. (iv) Reduction of Base Tax. If Owner obtains a reduction in the Base Tax, the Base Tax shall be reduced (such reduction to include the expenses incurred by Owner in obtaining such reduction, including legal, appraisers' and consultants' fees), prior Tax Payments (if any) shall be recalculated and Tenant shall pay Owner Tenant's Proportionate Share of the increased amount of Tax Payment for each prior Tax Comparison Year. Tenant's payment under this paragraph shall be made within 30 days after Owner's billing therefor. (v) Tax Protests. While proceedings for reduction in assessed valuations are pending, the computation and payment of Tax Payments shall be based upon the original assessments for the years in question. Tenant shall have no right to institute or participate in any tax proceedings or other proceedings of a similar nature. The commencement, maintenance, settlement and conduct thereof shall be in the sole discretion of Owner. Notwithstanding the foregoing, Tenant shall have the right, by appropriate proceedings, to protest or contest any assessment or reassessment for Taxes. In such event, Tenant shall notify Owner within 30 days after the initial public availability of any such assessment or reassessment if Tenant desires to have such assessment contested or protested (time being of the essence). After receipt of Tenant's notice, if Owner does not intend to seek a reduction of assessed valuation (or, having commenced a proceeding for same, does not intend to prosecute it), Owner shall notify Tenant promptly, so as to enable Tenant to initiate (or further prosecute, as the case may be) such proceeding. Tenant may thereafter initiate (or further prosecute, as the case may be) such proceeding in the name and place of Owner. If Tenant shall so elect, then Owner shall cooperate with Tenant to the extent reasonably required by Tenant, provided that Owner shall have no obligation to expend any money with respect thereto.* (vi) Assessment With Other Properties. If, at any time, the Real Property is assessed for tax purposes with other property owned by Owner, the Taxes shall be an allocable portion of the Taxes on all -27- OFF/MAS/1991 such properties, based upon an informal apportionment by the tax assessors of the total assessment to such Real Property or if such apportionment is not available, as shall be reasonably determined by Owner. (vii) Tenant's Improvements. In the event an increase in Taxes is caused by Tenant's improvements to the demised premises after the initial installation performed by Owner pursuant to this lease, Tenant shall pay the entire increase attributable to such improvements. If the Taxes for the improvements which are to be paid separately by Tenant are not separately assessed, Tenant's portion of that Tax shall be reasonably determined by Owner.* (c) Operating Expense Escalation. (i) Definitions. As use din this lease: (y) "Operating Expenses" or "Expenses" shall mean such costs or expenses (and taxes thereon), as shall be paid or incurred by or in behalf of Owner in providing services to tenants leasing space in the Building, and in the operation, cleaning, repair (whether structural or non-structural and whether or not capitalized under generally accepted accounting principles), management, security and maintenance of the Real Property (collectively called "Building Operation") including but not limited to (1) salaries, wages and benefits paid to persons engaged in Building Operations, including but not limited to social security, unemployment and other payroll taxes related thereto, disability and workers' compensation coverage, hospitalization, medical, surgical, union and general welfare benefits (including group life insurance), pension, retirement or life insurance plans and other benefit or similar expenses (2) the cost of casualty, rent, boiler, machinery, sprinkler, apparatus, liability, fidelity, plate glass, earthquake and any other insurance, (3) management fees in a sum not in excess of the prevailing rate for management fees payable for comparable properties in comparable locations, (4) legal (except those for preparation of this and other leases), accounting and other professional fees and disbursements, (5) maintenance and repair of grounds, including interior and exterior lawns, gardens, shrubbery, trees, planters, containers, statuary, exhibits, displays, walks and other ways and areas and common areas, interior or exterior, (6) telephone charges incurred at the Building office (if any), (7) costs and expenses for fuel or energy purchased or used for the operation of the Building's heating, ventilating and air cooling system and equipment, and for common area light and power, and (8) costs for alterations or improvements resulting in or intended to result in a -28- OFF/MAS/1991 reduction in fuel or energy consumption or Operating Expenses or made by reason of laws and requirements of public authorities or requirement of insurance bodies or Owner's insurers, provided however, that to the extent such costs are capitalized under generally accepted accounting principles, such costs (together with an interest factor equal to the greater of the interest with an interest factor equal to the greater of the interest rate set forth in the first mortgage encumbering the Building or two percentage points in excess of the prime rate established by Chemical Bank, or its successor, at the time of expenditure) shall be amortized over a period of 5 years. An item of expense properly included in more than one category shall not be included more than once in the calculation of Expenses. (z) "Base Operating Expenses" shall mean Expenses for the 1995 calendar year ("Base Expense Year"). If the Building is not fully operational or occupied during such year, the Expenses for such year shall be calculated by Owner by projecting actual expenses to such amount as would have been incurred if the Building had been fully operational and 95% occupied.* (ii) Expense Payments. (w) If Operating Expenses for any calendar year during the term and following the Base Expense Year (each such year being called an "Expense Comparison year") shall exceed Base Operating Expenses, Tenant shall pay Owner, for each such Expense Comparison Year, Tenant's Proportionate Share of such excess ("Expense Payment"). If the Building is not fully operational or occupied during any Expense Comparison Year, then the Operating Expenses for each such year shall be calculated by Owner by projecting actual expenses to such amount as would have been incurred if the Building had been fully operational and 95% occupied. (x) Subsequent to the end of each Expense Comparison Year, Owner shall submit to Tenant a statement showing (1) the Expense Payments due for such Expense Comparison Year, and (2) the basis for such calculations ("Owner's Statement"). Tenant shall (x) make payment of any unpaid portion of the Expense Payment within 30 days after receipt of Owner's Statement, (y) pay to Owner, on account of the then current Expense Comparison Year, within 30 days after receipt of Owner's Statement an amount equal to the product obtained by multiplying the total payment required for the preceding Expense Comparison Year by a fraction, the denominator of which shall be 12 and the numerator of which shall be the number of months of the current Expense Comparison Year which shall have elapsed prior to the first day of the month immediately following the rendition of Owner's Statement, and (z) pay Owner, -29- OFF/MAS/1991 on account of the then current Expense Comparison Year, commencing as of the first day of the month immediately following the rendition of Owner's Statement and on the first day of each month thereafter until a new Owner's Statement is rendered, 1/12th of the total payment for the preceding Expense Comparison Year. The monthly payments based on the total payment for the preceding Expense Comparison Year shall be adjusted from time to time to reflect Owner's reasonable estimate of increases in Operating Expenses for the current Expense Comparison year. The payments required to be made under clauses (y) and (z) above shall be subject to adjustment as and when Owner's Statement for such current Expense Comparison year is rendered by Owner. During the first Expense Comparison Year Tenant shall make payments on account of Expense Payments, based upon reasonable estimates prepared by Owner, payments to be made monthly on the first day of each month during such first Expense Comparison Year. The payments based on such estimates shall be adjusted following the expiration of the first Expense Comparison Year, upon rendition of Owner's Statement for that year. (y) No Credit. If in a Tax Comparison Year the Taxes are less than the Base Tax, and/or if an Expense Comparison Year the Operating Expenses are less than the Base Operating Expenses, the Tenant shall not be entitled to receive a credit, by way of a reduction in Fixed Annual Rent, a refund of all or a portion of prior (or a credit against future) Tax Payments or Expense Payments, or otherwise. (z) Partial Comparison year. If the Expiration Date or earlier date upon which the term may expire or terminate shall be a date other than the last day of a Tax or Expense Comparison Year, Tenant's Tax Payment and Expense Payment for such partial Tax or Expense Comparison Year shall be prorated, based upon Owner's reasonable estimate of the tax payments and expense payments for such Tax or Expense Comparison Year. 42. Cleaning; Trash Removal. (a) If Tenant keeps the demised premises in good order, Owner shall cause the demised premises to be cleaned on business days, in accordance with the provisions of the annexed Cleaning Specifications. Tenant shall provide unrestricted access to the interior of all windows within the demised premises as a condition precedent to Owner's obligation to clean same. Tenant shall provide Owner, its contractors and their employees, with unrestricted access to the demised premises between the hours of 8:00 a.m. to 5:00 p.m., together with the use of Tenant's electricity and water (if any), all as may be required for cleaning. In consideration for Owner's cleaning of the demised premises during such hours. Tenant shall pay -30- OFF/MAS/1991 Owner, as additional rent, the sum of $3,286.00, which sum shall be payable in equal monthly installments of $273.83 per month together with and in the same manner as the Fixed Annual Rent.* (b) Tenant shall pay Owner the costs incurred by Owner as a result of (i) cleaning performed in the demised premises and the Building, necessitated by (v) misuse or neglect on the part of Tenant or its invitees, (w) use of any portion of the demised premises for preparation, serving or consumption of food or beverages, reproducing operations, private lavatories or other special purposes requiring greater or more difficult cleaning work than that normally associated with office areas, provided, however, that Tenant may use the kitchenette in the demised premises for its intended purpose, (x) interior glass surfaces, (y) non-building standard materials or finishes installed by or at Tenant's request, or (z) increases in frequency or scope of any of the items set forth in the Cleaning Specifications as requested by Tenant, and (ii) removal from the demised premises or building of Tenant's refuse and rubbish exceeding that normally accumulated daily in routine or ordinary business office occupancy.* (c) Extraordinary waste (such as crates, cartons, boxes and used furniture and equipment) shall be removed from the Building by Owner, at Tenant's cost. Tenant shall not place waste of any kind in any public area. Anything placed in a public area by Tenant shall be deemed abandoned and of no value to Tenant, and Owner may remove and dispose of same, at Tenant's cost. The costs incurred by Owner pursuant to paragraphs (b) and (c) of this Article shall be paid by Tenant to Owner, within 30 days after submission of a statement therefor, without limitation Owner's additional rights under this lease. 43. Heating, Ventilation and Air-Conditioning. (a) Owner shall have free and unrestricted access to all heating, air-conditioning and ventilating ("HVAC") equipment in the demised premises. Damage caused to the HVAC equipment, appliances or appurtenances as a result of the negligence or careless operation by Tenant, its employees or its invitees, shall be repaired by Owner. The cost and expense thereof shall be paid by Tenant within 30 days after submission of Owner's statement, without limiting any of Owner's additional rights under this lease. Owner shall have no maintenance or repair obligation as to supplemental HVAC equipment installed by, or at, Tenant's request or expense.* (b) Owner will not be responsible for the failure of the air-conditioning system to meet its performance specifications (i) prior to the proper balancing of the system, or (ii) if such failure results from the occupancy of the demised premises by -31- OFF/MAS/1991 more than an average of 1 person for each 150 square feet of Rentable Area, or (iii) if Tenant installs and operates machines and appliances the installed electrical load of which when combined with the load of all lighting fixtures exceeds the electrical load contemplated by the floor plan attached hereto. If the use of the demised premises in a manner exceeding the occupancy and electrical load criteria, or the rearrangement of partitioning after the initial preparation of the demised premises, results in the air-conditioning system being unable to achieve its rated performance specifications, and it is feasible to make changes to the system so as to enable it to achieve such performance specifications, if Tenant requests such changes, such changes shall be made by Owner at Tenant's cost, which cost shall be paid by Tenant within 30 days after submission of a statement therefor.* (c) In order to enable the air-conditioning system to function properly, Tenant shall keep all windows closed and shall lower and close window coverings when necessary because of the sun's position. Tenant shall comply with all regulations and requirements Owner may establish for the functioning and protection of the HVAC systems. (d) The Fixed Annual Rent includes up to 950 hours per annum of overtime heating and air conditioning use. If Tenant exceeds 950 hours per annum of overtime heating and air conditioning use, Tenant shall pay Owner's's then standard charge for such use. Owner's current charge for overtime heating and air conditioning service is $35.00 per hour.* 44. Electricity. (a) Electricity shall be supplied to the demised premises during the term in accordance with the provisions of paragraph (c) of this Article. However, at any time and from time to time during the term hereof, provided it is then permissible under the provisions of laws and requirements of public authorities, Owner shall have the option to have electricity supplied to the demised premises in accordance with paragraph (d) of this Article.* (b) For the purposes of this Article (i) The term "Electric Rate" shall mean the Service Classification pursuant to which Owner purchases electricity from the utility company servicing the Building, provided, however, at no time shall the amount payable by Tenant for electricity be less than Owner's Cost per Kilowatt and Cost per Kilowatt Hour (as such terms are hereinafter defined), and provided further that in any event, the Electric Rate shall include all applicable surcharges, and -32- OFF/MAS/1991 demand, energy, fuel adjustment and time of day charges (if any), taxes and other sums payable in respect thereof.* (ii) The term "Cost per Kilowatt Hour" shall mean the total cost for electricity incurred by Owner to service the Building during a particular time period (including all applicable surcharges, and energy, fuel adjustment and time of day charges (if any), taxes and other sums payable in respect thereof) divided by the total kilowatt hours purchased by Owner during such period. (iii) The term "Cost per Kilowatt" shall mean the total cost for demand incurred by Owner to service the Building during a particular time period (including all applicable surcharges, demand, and time of day charges (if any), taxes and other sums payable in respect to thereof) divided by the total kilowatts purchased by Owner during such period. (c) (i) Owner shall supply electricity to service the demised premises on a submetered basis, and Tenant shall pay to Owner, as additional rent, the sum of (y) an amount determined by applying the Electric Rate or, at Owner's election, the Cost per Kilowatt Hour and Cost per Kilowatt, to Tenant's consumption of and demand for electricity within the demised premises as recorded on the submeter or submeters servicing the demised premises, and (z) Owner's administrative charge of 8% of the amount referred to in clause (y) above, if and to the extent same is permitted by laws and requirements of public authorities (such combined sum being hereinafter called "Submeter Electric Rent"). Except as set forth in the foregoing clause (z), Owner will not charge Tenant more than the Electric Rate or, at Owner's election, the Cost per Kilowatt and Cost per Kilowatt Hour for the electricity provided pursuant to this paragraph.* (ii) Where more than one submeter measures the electric service to Tenant, the electric service rendered through each submeter shall be computed and billed separately in accordance with the provisions hereinabove set forth. (iii) Tenant shall pay to Owner, on account of the Submeter Electric Rent payable pursuant to this paragraph (c), the annual sum of $19,500.00 ("Estimated Submeter Electric Rent"), subject to the adjustments on the first day of each and every calendar month of the term (except that if the first day of the term is other than the first day of a calendar month, the first monthly installment, prorated to the end of said calendar month, shall be payable on the first day of the first full calendar month). -33- OFF/MAS/1991 (iv) From time to time during the term, the Estimated Submeter Electric Rent may be adjusted by Owner on the basis of either Owner's reasonable estimate of Tenant's electric consumption and demand (if at any time the submeter(s) servicing the demised premises are inoperative) or Tenant's actual consumption of and demand for electricity as recorded on the submeter(s) servicing the premises, and, in either event, the Electric Rate or Cost per Kilowatt and Cost per Kilowatt Hour then in effect. (v) Subsequent to the end of each calendar year during the term of this lease, or more frequently if Owner shall elect, Owner shall submit to Tenant a statement of the Electric Submeter Rent for such year or shorter period together with the components thereof, as set forth in clause (i) of this paragraph (c) ("Submetered Electric Statement"). To the extent that the Estimated Submeter Electric Rent paid by Tenant for the period covered by the Submetered Electric Statement shall be less than the Submeter Electric Rent as set forth on such Submeter Electric Statement, Tenant shall pay Owner the difference within 30 days after receipt of the Submeter Electric Statement. If the Estimated Submeter Electric Rent paid by Tenant for the period covered by the Submeter Electric Statement shall be greater than the Submeter Electric Rent as set forth on the Submeter Electric Statement, such difference shall be credited against the next required payment(s) of Estimated Submeter Electric Rent. If no Estimated Submeter Electric Rent payment(s) shall thereafter be due, Owner shall pay such difference to Tenant. (vi) For any period during which the submeter(s) servicing the premises are inoperative, the Submeter Electric Rent shall be determined by Owner, based upon its reasonable estimate of Tenant's actual consumption of and demand for electricity, and the Electric Rate or Cost per Kilowatt and cost per Kilowatt Hour then in effect. (d) If Owner discontinues furnishing electricity to the demised premises pursuant to paragraph (c) of this Article, Tenant shall make its own arrangements to obtain electricity directly from the utility company furnishing electricity to the building. The cost of such service shall be paid by Tenant directly to such utility company. Owner shall permit its electric feeders, risers and wiring serving the demised premises to be used by Tenant, to the extent available, safe and capable of being used for such purpose. All meters and all additional panel boards, feeders, risers, wiring and other conductors and equipment which may be required to enable Tenant to obtain electricity of substantially the same quality and character, shall be installed by Owner at Tenant's cost and expense. Owner shall not discriminate against Tenant in its decision to discontinue furnishing electricity to the demised premises.* -34- OFF/MAS/1991 (e) Bills for electricity supplied pursuant to paragraph (c) of this Article shall be rendered to Tenant at such times as Owner may elect. Tenant's payments for electricity supplied in accordance with paragraph (c) of this Article shall be due and payable within 30 days after delivery of a statement therefor, by Owner to Tenant. If any tax is imposed upon Owner's receipts from the sale of electricity to Tenant by laws and requirements of public authorities, Tenant agrees that, unless prohibited by such laws and requirements of public authorities, Tenant's Proportionate Share of such taxes shall be included in the bills of, and paid by Tenant to Owner, as additional rent.* (f) Owner's failure during the term to prepare and deliver any statements or bills under this Article, or Owner's failure to make a demand under this Article, shall not in any way be deemed to be a waiver of, or cause Owner to forfeit or surrender, its rights to collect any amount of additional rent which may become due pursuant to this Article, except that any such failure beyond 24 months following the end of the year during which such sum shall be due and payable shall result in Owner being unable to collect such sums; but such abatement of Tenant's obligation shall not constitute a waiver of or in any way impair the continuing obligation of Tenant to pay for electricity consumption during future periods during the term. Tenant's liability for any amounts due under this Article shall survive the expiration or sooner termination of the term.* (g) Tenant's failure or refusal, for any reason, to utilize the electrical energy provided by Owner, shall not entitle Tenant to any abatement or diminution of Fixed Annual Rent or additional rent, or otherwise relieve Tenant from any of its obligations under this lease. (h) If either the quantity or character of the electrical service is changed by the utility company supplying electrical service to the Building or is no longer available or suitable for Tenant's requirements, or if there shall be a change, interruption or termination of electrical service due to a failure or defect on the part of the utility company, no such change, unavailability, unsuitability, failure or defect shall constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any payment from Owner for any loss, damage or expense, or to abatement or diminution of Fixed Annual Rent or additional rent, or otherwise relieve Tenant from any of its obligations under this lease, or impose any obligation upon Owner or its agents. Owner will use reasonable efforts to insure that there is no interruption in electrical service to Tenant, but in no event shall Owner be responsible for any failures of the utility providing such service or the negligence or other acts of third parties causing any such interruption. -35- OFF/MAS/1991 (i) Tenant shall not make any electrical installations, alterations, additions or changes to the electrical equipment or appliances in the demised premises without prior written consent of Owner in each such instance. Tenant shall comply with the rules and regulations applicable to the service, equipment, wiring and requirements of Owner and of the utility company supplying electricity to the Building. Tenant agrees that its use of electricity in the demised premises will not exceed the capacity of existing feeders to the Building or the risers or wiring installations therein and Tenant shall not use any electrical equipment which, in Owner's judgment, will overload such installations or interfere with the use thereof by other tenants in the Building. If, in Owner's judgment, Tenant's electrical requirements necessitate installation of an additional riser, risers or other proper and necessary equipment or services, including additional ventilating or air-conditioning, the same shall be provided or installed by Owner at Tenant's expense, which shall be chargeable and collectible as additional rent and paid within 30 days after the rendition to Tenant of a bill therefor. (j) If, after Owner's initial installation work, (i) Tenant shall request the installation of additional risers, feeders or other equipment or service to supply its electrical requirements and Owner shall determine that the same are necessary and will not cause damage or injury to the Building or the demised premises or cause or create a dangerous or hazardous condition or entail excessive or unreasonable alterations, repairs or expense or interfere with or disturb other tenants or occupants of the Building, or (ii) Owner shall determine that the installation of additional risers, feeders or other equipment or service to supply Tenant's electrical requirements is necessary, then and in either of such events Owner shall cause such installations to be made, at Tenant's sole cost and expense and Tenant shall pay Owner for such installations, as additional rent, within 30 days after submission of a statement therefor. 45. Amendments for Financing; Information for Mortgagees. (a) If, in connection with obtaining or renewing financing for the Real Property, an institutional lender shall request modifications in this lease as a condition to such financing, Tenant will not withhold, delay or defer its consent thereto, provided that such modifications neither increase the monetary obligations of Tenant nor decrease the size of the demised premises, the number of parking spaces provided for in Article 40 or the services required to be provided by Owner, or substantial alter Tenant's rights hereunder.* (b) Tenant agrees, within a reasonable time after being requested, to submit such financial information as may be reasonably required by Owner's mortgagee(s). -36- OFF/MAS/1991 46. Broker. Owner and Tenant each represents to the other that, in the negotiation of this lease, they dealt with no broker or any other person legally entitled to claim a brokerage commission or finder's or consultant's fee with respect to this transaction except D.H. White Commercial Real Estate Services, Inc. and based thereupon Owner shall pay a commission per a separate agreement. Owner and Tenant shall indemnify, defend and hold the other harmless from and against all losses, costs, damages, expenses, claims and liabilities (including court costs and attorneys' fees and disbursements) arising out of any inaccuracy of this representation.* 47. Building Name; Tenant Signs; Directory. (a) Building Name. Owner may, from time to time, designate a name for the Building and change the name and/or address of the Building. (b) Tenant Signs. Owner shall provide, at Owner's sole cost, Owner's building standard sign to be installed on the door of the demised premises. (c) Directory. Owner shall, upon Tenant's request list on the Building's directory ("Directory") (if any), the name of Tenant. 48. Holdover. Tenant acknowledges that possession of the demised premises must be surrendered at the expiration or sooner termination of the term, time being of the essence. The parties agree that the damage to Owner resulting from failure by Tenant to surrender possession of the demised premises on a timely basis will be extremely substantial, will exceed the amount of rent payable hereunder and will be impossible of accurate measurement. Tenant shall pay Owner, as liquidated damages for each month and for any portion of a month during which Tenant holds over in the demised premises after expiration or sooner termination of the term of this lease, a sum equal to 150% of the average rent which was payable per month under this lease during the last 3 months of the term. Tenant's failure or refusal to surrender the demised premises. Nothing contained herein shall be deemed to authorize Tenant to remain in occupancy of the demised premises after the expiration or sooner termination of the term.* 49. Insurance and Indemnity. (a) Tenant shall provide, prior to entry upon the demised premises, and maintain throughout the term of this lease, at its own cost, and with companies rated not less than B+ Class IX by A.M. Best Company, Inc., and authorized to do business in the State of Connecticut (i) public liability and property damage insurance in an amount not less than $2,000,000 combined single limit for personal injury, death and -37- OFF/MAS/1991 property damage arising out of any one occurrence, protecting Owner and Tenant against all claims for personal injury, death or property damage occurring in, upon or adjacent to the demised premises and any part thereof, or arising from, related to, or in any way connected with the conduct and operation of Tenant's use of or occupancy of the demised premises, which insurance shall be written on an occurrence basis and name Owner (and at Owner's request, Owner's mortgagees) as addition insureds, (ii) workers' compensation insurance covering all persons employed by Tenant or its contractors in connection with work performed by or for Tenant, and (iii) plate glass insurance covering plate glass in the demised premises. All of Tenant's insurance shall be in a form reasonably satisfactory to Owner and shall provide that it shall not be cancelled, terminated or changed except after 20 days' written notice to Owner. All such policies or certificates for same (in both instances with evidence of payment of the premium) shall be deposited with Owner not less than 30 days prior to the day such insurance is required to be in force and upon renewals of said policies not less than 30 days prior to the expiration of the term of such coverage. Owner shall have the right and from time to time during the term, on not less than 30 days notice, to require that Tenant increase the amount and/or types of coverage required to be maintained under this Article to the amounts and/or types generally required of tenants in comparable buildings in Fairfield County. The minimum limits of liability insurance required pursuant to clause (i) shall in no way limit or diminish Tenant's liability under paragraph (d) of this Article. (b) Tenant shall not knowingly commit or permit anything to be done in, on or about the demised premises, the Building, the Real Property, the Park, if applicable, or any adjacent property contrary to law, or which will invalidate or be in conflict with the insurance policies carried by Owner or by others for Owner's benefit, or do or permit anything to be done, or keep or permit anything to be kept, in the demised premises, which (i) could result in termination of any of such policies, (ii) could adversely affect Owner's right of recovery under any such policies, (iii) could subject Owner to any liability or responsibility to any person, or (iv) would result in reputable and independent insurance companies refusing to insure the Building or property of Owner therein or in the Park, if applicable, in amounts satisfactory to its mortgagees.* (c) Tenant shall procure a clause in, or endorsement on, each of its policies for fire or extended coverage insurance covering the demised premises or personal property, fixtures or equipment located thereon, pursuant to which the insurance company waives subrogation or consents to a waiver of right of recovery against Owner. Tenant agrees not to make claims against or seek to recover from Owner for loss or damage to its property or property of others covered by such insurance. To the extent Tenant shall be a self-insurer, Tenant waives the right of recovery, if any, -38- OFF/MAS/1991 against Owner, its agents and employees, for loss, damages or destruction of Tenant's property. 50. Exculpation. Tenant shall look solely to the estate and interest of Owner, its successors and assigns, in the Building for the collection of any judgment (or other judicial process) recovered against Owner based upon breach by Owner of any of the terms, conditions or covenants of this lease on the part of Owner to be performed, and no other property or assets of Owner shall be subject to levy, execution or other enforcement procedures for the satisfaction of Tenant's remedies under or with respect to either this lease, the relationship of landlord and tenant hereunder, or Tenant's use and occupancy of the demised premises. 5.1 Partnership. If Tenant's interest in this lease shall at any time be held by a partnership, or by 2 or more persons individually (any such partnership and such persons are referred to in this Article as "Partnership"), the following provisions shall apply to such Partnership: (a) The liability of each of the parties comprising Partnership shall be joint and several; (b) Each of the parties comprising Partnership shall be deemed to consent to, and be bound by, all (i) written instruments which may thereafter be executed, changing, modifying or discharging this lease, in whole or in part, or surrendering all of any part of the demised premises to Owner, and (ii) notices, demands, requests or other communications which may thereafter be given by Partnership or any of the parties comprising Partnership; (c) Any bills, statements, notices, demands, requests or other communications given or rendered to Partnership, or to any one of the parties comprising Partnership, shall be deemed given or rendered to partnership and to all persons comprising Partnership and shall be binding upon Partnership and all such parties; (d) If Partnership shall admit new partners, all of such new partners shall by their admission to partnership, be deemed to have assumed the obligation to perform the terms, covenants and conditions of this lease on Tenant's part to be observed an performed; and (e) Partnership shall give prompt notice to Owner of the admission of each new partner, and upon demand of Owner, shall cause each such new partner to execute and deliver to Owner an agreement in form satisfactory to Owner, wherein each new partner shall assume performance of the terms, covenants and conditions of -39- OFF/MAS/1991 this lease on Tenant's part to be observed and performed (but neither Owner's failure to request such agreement nor failure of any partner to execute or deliver such agreement shall relieve such new partner of his obligation hereunder). The provisions of this Article shall not constitute a consent by Owner to the assignment of any interest in this lease by Tenant. 52. Restrictions on Use. (a) Tenant agrees that neither Tenant nor any subtenant, assignee or occupant of the demised premises shall at any time during the term occupy or use the demised premises or permit the same to be occupied or used in any manner except as provided in Article 2. (b) Tenant shall not knowingly permit the demised premises to be used in any manner, or anything to be done therein, or permit anything to be brought into or kept therein, which would (i) violate any laws or requirements of public authorities, (ii) cause injury to the Building or the Park, if applicable, (iii) constitute a nuisance, (iv) impair the appearance of the Building, (v) impair the use for normal purposes of any area of the Building by, or required to be furnished by Owner to Tenant or to any other tenants or occupants of the building or the Park, if applicable, or (vi) violate any of Tenant's obligations under this lease.* (c) Tenant shall not place (nor require the placement of) a load upon any floor of the demised premises exceeding 75 lbs. per square foot (live and dead), nor shall Tenant place (or require the placement of) a load upon any ceiling in the demised premises exceeding 5 lbs. per square foot. All data processing and other business machines and equipment and all other mechanical equipment installed and used by Tenant in the demised premises, as approved by Owner, shall be quipped, installed and maintained by Tenant, at its expense, so as to prevent noise, vibration or electrical or other interference from being transmitted from the demised premises to any other area of the Building. Tenant shall not move any safe, machinery or heavy equipment in or out of the Building without employing persons property licensed, if required by laws and requirements of public authorities. 53. Rules and Regulations. Tenant and Tenant's invitees shall observe and comply with the attached Rules and Regulations, and such additional Rules and Regulations as Owner or Owner's agents may from time to time adopt. Notice of additional Rules and Regulations shall be given to Tenant. Owner shall have no duty or obligation to enforce the Rules and Regulations or the terms, covenants or conditions in any other lease, against any other tenant of the Building and in the Park, if applicable, and Owner shall not be liable to Tenant for violation of the same -40- OFF/MAS/1991 by any other tenant or its invitees, provided that Owner shall not discriminate against Tenant in its enforcement of the Rules and Regulations. In the event of a conflict between the Rules and Regulations and the provision of the lease, the provisions of the lease shall prevail. 54. Tenant's Alterations. Supplementing Article 3, Tenant shall not employ contractors in connection with any services, provisions, alterations or maintenance, unless Owner has consented in writing to the contractor, it being the intention of Owner to limit the number of such contractors employed in the Building and Park, if applicable. If such consent has not been obtained Tenant shall, if requested by Owner, forthwith cancel such contract. Owner's disapproval of any contractor selected by Tenant must be accompanied by the designation of one or more contractors acceptable to Owner, whose prices must be reasonably competitive. If Owner does not approve or disapprove Tenant's contractor within 7 business days after receipt of written request therefor, the contractor so selected by Tenant shall be deemed approved by Owner. Tenant shall not employ persons in connection with any such services, provisions, alterations or maintenance the employment of whom would cause a strike, stoppage or slowdown by employees of contractors of Owner in the Building and Park, if applicable. Owner does not consent to the reservation of title by any conditional vendor, or the retention of a security interest by a secured party, to any property which may be affixed to the realty. 55. Notice. (a) At the request of the holder(s) of any mortgage encumbering the Real Property, Tenant shall serve upon such mortgagee(s) a copy of all notices given by Tenant to Owner pursuant to paragraph (b) below, such service to be by registered or certified mail addressed to such mortgagee(s) at the address provided by such mortgagee(s) to Tenant. (b) Except for rent bills, any notice, approval, consent, bill, statement or other communication required or permitted to be given, rendered or made by either party hereto to the other, pursuant to this lease or pursuant to any applicable law or requirement of public authority, shall be in writing and shall be delivered personally or by registered or certified mail addressed to the other party at the address hereinabove set forth, All notices given by either party pursuant to this Article may be given by such party, their agents or attorneys, Either party may, by notice as aforesaid, designate a different address or addresses for notices, bills, statements or other communications intended for it. All notices given pursuant to this Article shall be deemed given on the second business day after posting if mailed in Fairfield County, and on the third business day after posting if mailed outside of Fairfield -41- OFF/MAS/1991 County and upon delivery if made personally, on and after the Commencement Date notices directed to Tenant shall be addressed to Tenant at the Building. 56. Miscellaneous. (a) Whenever it is provided that Owner shall not unreasonably withhold or delay consent or approval or shall exercise its judgment reasonably (such consent or approval and such exercise of judgment being collectively referred to as "Consent"), if Owner shall delay or refuse such consent, Tenant shall not be entitled to make any claim, and Tenant waives any claim for money damages (nor shall Tenant claim any money damage by way of setoff, counterclaim or defense) based upon any claim or assertion that Owner unreasonably withheld or unreasonably delayed consent. Tenant's sole remedy shall be an action or proceeding for specific performance, injunction or declaratory judgment to enforce any such provision, but any such equitable remedy which can be cured by the expenditure of money may be enforced personally against Owner only to the extent of interest in the Building. Failure on the part of Tenant to seek relief within 30 days after the date upon which Owner has withheld its consent shall be deemed a waiver of any right to dispute the reasonableness of such withholding of consent. (b) Owner shall have no liability or responsibility if any service or utility required to be provided by Owner is interrupted or stopped by reason of unavoidable delays, unless caused by Owner's negligence.* (c) If Tenant shall request the consent or approval of Owner to the making of any alterations or to any other thing, and Owner shall seek and pay a separate fee for the opinion of Owner's counsel, architect, engineer or other representative or agent as to the form or substance thereof, Tenant shall pay Owner, as additional rent, within 30 days after demand, all reasonable costs and expenses of Owner incurred in connection therewith, including, in case of any alterations, costs and expenses of Owner in reviewing plans and specifications. (d) This lease is submitted to Tenant for signature with the understanding that it shall not bind Owner unless and until it has been executed by Owner and delivered to Tenant or Tenant's attorney. (e) Whenever reference is made to public halls, elevators, corridors, etc. and if none such are present on or about the premises demised herein then such reference shall have no relevance to the terms herein. (f) In the event of any conflict between the printed provisions of the lease and the Rider to the lease, the provisions of this Rider shall prevail. -42- OFF/MAS/1991 (g) Owner's failure to prepare and/or deliver any statement or bill required to be delivered to Tenant, or Owner's failure to make demand for payment of Fixed Annual Rent or additional rent shall not be a waiver of, or cause Owner to forfeit or surrender its rights to collect, any rent due. Notwithstanding the foregoing, any delay or failure of Owner in billing any additional rent under this lease beyond 24 months following the end of the year in which such additional rent was incurred shall result in Owner being unable to collect such additional rent payment; but such abatement of rent obligation shall not constitute a waiver of or in any way impair the continuing obligation of Tenant to make future additional rent payments. Tenant's liability for all such payments shall continue unabated during the term and shall survive the expiration or sooner termination of the term.* (h) Tenant shall not cause (or allow any of its contractors, agents or other persons or entities over whom or which it exercises a degree of control to cause) to occur within the demised premises, the Building or the Park, if applicable, any discharge, spillage, uncontrolled loss, seepage or filtration of hazardous waste or oil or petroleum liquids or solids, asbestos, pcb, radioactive substances, methane, volatile hydrocarbons, industrial solvents, or any other materials or substances which have in the past caused or constituted, or are in the future found to cause or constitute, a health, safety or environmental hazard. (i) Anything herein to the contrary notwithstanding, if the first month's rent or the security deposit shall not have been delivered to Owner upon the approval of this lease by the Office of the Attorney General of the State of Connecticut, then (in additional to such other remedies available to Owner hereunder, at law or in equity) Owner shall not be obligated to commence preparation of the demised premises for occupancy (if required by the provisions of this lease) until such sums shall have been delivered to Owner.* (j) Tenant agrees not to disclose the terms, covenants, conditions or other facts with respect to this lease, including, but not limited to, the Fixed Annual Rent, to any person, corporation, partnership, associations, newspaper, periodical or other entity. This non-disclosure and confidentiality agreement shall be binding upon Tenant without limitation as to time, and a breach of this paragraph shall constitute a material breach under this lease. (k) Tenant shall prevent its students from loitering in any part of the Building and from congregating in front of the Building. If Tenant's students loiter in the Building or congregate in front of the Building, same shall be deemed a material breach of this lease by Tenant. Owner acknowledges that Tenant's obligation to prevent such loitering is limited to loitering on non-public property.* -43- OFF/MAS/1991 57. Amendments to Printed Form. (a) Article 4 is amended by inserting the following after the sentence ending on line 9 of column 2, on page 1: "All maintenance and repairs shall be performed in a manner acceptable to Owner." (b) Article 6 is amended by adding the following after "premises" in line 16 on page 2, "or the building or any property adjacent thereto,"; the following after "part" in line 20 on page 2, "or the adjacent property"; and the following after "effect" on line 28 on page 2, "as if Tenant were not occupying the building." (c) Article 7 is amended by adding the following paragraph: "Notwithstanding anything contained herein to the contrary, and at the election of the holder of any current or future mortgage encumbering all or a portion of the premises of which the demised premises are a part, such mortgage shall be subordinate to this lease with the same force and effect as if this lease had been executed, delivered and recorded prior to the execution, delivery and recording of the said mortgage, except however that the said subordination or the mortgage to the lease shall not affect nor be applicable to and does expressly exclude: (i) The prior right, claim or lien of the said mortgage in, to and upon any award or other compensation heretofore or hereafter to be made for any taking by eminent domain of any part of the mortgaged premises, and to the right of disposition thereof in accordance with the provisions of the said mortgage; (ii) The prior right, claim and lien of the said mortgage in, to and upon any proceeds payable under all policies of fire and rent insurance upon the said mortgaged premises and as to the right of disposition thereof in accordance with the terms of the said mortgage; and (iii) Any lien, right, power or interest, if any, which may have arisen or intervened in the period between the recording of the said mortgage and the execution of this lease, or any lien or judgment which may arise at any time under the terms of this lease. Although this clause shall be self-operative upon the election of any such mortgage, in confirmation hereof, Tenant shall execute promptly any certificate that Owner or such mortgagee may request." (d) Article 18 is amended by adding the following paragraph: -44- OFF/MAS/1991 In the event of a default by Tenant in its obligations under this lease, beyond applicable grace periods, if any, in addition to Owner's other rights and remedies, there shall be immediately payable by Tenant to Owner, as additional rent, the amount of all of the following which are incurred, granted or assumed by Owner in connection with the lease: all rent concessions; free rent; rent credits, contributions or payments by Owner with respect to work or improvements performed in the demised premises; and/or obligations expenses and liabilities of Tenant assumed or paid for by Owner in consideration of Tenant's entering into this lease. (e) Article 29 is amended by adding the following after "heat" in line 5, "and air-conditioning"; the following after "ordinary" in line 8, "drinking and,"; and the following after "thereof" in line 5 of clause (f), "and Owner shall have no responsibility or liability for failure to supply such services in the event of any such stoppage." (f) Article 31 is amended by adding the following after "lease" as found twice in line 11, "(including a termination thereof"); and the following after "lessee" in lines 16 and 17, "or transferee". (g) Article 34 is amended by adding the following after the sentence ending on line 6 of column 2, "If Owner so uses, applies or retains any part of the security so deposited, Tenant, upon demand, shall deposit with Owner the amount so used, applied or retained, so that Owner shall have the full deposit on hand at all times during the term of this lease." 58. Option to Terminate. Tenant shall have the right to elect to terminate this lease at any time after the third lease year, provided Tenant has given Owner notice of its election no later than 180 days prior to the effective date of termination ("Termination Date") (time being of the essence in the giving of such notice). Simultaneously with the notice to be given pursuant to the foregoing sentence, Tenant shall pay to Owner the sum of (1) an amount equal to the product of $174.52 multiplied by the number of days between the Termination Date and the original Expiration Date plus (2) an amount equal to (i) $71,500.00, if the Termination Date is on or before the fourth year and fourth month anniversary of the Commencement Date, (ii) $47,666.67, if the Termination Date is after the fourth year and fourth month anniversary of the Commencement Date but on or before the fourth year and eight month anniversary of the commencement Date or (iii) $23,833.33 if the Termination Date is after the fourth year and eight month anniversary of the Commencement Date. The foregoing sum shall be in addition to all Fixed Annual Rent and additional rent due and owing through the Termination Date.* -45- OFF/MAS/1991 59. Attorney General Approval. This lease is conditioned upon the approval of the Office of the Attorney General of the State of Connecticut (the "Attorney General's Office"). Tenant shall deliver to Owner evidence of the approval of the Attorney General's Office within 30 days after the delivery to Tenant of four copies of this lease executed by Owner. If Tenant fails to obtain the approval from the Attorney General's Office within such 30 day period, time being of the essence, this lease shall automatically terminate and be of no further force or effect. In such event, neither party shall have any liability to the other. 60. Non-discrimination. For the purposes of this section, the word "contractor" is substituted for and has the same meaning and effect as if it read "Owner". This section is inserted in connection with subsection (a) of Section 4A-60 of the General Statutes of Connecticut as revised. (a) For the purposes of this section, "minority business enterprises" means any small contractor or supplier of materials fifty-one percent or more of the capital stock, if any, or assets of which is owned by a person or persons: (1) who ar active in the daily affairs of the enterprise (2) who have the power to direct the management and policies of the enterprise and (3) who are members of a minority, as such term is defined in subsection (a) of Conn. Gen. Stat., ss.32-9n; and "good faith" means that degree of diligence which a reasonable person would exercise in the performance of illegal duties and obligations. "Good faith efforts" shall include, but not be limited to, those reasonable initial efforts necessary to comply with statutory or regulatory requirements and additional or substituted efforts when it is determined that such initial efforts will not be sufficient to comply with such requirements. For purposes of this section, "Commission" means the Commission on Human Rights and Opportunities. For purposes of this section, "Public works Contract" means any agreement between any individual, firm or corporation and the state or any political subdivision of the state other than a municipality for construction, rehabilitation, conversion, extension, demolition or repair of a public building, highway or other changes or improvements in real property, or which is financed in whole or in part by the state, including, but not limited to, matching expenditures, grants, loans, insurance or guarantees. (b) (1) The contractor agrees and warrants that in the performance of a contract, such contractor will not discriminate or permit discrimination against any person or group of persons on the grounds of race, color, religious creed, age, marital status, national origin, ancestry, sex, mental retardation or physical disability, including, but not limited to blindness, unless it is shown by such contractor that -46- OFF/MAS/1991 such disability prevents performance of the work involved, in any manner prohibited by the laws of the United States or of the State of Connecticut. The contractor further agrees to take affirmative action to insure that applicants with job related qualifications are employed and that employees are treated when employed without regard to their race, color, religious creed, age, marital status, national origin, ancestry, sex, mental retardation or physical disability, including, but not limited to blindness, unless it is shown by such contractor that such disability prevents performance of the work involved; (2) the contractor agrees, in all solicitations or advertisements for employees placed by or on behalf of the contractor, to state that it is an "affirmative action-equal opportunity employer" in accordance with regulations adopted by the commission; (3) the contractor agrees to provide each labor union or representative of workers with which such contractor has a collective bargaining agreement or other contract or understanding and each vendor with which such contractor has a contract or understanding, a notice to be provided by the commission advising the labor union or workers' representative of the contractor's commitments under this section, and to post copies of the notice in conspicuous places available to employees and applicants for employment; (4) the contractor agrees to provide with each provision of this section and Conn. Gen. Stat., ss.ss.46a-68e and 46a-68f and with each regulation or relevant order issued by said commission pursuant to Conn. Gen. Stat., ss.ss.46a-56, as amended by Section 5 of Public Act 89-253, 46a-68e and 46a-68f; (5) the contractor agrees to provide the commission on human rights and opportunities with such information requested by the commission, and permit access to pertinent books, records and accounts, concerning the employment practices and procedures of the contractor as relate to the provisions of this section and sections 46a-56. If the contract is a public works contract, the contractor agrees and warrants that he will make good faith efforts to employ minority business enterprises as subcontractors and suppliers of materials on such public works project. (c) Determination of the contractor's good faith efforts, shall include, but shall not be limited to the following factors: The contractor's employment and subcontracting policies, patterns and practices; affirmative advertising, recruitment and training; technical assistance, activities and such other reasonable activities or efforts as the commission may prescribe that are designed to insure the participation of minority business enterprises in public works projects. (d) The contractor shall develop and maintain adequate documentation, in a manner prescribed by the commission of its good faith efforts. (e) The contractor shall include the provisions of subsection (b) of this section in every subcontract or purchase order entered into in order to fulfill any obligation of a contract with the state and such provisions shall be binding on the subcontractor, vendor or manufacturer unless exempted by regulations or orders of -47- OFF/MAS/1991 the commission. The contractor shall take such action with respect to any such subcontract or purchase order as the commission may direct as a means of enforcing such provisions including sanctions for non-compliance in accordance with Conn. Gen. Stat., ss.46a-56, as amended by Section 5 of Public Act 89-253; provided, if such contractor becomes involved in, or is threatened with, litigation with a subcontractor or vendor as a result of such direction by the commission, the contractor may request the State of Connecticut to enter into any such litigation or negotiation prior thereto to protect the interests of the state and the sate may so enter. (f) The contractor agrees to comply with the regulations referred to in this section as they exist on the date of this contract and as they may be adopted or amended from time to time during the term of this contract and any amendments thereto. For the purposes of this section , the word "contractor" is substituted for and has the same meaning and effect as if it read "LESSOR." This section is inserted in connection with Section 4a-60a of the General Statutes of Connecticut, as revised. (a) (1) The contractor agrees and warrants that in the performance of the contract such contractor will not discriminate or permit discrimination against any person or group of persons on the grounds of sexual orientation, in any manner prohibited by the laws of the United States or of the State of Connecticut, and that employees are treated when employed without regard to their sexual orientation; (2) the contractor agrees to provide each labor union or representative of workers with which such contractor has a collective bargaining agreement or other contract or understanding and each vendor with which such contractor has a contract or understanding, a notice to be provided by the commission on human rights and opportunities advising the labor union or workers' representative of the contractor's commitments under this section, and to post copies of the notice in conspicuous places available to employees and applicants for employment; (3) the contractor agrees to comply with each provision of this section and with each regulation or relevant order issued by said commission pursuant to section 46a-56 of the general statutes; (4) the contractor agrees to provide the commission on human rights and opportunities with such information requested by the commission, and permit access to pertinent books, records and accounts, concerning the employment practices and procedures of the contractor which relate to the provisions of this section and section 46a-56 of the general statutes. (b) The contractor shall include the provisions of subsection (a) of this section in every subcontractor or purchase order entered into in order to fulfill any obligation of a contract with the state and such provisions shall be binding on a subcontractor, vendor or manufacturer unless exempted by regulations or orders of -48- OFF/MAS/1991 the commission. The contractor shall take such action with respect to any such subcontract or purchase order as the commission may direct as a means of enforcing such provisions including sanctions for noncompliance in accordance with section 46a-56 of the general statutes; provided, if such contractor becomes involved in, or is threatened with, litigation with a subcontractor or vendor as a result of such direction by the commission, the contractor may request the state of Connecticut to enter into any such litigation or negotiation prior thereto to protect the interests of the state and the state may so enter. (c) The contractor agrees to comply with the regulations referred to in this section as they exist on the date of this contract and as they may be adopted or amended from time to time during the term of this contract and any amendments thereto. -49- OFF/MAS/1991 EXHIBIT A RULES AND REGULATIONS 1. Any moving of furniture or equipment into or out of the demised premises must be done by Tenant at its own cost and expense, on business days after 6:00 p.m., or on Saturday subject, however, to the prior written consent of Owner. If such move requires use of an elevator, such move shall not be in excess of such elevator's carrying load capacity. Tenant shall reimburse Owner for its reasonable costs of operating any elevator when same is used for moving Tenant's furniture or equipment. 2. The sidewalks, entrances, passages, lobby, elevators, vestibules, stairways, corridors or halls shall not be obstructed or encumbered by Tenant or used for any purpose other than ingress and egress to and from the demised premises and Tenant shall not permit any of its invitees to congregate in any of said areas. No door mat shall be placed or left in any public hall or outside any entry door of the demise premises. 3. No awnings or other projections shall be attached to the outside walls of the Building. No curtains, blinds, shades, or screens shall be attached to or hung in, or used in connection with, any window or door of the demised premises, without the prior consent of Owner. Such curtains, blinds, shades or screens must be of a quality type, design and color, and attached in the manner approved by Owner. 4. No sign, insignia, advertisements, object, notice or other lettering shall be exhibited, inscribed, painted or affixed by any Tenant on any part of the outside or inside of the demised premises or the Building without the prior written consent of Owner. In the event of the violation of the foregoing by tenant, Owner may remove the same without any liability, and may charge the expense incurred in such removal to Tenant. Interior signs and lettering on doors and directory tablets shall, if and when approved by Owner, be inscribed, painted or affixed by Owner at the expense of Tenant, and shall be of a size, color and style acceptable to Owner. 5. The sashes, sash doors, skylights, windows and doors that reflect or admit light and air into the halls, passageways or other public places shall not be covered or obstructed by Tenant. Bottles, parcels, or other articles shall not be placed on window sills by Tenant. 6. No showcases or other articles shall be put in front of or affixed to any part of the exterior of the Building, nor placed in the halls, corridors or vestibules by Tenant. -50- OFF/MAS/1991 7. Tenant shall not discharge or permit to be discharged any materials which may cause damage into waste lines, vents or flues. The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were designed or constructed, and no sweepings, rubbish, rags, corrosives, acids or other substances shall be thrown or deposited therein. All damages resulting from any misuse of the fixtures shall be borne by the tenant who, or whose invitees, shall have caused the same. 8. Tenant shall not mark, paint, drill into, or in any way deface any part of the demised premises or the Building. No boring, cutting or stringing of wires shall be permitted, except with the prior consent of Owner, and as Owner may direct. Tenant shall not lay linoleum, or other similar floor covering, so that the same shall come in direct contact with the floor of the demised premises, and, if linoleum or other similar floor covering is desired to be used an interlining of builder's deadening felt shall be first affixed to the floor, by a paste or other material, soluble in water, the use of cement and other similar adhesive material is prohibited. 9. No bicycles, vehicles, animals, fish or birds of any kind shall be brought into or kept in or about the demised premises. 10. No noise, including, but not limited to, music or the playing of musical instruments, recordings, radio or television which, in Owner's judgment, might disturb other tenants in the Building or the Park, if applicable, shall be made or permitted by Tenant. Nothing shall be done or permitted in the demised premises by Tenant which would impair or interfere with the use or enjoyment by any other tenant of any other space in the Building or the Park, if applicable. Tenant shall not throw anything out of the doors, windows of skylights or down the passageways. Owner acknowledges the Tenant's use of audio/visual equipment in the demised premises, and Owner further acknowledges that such use will not be deemed a breach of this lease. 11. Neither Tenant nor its invitees shall bring or keep upon the demised premises any explosive fluid, chemical or substance, nor any inflammable or combustible objects or materials. 12. Additional locks or bolts of any kind which shall not be operable by the grand master key(s) for the Building shall not be placed upon any of the doors or windows by Tenant, nor shall any changes be made in locks or the mechanism thereof which shall make such locks inoperable by said grand master key(s). Tenant shall, upon the termination of its tenancy, turn over to Owner all keys of stores, offices and toilet rooms, either furnished to, or otherwise procured by, Tenant and in -51- OFF/MAS/1991 the event of the loss of any keys furnished by Owner, Tenant shall pay to Owner the cost thereof. 13. All removals from the demised premises or the Building, or the moving or carrying in or out of any safes, freight, furniture, packages, boxes, crates or any other object or matter of any description must take place during such hours and in such elevators as Owner or its agent may determine from time to time. All deliveries of any nature whatsoever to the Building or the demised premises must be made only through Building entrances specified or such deliveries by Owner. Owner reserves the right to inspect all objects and matter to be brought into the Building and to exclude from the Building all objects and matter which violate the Lease. Owner may require any person leaving the Building with any package or other object or matter, to submit a pass, listing such package or object or matter, from the tenant from whose premises the package or other object or matter is being removed, but neither the establishment and enforcement of such requirement shall, nor the failure to establish and enforce same, shall impose any responsibility on Owner for the protection of any tenant against the removal or property from the premises. Owner shall, in no way, be liable to Tenant for damages or loss arising from the admission, exclusion or ejection of any person to or from the demised premises or the Building under the provisions of this Rule or Rule 16. 14. Tenant shall not occupy or permit any portion of the demised premises to be occupied as an office for a public stenographer or public typist, or for the possession, storage, manufacture, or sale of beer, wine or liquor, narcotics, drugs, tobacco in any form, or as a barber, beauty or manicure shop, or as an employment bureau. Tenant shall not engage or pay any employees on the demised premises, except those actually working for Tenant on the demised premises, nor advertise for laborers giving an address at the demised premises. Tenant shall not use the demised premises or any part thereof, or permit the demised premises or any part thereof to be used, for manufacturing, or for sale at auction of merchandise, goods or property of any kind. The demised premises shall not be used for lodging or sleeping or for any immoral or illegal purpose. Canvassing, soliciting and peddling in the Building are prohibited and Tenant shall cooperate to prevent the same. Tenant shall not cause or permit any odors of cooking or other processes or any unusual or objectionable odors to emanate from the demised premises which would annoy other tenants or create a public or private nuisance. No cooking shall be done in the demised premises except as is expressly permitted in the lease. 15. Tenant shall not obtain, purchase or accept for use in the demised premises ice, drinking water, food, beverage, towel, barbering, boot blacking, cleaning, floor polishing or other similar services from any persons not authorized by Owner in writing to furnish such services, provided always that the charges for such -52- OFF/MAS/1991 services by persons authorized by Owner shall not be excessive. Such services shall be furnished only at such hours, in such places within the demised premises, and under such regulations as may be filed by Owner. Tenant shall not purchase or contract for waxing, rug shampooing, venetian blind washing, furniture polishing, lamp servicing, cleaning of electric fixtures, removal of garbage or towel service in the demised premises except from contractors, companies or persons so approved by the Owner. 16. Owner reserves the right (although it is understood that Owner shall not be obligated under any circumstances) to exclude from the Building during hours other than regular business hours (8:00 a.m. through 6:00 p.m. Monday through Friday) and days all persons who do not present a pass signed by Owner. All persons entering and/or leaving the Building during hours other than regular business hours and days may be required to sign a register. Owner will furnish passes to persons for whom Tenant requests same in writing. Tenant shall be responsible for all persons for whom Tenant requests such pas an shall be liable to Owner for all acts or omissions of such persons. Owner's providing of services during other than regular business hours and days shall not be interpreted to mean that the Building is in operation during such after-hours; Owner shall have no obligation, during such after-hours, to take measures regarding security of Tenant's invitees using the demised premises during other than regular business hours and days. Owner shall have no liability to Tenant for failure to implement any such security system or, in the event such system is implemented, for any losses suffered by Tenant by reason of the operation of system, except in the vent of Owner's negligence. 17. Tenant, before closing and leaving the demised premises at any time, shall turn off the lights. All entrance doors in the demised premises shall be left locked by Tenant when the demised premises are not in use. Entrance doors shall not be left open at any time. 18. Tenant shall provide artificial light and electrical energy for the employees of Owner and/or Owner's contractors while doing janitorial service or other cleaning in the demised premises and while making repairs or alterations in the demised premises. 19. The requirements of Tenant will be attended to only upon application at the office of the Building or, in the absence of such office, at the office of Owner or its designated agent. Employees of Owner shall not perform any work or do anything outside of their regular duties for the account of Tenant, unless under instructions from Owner. -53- OFF/MAS/1991 20. There shall not be used in any space, or in any lobbies, corridors, public halls or other public areas of the Building, in the moving or delivery or receipt of safes, freights, furniture, packages, boxes, crates, paper, office material, or any other object or thing, any hand trucks except those equipped with rubber tires and such other safeguards as Owner shall require. No move or delivery of any object or thing of whatever nature, other than light-weight objects hand-carried by not more than one person, shall be made without at least 24 hours prior notice by Tenant to Owner and without Tenant, prior to any such move or delivery, laying (without affixation or attachment to any part of the floor or floor covering) adequate masonite or plywood sheets covering all lobby corridor, public hall and other public area floors of the Building (whether or not carpeted) over which such move or delivery shall take place. 21. Owner reserves the right to rescind, alter or waive any rule or regulation at any time prescribed for the Building, when, in its judgment, it deems it necessary or desirable for the reputation, safety, care or appearance of the Building or the Park, if applicable, or the preservation of good order therein, or the operation or maintenance of the Building (or the Park or the equipment thereof, or the comfort of tenants or others in the equipment thereof, or the comfort of tenants or others in the Building. No recision, alteration or waiver of any rule or regulation in favor of one tenant shall operate as a recision, alteration or waiver in favor of any other tenant. 22. Tenant, its employees, agents, licensees, contractors and subtenants shall not litter any public areas of the Building the Park, if applicable, or the Real Property (including, the walkways and parking areas located thereon). 23. Owner shall not unreasonably withhold or delay from Tenant any approval provided for in the Rules and Regulations. -54- OFF/MAS/1991 EXHIBIT B CLEANING SPECIFICATIONS 1. General (a) All non-carpeted flooring to be swept and/or dust mopped on each business day. (b) All carpeting areas and rugs vacuumed twice weekly. (c) All stairways to be swept weekly. (d) Empty and wipe wastepaper baskets and ashtrays each business day. (e) Cigarette urns to be cleaned each business day and sand replaced when necessary. (f) Floors, walls and interior surfaces of lobby, elevators and public corridors to be maintained as required. (g) Dust furniture and window sills as required. (h) Water coolers to be wiped each business day. (i) Entrance lobby glass to be washed or wiped each business days. 2. Lavatories Daily (Business Days) (a) All flooring to be sept and washed using disinfectant in water. (b) All basins, bowls, urinals and toilet seats to be washed. (c) All mirrors to be washed. (d) Paper towels and sanitary disposal receptacles to be emptied and cleaned. (e) Toilet tissue holders and soap and paper towel dispensers to be filled. -55- OFF/MAS/1991 3. Windows (a) Three times per year clean all exterior windows on the inside only, provided that window sills are free of articles and access to the windows is not obstructed. (b) Two times per year clean all exterior windows on the outside. 4. Venetian Blinds Venetian blinds to be dusted annually. 5. Ledges and moldings Ledges and moldings to be high dusted semi-annually as required. 6. Lighting Fixtures Interior and exterior of lighting fixtures to be dusted annually as required. -56- OFF/MAS/1991 EXHIBIT C WORK SPECIFICATIONS Owner agrees at its sole expense and without charge to Tenant, to do the following Building Standard Work in the demised premises unless otherwise set forth on the Floor Plan attached hereto: A. General Construction: 1. Partitions Owner shall supply and install ceiling-high metal stud drywall partitions with 5/8" sheet rock on both sides. All partitions to be finished with 4" base, either cove or straight. Corridor and classroom and between tenant partitions shall be of sound attenuating construction, extending to the underside of the floor above. 2. Doors Owner shall supply and install necessary doors. All interior tenant doors to be solid laminate 3' full height and shall be furnished complete with bucks, 1-1/2 pair butts, door stops and latch sets. 3. Ceilings Owner shall supply and install a 2' x 4' textured acoustical ceiling tile laid in a tee system throughout all tenant areas. 4. Electrical Owner shall supply and install: (a) Lightings Recessed building standard 2' x 4' light fixtures. Initial lamping by Owner; all subsequent replacements by Tenant. -57- OFF/MAS/1991 (b) Outlets Duplex convenience wall outlets as shown on the floor plan attached hereto and made a part hereof. (c) Switches Wall switches in each partitioned office and classrooms, one switch at entrance to open areas and one switch for audio visual equipment in the classroom. 5. Telephone Tenant shall make arrangements with any telephone company for installation of telephone service. Owner will not provide or initiate such service. Owner has provided space for Tenant's phone system in a closet in the buffet prep areas as shown on the attached plan. Owner will also provide a four foot by four foot piece of plywood and a dedication circuit for Tenant's phone system within the closet. 6. Window Covering Building Standard Riviera by Levolor (or equal 1" slat) Slimline Tapeless blinds will be provided at all exterior windows in a uniform color throughout the building. No substitution from Building Standard will be permitted. 7. Painting All partitions will be painted with two coats of flat finish latex paint. Exposed metal surfaces, e.g. convector enclosures, doors and bucks will be painted with two coats semi-gloss enamel. Charge will be made for more than one color in any one room. Selection will be from premised Building Standard Color Chart. Should Tenant desire colors darker or different than the Building Standard Color Chart, same colors shall be at Tenant's sole expense. -58- OFF/MAS/1991 8. Flooring Owner shall install Owner's standard grade carpet to be selected by Tenant from Owner's standard selection chart as to type and color. The floors in the kitchenette and storage rooms shall be vinyl composite tile, colors of which shall be chosen by Tenant from Owner's standard selection chart. 9. Substitutions Tenant may substitute like items for building Standard items of similar quality, but no credits for Building Standard items will be given against the cost of items so substituted. No credit will be given for Building Standard items not utilized by Tenant. B. Heating, Ventilation and Air Conditioning The Owner shall furnish and install a complete heating, ventilating and year-round air conditioning system. The equipment shall be capable of maintaining an indoor temperature of 78(degree) F.D.B. at 50% R.H. during summer (June through September) based on the local 2-1/2% outdoor design condition as specified in the latest edition of the "Ashrae Handbook of Fundamentals" and 72(degree) F.D.B. in the winter based on local 97(degree) 1/2% design as specified in the latest edition of the "Ashrae Handbook of Fundamentals". The air conditioning system will provide fresh air in a quantity of not less than .10 cubic feet per minute per square foot of rentable floor area. Owner represents that the HVAC design and installation will accommodate Tenant's use. Real Estate Taxes assessed against any item of construction which is a part of Owner's standard work letter or customary installation are included as part of the Lease terms set forth herein. If any additional specifications, extras or non-standard items of improvement give rise to the assessment of additional real estate taxes, such taxes shall be for the account of Tenant. All selections or designations to be made by Tenant are to be made within five (5) business days after request by Owner. If Tenant has not made such designation or selections within said period, the Owner shall be authorized to do so on behalf of the Tenant. -59- EX-10.18 6 LEASE CONTRACT LEASE THIS LEASE is made and entered into this 25th day of February, 1999, by and between PAR 3 DEVELOPMENT, L.L.C., an Illinois limited liability company, with its principal office located at 1909 Fox Drive, Champaign, Illinois, 61820 (hereinafter referred to as "Lessor") and ITDS INTELICOM SERVICES, INC., a Delaware corporation, with its offices at 225 High Ridge Road, Stamford, Connecticut, 06905 (hereinafter referred to as "Lessee"). SECTION ONE DEMISE AND DESCRIPTION OF PREMISES Lessor leases to Lessee and Lessee leases from Lessor that certain office building which is herein referred to as the "demised premises", consisting of approximately twenty-five thousand (25,000) square feet, located at 2215 Fox Drive, Champaign, Illinois, the area, location, specifications, floor plan and description of which are more particularly indicated and described on Exhibit A attached hereto and incorporated by reference herein, together with all improvements located thereon. The demised premises are a portion of the Devonshire Corporate Centre II office complex, herein referred to as the "commercial center", containing other office space, a parking area and common facilities for the use and benefit of all tenants of such commercial center. The parking area and common facilities for the building in which the demised premises are located are shown on Exhibit B attached hereto and incorporated by reference herein. It is understood that no representations or warranties are made with respect to location of other office space as shown in the attached exhibits or areas adjoining thereto or with respect to the time that such other office space will be erected and occupied. The term "common facilities" as used herein shall be construed to include those facilities within the commercial center which are for the nonexclusive use of Lessee in common with other authorized users, and shall include, but not be limited to, sidewalks, parking areas, planted areas, open means of ingress and egress and any signage advertising the common name given to the commercial center. SECTION TWO CONSTRUCTION OF IMPROVEMENTS A. Lessor's obligation. Lessor shall construct, at its sole expense, except as provided below, all of the facilities of the commercial center as shown on Exhibit A and the demised premises for Lessee's use and occupancy as shown on said Exhibit A, such demised premises to be constructed in accordance with plans and specifications to be prepared by Lessor. B. Commencement of construction. Lessor will commence the construction of such demised premises, in accordance with the plans and specifications further detailed on Exhibit A-1 and Exhibit A-2 to this lease, as soon as is reasonably possible and will diligently prosecute such construction to completion. Lessor shall construct the building detailed on Exhibit A-l and Exhibit A-2. Lessor and Lessee agree that Lessor shall pay on behalf of Lessee an amount equal to eight ($8) Dollars per square foot (the "Improvement Allowance") above the building's standard cost (which overages above the building's standard is further detailed on Exhibit A-3 which is attached hereto and incorporated by reference herein) for the cost and expense of design and construction of the improvements that Lessee requires for its use of the premises. Lessee shall be responsible for Seven Hundred Seventy-Nine Thousand Eight Hundred Sixty-Three Dollars ($779,863) of the cost of improvements over the building's standard which shall be due and payable in accordance with the Schedule of Payments detailed in Exhibit A-3. In the event such actual cost is less than the estimated cost then, in such event and upon completion of all improvements, such excess sum, if any, shall be refunded to Lessee. Additions or changes to the previously agreed upon improvements shall he paid for at their usual and customary value, and any change or addition shall be reduced to writing and signed in duplicate by both parties. Such change orders shall be in a form substantially similar to the attached Exhibit C. Each change order shall reflect the dollar amount by which the above stated construction allowance shall be increased or decreased by virtue of such deviation, change or extra. All such change orders shall be appended to this lease and shall be incorporated herein by reference. In no event shall Lessee take possession of said premises or any part thereof until Lessee's share of the actual cost of such improvements is fully paid. C. Construction delays and work stoppages. No delay in the completion of the construction herein required of Lessor, caused by government regulations, inability to procure labor or materials, strikes, acts of God, or other causes similar or dissimilar beyond the control of Lessor shall be a basis of a claim of lack of diligence on the part of Lessor. D. Lessee's Authorized Agents. Lessee hereby designates Jim Baugher and Peter L. Masanotti as Lessee's authorized agents for all purposes arising out of or related to the construction of the demised premises. Lessee hereby directs Lessor to only deal with Jim Baugher or Peter L. Masanotti with regard to the construction of the demised premises unless and until Lessor receives written notice from Lessee revoking Lessee's agency relationship with Jim Baugher or Peter L. Masanotti. E. Uninterrupted Power Supply/Lieberts. Lessor and Lessee acknowledge and agree that (i) any and all components including, but not limited to the generator, which collectively comprise the uninterrupted power supply (the "UPS Components") and (ii) the Lieberts system, all of which is as further detailed in the plans and specifications attached to this lease as Exhibit A-1 and Exhibit A-2, shall not be deemed to be Lessor's personal property but rather shall be deemed to be the personal property of Lessee. So long as Lessor has not exercised its option to purchase the UPS Components and the Liebert system after receipt of Lessee's Notice, and so long as Lessee shall not be in default of all covenants of this lease, Lessee shall be entitled to remove the UPS Components and Lieberts system at its sole cost and expense, no later than thirty (30) days after the expiration of the term of this lease; provided, however, if the UPS Components and Lieberts system have not been removed by the 2 fifteenth (15th) day after the expiration of the term of this lease, Lessee shall pay Lessor the sum of One Hundred Dollars ($100.00) for each day thereafter which the UPS Components and Lieberts system are not removed. If, after thirty (30) days after the expiration of the term of this lease, the UPS Components and Lieberts system have not been removed by Lessee, Lessee shall automatically be deemed to have relinquished any and all right in and to the UPS Components and Lieberts system and thereafter the UPS Components and Lieberts system shall, at Lessor's election, be deemed to belong to Lessor. Lessee shall be responsible for repairing all damage to the demised premises to the reasonable satisfaction of Lessor as a result of said removal. Notwithstanding anything contained in this Section Two (E) to the contrary, the parties acknowledge and agree that Lessee shall, on or before (90) days prior to the expiration of the term of this lease offer in writing to sell the UPS Components and Lieberts system to Lessor for the fair market value of the UPS Components and Lieberts system as stated in said notice ("Lessee's Notice"). Lessor shall have fifteen (15) days after receipt of Lessee's Notice in which to notify Lessee whether or not Lessor will purchase the UPS Components and Lieberts system for said amount. If Lessor elects to purchase the UPS Components and Lieberts system, Lessor shall promptly pay Lessee the fair market value of the UPS Components and Lieberts system immediately prior to the expiration of the lease term. For the purposes of this Section Two (E), the phrase "fair market value" shall mean a value as determined by a recognized supplier of systems similar to the UPS Components and Lieberts system at the premises. F. All construction and related services to be performed or contracted for by Lessor including all labor, materials, equipment and services to be provided by Lessor, its employees, agents or independent contractors in performance of its obligations in this Section Two are sometimes collectively referred to in this lease as the "Work". Lessor warrants to Lessee that materials and equipment furnished as part of the Work will be of good quality and new unless otherwise required or permitted by this lease; that, for a period of one (1) year after the Commencement Date, the Work will be free from defects not inherent in the quality required or permitted; and that the Work will conform with the requirements of this lease. If required by Lessee, Lessor shall furnish satisfactory evidence as to the kind and quality of materials and equipment. SECTION THREE PARKING AREA AND COMMON FACILITIES A. Maintenance. Lessor, throughout the term of this lease, shall maintain and keep the parking area and common facilities of the commercial center in good order, condition and repair including adequate lighting, painting, snow removal, drainage, supervision and the like and all costs and expenses incurred in connection therewith, including, but not limited to, real estate taxes, special assessments, repairs, janitorial expenses for all common facilities, garbage storage and garbage removal expenses, and public liability and property insurance 3 shall be paid by Lessor when due subject, however, to reimbursement therefor by Lessee pursuant to Section Four (B) herein below. B. Use. Lessee and all those having business with it will, in common with the other tenants and their customers and others having business with them, have the right to use and enjoy the parking area and common facilities for their intended purposes, except that no trucks belonging to Lessee, to suppliers of Lessee, or to delivery agents of Lessee shall be allowed to park in the parking area for more than one (1) hour at any time without having first obtained Lessor's prior written consent. C. Parking facilities. The parking areas are shown on Exhibit B which is attached hereto. No charges will be made for parking. Lessor reserves the right to rearrange or reallocate the parking and common liabilities so long as the number of parking spaces shown on Exhibit B is not reduced by more than ten percent (10%). Lessee shall be entitled to the exclusive use of one hundred percent (100%) of the parking spaces. D. Governing regulations. Lessee will comply and cause its employees, agents and invitees to comply with all rules and regulations adopted by Lessor in connection with the use of the parking area and common facilities, and with all supplements thereto and amendments thereof which Lessor may hereafter adopt. All such rules and regulations shall pertain to the safety, care, use and cleanliness of the parking area and common facilities and the preservation of good order therein and thereon. No rules or regulations now in effect or hereafter adopted shall unreasonably interfere with Lessee's use and enjoyment of the demised premises. All rules and regulations and supplements thereto and amendments thereof which Lessor may adopt shall be in writing, and a copy thereof shall be delivered to Lessee. E. Violation of regulations. If Lessee shall fail within twenty-four (24) hours after receipt of written notice of any violation by Lessee or its employees, agents or invitees of any such rules or regulations to cure such violation such failure shall constitute a default under this lease. SECTION FOUR RENTAL AND RELATED CHARGES A. Base Rent. Lessee shall pay Lessor as a fixed annual base rental for each year during the term of this lease at 1909 Fox Drive, Champaign, Illinois, 61820, or at such place as Lessor may from time to time designate, the total sum of Two Hundred Eighty-Seven Thousand Five Hundred Dollars ($287,500.00) payable in equal monthly installments of Twenty-Three Thousand Nine Hundred Fifty-Eight and 34/100 Dollars ($23,958.34) on the first day of each month during each year of this lease. Notwithstanding the foregoing the first month's rent shall be paid by Lessee upon execution of this lease by Lessee. 4 B. Additional Rent. Lessee shall pay Lessor one hundred percent (100%) of all maintenance charges, insurance charges, real estate taxes and all other expenses in connection with the parking area and common facilities as set forth hereinabove at Section Three (A) and late charges in accordance with the terms of this lease on or before the first business day of each and every month of this lease. C. Monthly Real Estate Tax and Expense Charges. Lessee shall pay Lessor annual real estate tax and expense charges which in the first year of this lease have been estimated to be Twenty-Three Thousand Seven Hundred Fifty Dollars ($23,750.00) payable in equal monthly installments simultaneously with the payment of the base rent so that the aggregate payments due hereunder from Lessee shall equal Twenty-Five Thousand Nine Hundred Thirty-Seven and 51/100 Dollars ($25,937.51) per month for the first year. The monthly charges due from Lessee for all subsequent years during the term hereof shall be adjusted by the parties in accordance with the terms of this lease. The amount paid by Lessee for taxes, maintenance and insurance shall be reconciled annually in accordance with the provisions of this Section Four (C). As soon as reasonably feasible after the expiration of each calendar year, during the term of this lease, including extensions thereof, Lessor will furnish to Lessee a statement showing (i) the maintenance charges, real estate taxes and expenses for the year; and (ii) the amount of additional rent paid, due or owed by Lessor. If the actual amount due Lessor is more than that paid Lessee shall pay Lessor the difference within thirty (30) days; if said amount is less, Lessor shall pay the overage to Lessee within thirty (30) days. Lessor and Lessee agree to annually adjust the monthly real estate tax and expense charges in accordance with the most recently ascertainable real estate tax and expense information. SECTION FIVE TERM The term of this lease shall be for a period of seven (7) years from the Commencement Date, as hereinafter defined. For the purposes of this lease, the term "Commencement Date" shall be the earlier of (i) the sixth (6th) business day following Lessee's receipt of a factually correct notice from Lessor that the demised premises are Substantially Complete, as hereinafter defined, and that the demised premises are now available for Lessee to install its furniture, fixtures and equipment; or (ii) the date Lessee commences business operations from the demised premises. For the purposes of this lease the term "Substantially Complete" shall mean (1) the shell and core of the building in which the demises premises is located are complete and in compliance with all applicable laws and all of the building systems are operational to the extent necessary to service the demises premises; (2) Lessor has sufficiently completed all work required to be performed by Lessor in accordance with the lease (except installation and connection of the UPS Components and Generator which Lessor shall complete within 60 days thereafter and of minor punch list items which Lessor shall thereafter 5 promptly complete); (3) Lessor has obtained a certificate of occupancy for the subject building or a temporary certificate of occupancy for that portion of the subject building that includes all of the demised premises, or its equivalent; (4) Lessee has been provided with the number of parking privileges and spaces to which it is entitled under the lease; (5) Lessee has been delivered complete and uninterrupted access to the demised premises (and other required portions of the subject building and site) sufficient to allow Lessee to install its freestanding work stations, fixtures, furniture, equipment and telecommunication and computer cabling systems; and (6) Lessee has received a non-disturbance agreement, signed by Lessor and each holder of any mortgage of record which encumbers the real estate further described on Exhibit A. When the Commencement Date has been determined in the manner above provided such date shall be inserted in the space provided below and Lessee shall signify acceptance of such Commencement Date. The Commencement Date of the term of this lease is ______________, 19__. LESSOR: LESSEE: By: ____________________________ By: ____________________________ If the Commencement Date of the term of this lease is other than the first day of a calendar month this lease shall continue in full force and effect for a period of seven (7) years from the first day of the calendar month next succeeding the Commencement Date. Upon actual commencement of the lease term Lessee shall pay base rent and additional rent for any days of occupancy which are less than a full month, on a per diem basis, using the base rent and additional rent stated in Section Four to determine the amount due to Lessor. In the event Lessee shall have faithfully performed all covenants of this lease Lessor hereby grants Lessee the right and option to renew this lease for an additional period of three (3) years. In the event Lessee desires to renew and extend this lease it shall give Lessor written notice, at least one hundred eighty (180) days prior to the expiration of the initial term, of its intent to renew and extend; provided, however, that the following terms and conditions shall be applicable to the additional term. A. The provisions of this lease during said three (3) year extension period shall be the same as provided in this lease. SECTION SIX SECURITY DEPOSIT [THIS SECTION INTENTIONALLY OMITTED] 6 SECTION SEVEN OCCUPANCY AND ACCEPTANCE OF PREMISES Lessor warrants to Lessee (i) that the building in which the demised premises is located and the demised premises have been or will, within sixty (60) days of the Commencement Date, be constructed in accordance with all applicable federal, state or local laws, statutes and ordinances; and (ii) that the demised premises has been constructed substantially in accordance with the plans and specifications therefor. After the Work is Substantially Complete (excepting punch list items) and prior to Lessee's move-in into the demised premises, in each case following two (2) business days' advance written notice from Lessor to Lessee, Lessor shall inspect the premises with a representative of Lessee and complete a punch list of unfinished items of the Work. Authorized representatives for Lessor and Lessee shall execute said punch list to indicate their approval thereof. The items listed on such punch list shall be completed by Lessor within thirty (30) days after the approval of such punch list or as soon thereafter as reasonably practicable. If, within one (1) year after the Commencement Date, any of the Work is found to be not in accordance with the requirements of this lease, Lessor shall correct it promptly after receipt of written notice from Lessee to do so unless Lessee has previously given Lessor a written acceptance of such condition. This obligation under this subparagraph shall survive acceptance of the Work under this lease. Lessee shall give such notice promptly after discovery of the condition. SECTION EIGHT USE OF PREMISES A. Purposes. Lessee shall use the demised premises for the purpose of conducting thereon and therefrom a computer consulting business, a computer support business and a data center and no part of the demised premises shall be used for any other purpose without the prior written consent of Lessor. B. Business name. The name of Lessee's business will be ITDS INTELICOM SERVICES and will remain so and shall not be changed except with the written consent of Lessor, which consent will not be withheld unreasonably, providing that, in allowing changes, Lessee will be solely responsible for any costs of changing the name as it is featured in any signs, advertisements and promotional literature of the commercial center. C. No retail sales. Lessee shall not conduct any retail sales at the demised premises. D. Public auctions. No sale at auction by Lessee or others shall be made in or from the demised premises. 7 E. Maintenance of Premises. Lessee shall at all times maintain the demised premises in a clean, neat and orderly condition. F. Compliance with insurance coverage. Lessee shall not use the demised premises or any part thereof, or permit any part of the demised premises to be used, or permit any act whatsoever to be done on the demised premises, in a manner that will violate or make void or inoperative any policy of insurance held by Lessor or Lessee. G. Storage of inflammable materials. Lessee shall not keep or permit to be kept at, in or about the demised premises any gasoline, distillate or other petroleum product, or any other substance or material of an explosive or inflammable nature, in such quantities as may endanger any part of the demised premises without the written consent of all insurance companies carrying fire or rent insurance on all of the commercial center or any part thereof, or do any act or engage in any conduct which shall cause an increase in the fire insurance rates covering the commercial center over those charged for uses of the type and character permitted to Lessee under this lease. H. Use impairing structural strength or electrical capabilities. Lessee shall not permit the demised premises or any part thereof to be used in any manner that will impair the structural strength thereof or permit the installation of any machinery or apparatus the weight or vibration of which may tend to injure or impair the foundations or structural strength thereof. Lessee shall not permit the installation of any computer or electrical machinery or equipment which is beyond the electrical capabilities of the building, as determined by the sole opinion of Lessor. I. Garbage disposal. Lessee shall not burn or incinerate any rubbish, garbage or debris at, in or about the demised premises, and shall cause all containers, rubbish, garbage and debris accumulated therein to be stored within the dumpsters provided by Lessor in the commercial center. J. Public regulations. In the conduct of its business in and about the demised premises Lessee shall observe and comply with all laws, ordinances and regulations of public authorities. SECTION NINE INSTALLATION AND MAINTENANCE OF FIXTURES Lessee shall first obtain the written consent of Lessor prior to Lessee's installation of any trade fixtures, lighting fixtures, floor covering, wall covering or furnishings. Any such trade fixtures, lighting fixtures, floor covering, or wall covering or furnishings shall be of first quality commensurate in appearance and in keeping with the demised premises. Lessee, throughout the term of this lease, shall maintain the same in good order, condition and repair at its own expense and any cost to repair damage caused by the installation or removal of same shall be at Lessee's sole expense. 8 SECTION TEN SIGNS, EXTERIOR LIGHTING AND FIXTURES Lessee may only install and maintain such signs at the demised premises as have been approved in writing by the Lessor. Lessee may not install signs in its windows or doors which are visible from the exterior of the demised premises nor may Lessee maintain more than one (1) exterior sign at the commercial center. Any such signs erected or placed in or on the demised premises by Lessee may not, without Lessor's prior written consent, be removed by Lessee at the expiration of the lease. In the event Lessor approves Lessee's removal of said sign, all damage caused by the erection, maintenance and removal of any and all such signs shall be fully repaired at the expense of Lessee. Lessee acknowledges that the demised premises are part of an integrated and uniform commercial center and that control of all interior and exterior signs by Lessor is essential in order to maintain uniformity and aesthetic values in the commercial center. Lessor shall select and install the interior window blinds to be used by Lessee at the demised premises. Lessee shall not install any lighting, plumbing facilities, shades, awnings or similar devices or use any advertising medium which may be heard or experienced outside of the demised premises such as loudspeakers, phonographs or radio broadcasts without the Lessor's prior written consent. In no event shall Lessee use any portion of the common facilities for Lessee's exclusive use without the express prior written consent of Lessor. SECTION ELEVEN ALTERATIONS, CHANGES AND ADDITIONS No changes, alterations or additions shall be made by Lessee to the demised premises without the prior written consent of Lessor, and any such change, alteration or addition to or on the demised premises made with the aforesaid written consent of Lessor shall remain for the benefit of and become the property of Lessor, unless otherwise expressly provided in the written consent. SECTION TWELVE DEFECTS; DEFECTIVE CONDITION; WIND; ACTS OF THIRD PERSONS A. Lessor's liability. Lessor shall not be liable to Lessee for any damage or injury to Lessee or Lessee's property occasioned by any defect of plumbing, heating, air cooling, air conditioning equipment and ducts, electrical wiring or insulation thereof, gas pipes, or steam pipes, or from broken steps, or from the backing-up of any sever pipe, or from the bursting, leaking, or running of any tank, tub, washstand, toilet, or waste pipe, drain, or any other pipe or tank in, on, or about the demised premises, or from the escape of steam or hot water from 9 any boiler or radiator, or for any such damage or injury occasioned by water being on or coming through the roof, stairs, walks, doors or any other place on or near the demised premises, or for any such damage or injury done or occasioned by the falling of any fixture, plaster, or stucco, or for any such damage or injury caused by wind or by the act, omission, or negligence of co-tenants or of other persons, occupants of the same building or of adjacent buildings or contiguous property. B. Waiver of claim against Lessor. All claims against Lessor for any damage or injury as provided in paragraph A of this section are hereby expressly waived by Lessee. SECTION THIRTEEN CASUALTY DAMAGE; REPAIR; ABATEMENT OF RENT A. Use of partially damaged premises. In the event of partial damage or destruction of the demised premises Lessee shall continue to utilize the premises for the operation of its business to the extent that it may be practicable to do so. B. Right to terminate on destruction of premises where damage exceeds two-thirds of reconstruction cost. Either party hereto shall have the right to terminate this lease if; during the last three (3) months of the term hereof, the demised premises are damaged to an extent exceeding two-thirds of the then reconstruction cost of such restored building as a whole; provided that, in such an event, such termination of this lease shall be effected by written notice to that effect to the other party delivered within thirty (30) days of the happening of such casualty causing the damage. C. Repairs by Lessor. If the demised premises shall, either prior to the beginning of or during the term hereof, be damaged or destroyed by fire or by any other cause whatsoever beyond Lessee's control, Lessor, except as hereinafter otherwise provided, shall immediately on receipt of insurance proceeds paid in connection with such casualty insurance, but in no event later than one hundred twenty (120) days after such damage has occurred, proceed to repair or rebuild same, including any additions or improvements made by Lessor or by Lessee with Lessor's consent, on the same plan and design as existed immediately before such damage or destruction occurred, subject to such delays as may be reasonably attributable to governmental restrictions or failure to obtain materials or labor, or other causes whether similar or dissimilar, beyond the control of Lessor. Materials used in repair shall be nearly like original materials as may be reasonably procured in regular channels of supply. Whenever a strike, act of God or cause, beyond the power of the party affected to control, causes delay, the period of such delay so caused shall be added to the period limited in this lease for the completion of such work, reconstruction or replacement. 10 D. Reduction of rent during repairs. In the event Lessee continues to conduct its business during the making of repairs, the fixed minimum monthly rental will be equitably reduced in the proportion that the unusable part of the demised premises bears to the whole thereof but no change shall be made in the method of computing the additional rental and additional charges due from Lessee under the terms of this lease. No rental shall be payable while the demised premises are wholly unoccupied pending the repair of casualty damage. E. Repair or replacement of fixtures. Lessee shall be responsible for the replacement or repairs of its own fixtures in the demised premises which may be damaged or destroyed by fire or any other cause whatsoever. SECTION FOURTEEN REPAIRS GENERALLY A. By Lessor. Lessor, throughout the term of this lease, shall maintain and keep the exterior and structural parts of the building of the demised premises in good repair at Lessor's initial sole expense subject, however, to Lessee's reimbursement as is provided hereinabove in Section Four (B). B. By Lessee. Lessee shall, at its own expense, keep and maintain the non-structural interior of the demised premises in a clean and sightly condition during the entire term of this lease, and shall specifically be responsible for the maintenance, repair and/or replacement of all building components, including, but not limited to, heating, ventilating, air conditioning, plumbing, electrical and all other parts thereof. Lessee's maintenance obligation shall include the cost of bi-annual inspections and service of the demised premises' heating, air conditioning and ventilating system which shall be performed by (i) the contractor who originally installed said system; or (ii) such other contractor who has been pre-approved in writing by Lessor. Upon completion of said bi-annual inspection and service, Lessee shall provide Lessor with written proof of Lessee's compliance with the terms of this section. Lessee is responsible for the replacement and repair of any plate glass and the providing of janitorial services for the interior of the demised premises. SECTION FIFTEEN UTILITIES Lessee shall pay before delinquency all charges for water, gas, heat, electricity, power, telephone service and other similar charges incurred by Lessee with respect to and during its occupancy of the demised premises. 11 SECTION SIXTEEN TAXES Lessee shall pay before delinquency all taxes levied or assessed on Lessee's fixtures, equipment and personal property in and on the demised premises, whether or not affixed to the real property. If at any time after any tax or assessment has become due or payable, Lessee or its legal representative neglects to pay such tax or assessment, Lessor shall be entitled to pay the same at any time thereafter and such amount so paid by Lessor shall be deemed to be additional rent for the leased premises, due and payable by Lessee. Lessor shall initially pay all general real estate taxes and special assessments levied and/or assessed against the lot and building in which the demised premises is situated, the parking areas and landscaped areas associated with that building and the entire commercial center during the term of this lease, subject, however, to Lessee's reimbursement of said charges as is provided in Section Four of this lease. SECTION SEVENTEEN INSURANCE A. Insurance companies. All policies of insurance to be kept and maintained in force by the respective parties hereto shall be obtained from good and solvent insurance companies reasonably satisfactory to Lessor with Lessor named as an additional insured party thereon. Lessee shall annually provide Lessor, on the anniversary date of this lease, with a binder naming Lessor as said additional insured party. B. Lessee to obtain liability insurance. Lessee shall at its own expense, at all times during the term of this lease, maintain in force a policy or policies of insurance, written by one or more responsible insurance carriers approved by Lessor, which will insure Lessor against liability for injury to or death of persons or loss of damage to property occurring in or about the demised premises. The liability under such insurance shall not be less than One Million Dollars ($1,000,000) for any one person maimed or injured, One Million Dollars ($1,000,000) for any one accident, and Five Hundred Thousand Dollars ($500,000) property damage. C. Lessee to obtain plate glass insurance. Lessee shall maintain and keep in force adequate plate glass insurance on all plate glass on demised premises. D. Lessee to obtain fire insurance on its fixtures and equipment. Lessee shall maintain in force, at all times during the term of this lease, on all of its fixtures and equipment in the demised premises, such policies as it deems adequate for the repair and replacement thereof. E. Lessor to obtain fire insurance on premises. Lessor shall maintain in force and shall pay for, at all times during the term of this lease, policies of casualty insurance in such amounts as shall be determined solely by Lessor. 12 F. Lessee's waiver of casualty insurance proceeds. In the event the demised premises shall be damaged or destroyed by fire, or other casualty so insured against, Lessee shall claim no interest in any insurance settlement arising out of any such loss and shall execute any and all documents required by Lessor or the insurance company or companies that may be necessary for use in connection with settlement of any such loss. SECTION EIGHTEEN TRANSFER OR PLEDGE OF LEASEHOLD INTEREST Lessee shall not assign this lease or any interest therein, or sublet the demised premises or any part thereof, or license the use of any portion of the demised premises or business conducted thereon or therein, or encumber or hypothecate this lease, without first obtaining the written covenant of Lessor. Any assignment, subletting, licensing, encumbering or hypothecating of this lease without such prior written consent shall, at the option of Lessor, immediately terminate this lease. Notwithstanding the foregoing, the parties acknowledge and agree an assignment of this lease to a parent company of Lessee or wholly owned subsidiary of Lessee is expressly permitted. SECTION NINETEEN SURRENDER OF PREMISES Lessee shall, at the termination of this lease, vacate the demised premises in as good condition as it was at the time of entry thereon by Lessee, except for reasonable use and wear thereof, acts of God, or damage by casualty beyond the control of Lessee, and on vacating shall leave the demised premises free and clear of all rubbish and debris. SECTION TWENTY INDEMNIFICATION OF LESSOR A. Liens and encumbrances. Lessee shall indemnify Lessor and the premises herein demised and all improvements placed thereon against all claims, liens, claims of lien, demands, charges, encumbrances or litigation arising directly or indirectly out of or by reason of any work or activity of Lessee on the demised premises, and shall forthwith and within fifteen (15) days after the filing of any lien for record fully pay and satisfy the same, and shall reimburse Lessor for all loss, damage and expense, including reasonable attorney's fees, which it may suffer or be put to by reason of any such claims of lien, demands, charges, encumbrances or litigation. In the event Lessee shall fail to pay and fully discharge any claim, lien, claims of lien, demand, charge, encumbrance or litigation, or should proceedings be instituted for the foreclosure of any lien or encumbrance, Lessor shall have the right, at its option, at any time after the expiration of such fifteen (15) day period, to pay the same or any portion thereof, with or without the costs and expenses claimed by such claimant, and in making such 13 payment Lessor shall be the sole judge of the legality thereof. All amounts so paid by Lessor shall be repaid by Lessee to Lessor on demand, together with interest thereon at the rate of eighteen percent (18%) per annum, from the date of payment by Lessor until repayment is fully made. Personal injuries, violation of law. Lessee shall indemnify Lessor and its members against any cost, liability or expense arising out of any claims of any person or persons whatsoever by reason of the use or misuse of the demised premises, parking area or common facilities by Lessee or any person or persons holding under Lessee, and shall indemnify Lessor against any penalty, damage or charge incurred or imposed by reason of any violation of law or ordinance by Lessee or any person or persons holding under Lessee, against any costs, damage or expense arising out of the death of or injury to any person or persons holding under Lessee. SECTION TWENTY-ONE SUBORDINATION OF LEASE Subject to Lessee's receipt of a reasonably acceptable non-disturbance agreement from any future mortgagee, Lessee shall execute any instrument permitting mortgages or deeds of trust to be placed on the lot and building in which the demised premises is located or any part thereof as security for any indebtedness, and subordinate this lease to such mortgages or trust deeds, if required to do so by the secured party. Lessee shall have the right to make payment of any defaults under any mortgage, trust deeds or liens of record on the demised premises, and to receive reimbursement for such payment by deduction and credit from and against rentals becoming due hereunder. SECTION TWENTY-TWO ESTOPPEL CERTIFICATE Lessee agrees to at any time and from time to time, within ten (10) days after Lessor's written request, to execute, acknowledge and deliver without charge to Lessor a written instrument, certifying the commencement date of the term of this lease, that Lessee has accepted possession of the demised premises and is open for business, that this lease is unmodified and in full force and effect (or if there have been modifications, that it is in full force and effect as modified and stating the modifications), the dates to which base rent, additional rent and other charges have been paid in advance, if any, and stating whether or not to the best knowledge of the signer of such certificate, Lessor is in default in the performance of any covenant, agreement or condition contained in this lease and, if so, specifying each such default of which the signer may or should have knowledge, and certifying such other matters as may be reasonably requested by Lessor ("Estoppel Certificate"). 14 It is expressly understood and agreed that any prospective purchaser or encumbrancer of all or any portion of the Devonshire Corporate Centre II office complex shall be entitled to rely upon any such statement. Lessee's failure to deliver an Estoppel Certificate to Lessor within ten (10) days after Lessor's written request therefor, shall, at the option of Lessor, be conclusive upon Lessee that (i) this lease is in full force and effect without modification except as may be represented by Lessor; (ii) that there are no uncured defaults in Lessor's performance; and (iii) that no more than one (1) month's rent has been paid in advance. Further, if Lessee fails to deliver an Estoppel Certificate within said ten (10) day period Lessee does hereby irrevocably appoint Lessor as attorney in fact of Lessee in Lessee's name, place and stead to sign and deliver an Estoppel Certificate as if the same had been signed and delivered by Lessee. SECTION TWENTY-THREE LESSOR'S RIGHT OF INSPECTION Lessor shall have access to the demised premises, and each part thereof, during Lessee's regular business hours and at any time thereafter for the purpose of inspecting the same, making repairs and posting notices which Lessor may deem to be for the protection of Lessor or the demised property. SECTION TWENTY-FOUR DEFAULT AND LATE CHARGES A. Lessor's right to repossess, operate, or relet. If the rental reserved by this lease or other charges to be paid hereunder by Lessee, or any part thereof, are not paid when due and shall remain unpaid for a period of five (5) days after notice thereof in writing, or if Lessee shall fail to promptly perform any other covenant, condition, or provision by it to be performed hereunder and such failure shall continue for a period of five (5) days after notice in writing specifying the nature of such failure, or if Lessee abandons the demised premises, or if Lessee breaches any obligation under this lease by it to be performed which cannot be cured, then, and in any such event, Lessee shall be deemed to be in default and Lessor, without further notice, may at its option re-enter and take possession of the demised premises, including all improvements thereon and fixtures and equipment located at, in or about the same, and take, operate or relet the same in whole or in part for the account of Lessee at such rental and on such agreement and conditions and to such tenant or tenants as Lessor in good faith may deem proper for a term not exceeding the unexpired period of the full term of this lease. Lessor shall receive all proceeds and rent accruing from such operation or reletting of the demised premises or fixtures and equipment and shall apply the same first to the payment of all costs and expenses incurred by Lessor in obtaining possession and in the operation or reletting of the demised premises or fixtures and equipment, including reasonable attorney's fees, commissions, and collection fees, and any alterations or repairs reasonably necessary to enable Lessor to operate or relet the premises or fixtures and equipment and to the payment of all such amounts as may be due or become payable under 15 the provisions of this lease, and the balance remaining, if any, at the expiration of the full term of this lease or on the sooner termination thereof by written notice of termination given by Lessor to Lessee shall be paid over to Lessee. Lessor may dispose of any personal property of Lessee located at the demised premises at the time of any default without incurring any liability for such a disposition. B. Late Charges. If the rental reserved by this lease or other charges to be paid hereunder by Lessee, or any part thereof, are not paid when due, late charges in the amount of ten percent (10%) of the basic monthly rent shall be immediately due for each five (5) day period, commencing the first day of the applicable month, that the rental or other charges, or any part thereof, remain unpaid. C. Repossession or reletting not a termination, Lessor's right to terminate not forfeited. No re-entry, repossession, operation or reletting of the demised premises or of fixtures and equipment shall be construed as an election by Lessor to terminate this lease unless a written notice of such intention is given by Lessor to Lessee, and notwithstanding any such operation or reletting without terminating this lease, Lessor may at any time thereafter elect to terminate this lease in the event at such time Lessee remains at default hereunder. D. Lessee's obligation to pay deficiencies. In the event the proceeds or rentals received by Lessor under the provisions of this section are insufficient to pay all costs and expenses and all amounts due and becoming due hereunder, Lessee shall pay to Lessor on demand such deficiency as may from time to time occur or exist. E. Lessor's right to perform Lessee's duties at Lessee's cost. Notwithstanding any provision as to notice contained in this lease, if in the judgment of Lessor the continuance of any default by Lessee, other than for the payment of money, for the full period of the notice otherwise provided for will jeopardize the premises or the rights of Lessor, Lessor may, without notice, elect to perform those acts in respect of which Lessee is in default, at the expense of Lessee, and Lessee shall thereupon reimburse Lessor, with interest at the rate of eighteen percent (18%) per annum, on five (5) days' notice by Lessor to Lessee. F. Lessor's right to terminate lease. In the event of Lessee's default as stated herein, Lessor may, at its option, without further notice, terminate this lease and any and all interest of Lessee hereunder, and may thereupon immediately re-enter and take possession of the demised premises. G. Lessor's right on termination to recover amount equal to rent reserved. If this lease is terminated by Lessor by reason of any default by Lessee, Lessor shall be entitled to recover from Lessee, at the time of such termination, the excess, if any, of the amount of rent reserved in this lease for the balance of the term thereof over the then reasonable rental value of the premises for the same period. It is agreed that the "reasonable rental value" shall be the amount of rental which Lessor can obtain as rent for the remaining balance of the term. 16 H. Lessor's remedies cumulative. Each and all of the remedies given to Lessor in this lease or by law shall be cumulative, and the exercise of one right or remedy by Lessor shall not impair its right to exercise any other right or remedy. I. Lessee's waiver of claims against Lessor. Lessee hereby waives all claim or demand for damages that may be caused by Lessor in re-entering and taking possession of the demised premises as hereinabove provided, and all claim or demand for damages which may result from the destruction of or damage to the demised premises and all claim or demand for damages or loss of property belonging to Lessee or to any other person, firm or corporation as may be in or on the premises at the time of such re-entry. J. Limitation of notice period by governmental order. Notwithstanding any provision as to notice in this section, if Lessee is required to comply with any governmental regulation or order within a period less than that to which Lessee would otherwise be entitled to notice, Lessee shall not be entitled to notice beyond the period within which such compliance may be required by such regulation or order. SECTION TWENTY-FIVE EXPENSES OF ENFORCEMENT Should Lessor incur any expenses in enforcing any provision of this lease Lessee shall pay to Lessor all expenses so incurred, including reasonable attorney's fees and court costs. SECTION TWENTY-SIX EFFECT OF BANKRUPTCY If at any time during the term of this lease there shall be filed by or against Lessee in any court, pursuant to any statute either of the United States or any state, petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee of all or a portion of Lessee's property, or if Lessee makes an assignment for the benefit of creditors, Lessee shall have breached this lease, and this lease, at the option of Lessor exercised after expiration of the period provided below, may be cancelled and terminated, provided such petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee shall continue for a period of ten (10) days. In such event neither Lessee, nor any person claiming through or under Lessee by virtue of any statute or of any statute or of an order of any court, shall be entitled to possession or to remain in possession of the demised premises, but shall forthwith quit and surrender the premises. SECTION TWENTY-SEVEN EMINENT DOMAIN A. Over certain percentage taken. In the event twenty-five percent (25%) or more of the area of the demised premises shall be taken for a public or quasi-public use this lease shall 17 terminate as of the date of the actual physical taking, and the parties shall thereupon be released from any and all further liability hereunder. B. Less than a certain percentage taken. In the event of a partial taking of less than twenty-five percent (25%) of the area of the demised premises, Lessor shall, with reasonable diligence, proceed at its own expense to reconstruct or repair the demised premises and place the same in a tenantable condition within ninety (90) days after the date of the actual physical taking; provided, however, that if fifty percent (50%) or more of the area of the commercial center as a whole is taken, Lessor alternatively may elect to terminate this lease notwithstanding that less than twenty-five percent (25%) of the area of the demised premises were taken. In the event of such termination on the parties hereto shall be released from any and all further liability under this lease. C. Abatement of rent. During any reconstruction or repairing as hereinabove provided, Lessee shall be required to pay only that proportion of the fixed minimum monthly rental herein reserved as the area of the demised premises remaining in a tenantable condition during such reconstruction or repairing bears to the entire area herein leased. On completion of such reconstruction or repairing, the fixed minimum monthly rental herein reserved shall be adjusted in the proportion that the reconstructed demised premises bear to the original demised premises, and thereafter Lessee shall be required to pay such adjusted fixed minimum monthly rental in accordance with the provisions of this lease. There shall be no abatement of any rental due until such time as there shall be an actual physical possession of that portion of the demised premises taken, and in no event shall there be any change made in the method of computing the percentage rental, and there shall be no reduction of percentage rental. D. Right to condemnation award. Any award made in any condemnation proceeding for the taking of any part or all of the demised premises shall be the sole property of and be paid to Lessor. SECTION TWENTY-EIGHT QUIET ENJOYMENT Lessor hereby covenants and warrants that, subject to any trust deeds or mortgages now of record or hereafter placed on record, it is the owner of the demised premises and that Lessee, on payment of rents herein provided for and performance of the provisions hereof on its part to be performed, shall and may peacefully possess and enjoy the demised premises during the term hereof without any interruption or disturbance. 18 SECTION TWENTY-NINE WAIVER OF BREACH No waiver of any breach or breaches of any provision of this lease shall be construed to be a waiver of any preceding or succeeding breach of such provision or of any other provision hereof. SECTION THIRTY TIME OF THE ESSENCE Time is of the essence of each and every provision hereof. SECTION THIRTY-ONE HEADINGS FOR CONVENIENCE ONLY The heading used herein are for convenience and shall not be resorted to for purposes of interpretation or construction hereof. SECTION THIRTY-TWO PRONOUNS Feminine or neuter pronouns shall be substituted for those of masculine form or vice versa, and the plural shall be substituted for the singular number or vice versa in any place or places in which the context may require such substitution or substitutions. SECTION THIRTY-THREE AMENDMENTS TO BE IN WRITING This lease may be modified or amended only by a writing duly authorized and executed by both Lessor and Lessee. It may not be amended or modified by oral agreements or understandings between the parties unless the same shall be reduced to writing duly authorized and executed by both Lessor and Lessee. SECTION THIRTY-FOUR PARTIES BOUND Each and every provision of this lease shall bind and shall inure to the benefit of the parties hereto and their legal representatives. The term "legal representatives" is used in this lease in its broadest possible meaning and includes, in addition to executors and administrators, every person, partnership, corporation or association succeeding to the interest or to any part of the interest in or to this lease or in or to the leased premises, of either Lessor or Lessee herein, whether such succession results from the act of a party in interest, occurs by operation of the law or is the effect of the operation of law together with the act of such party. Each and every agreement and condition of this lease by Lessee to be performed shall be binding on all assignees, subtenants, concessionaires, 19 and/or licensees of Lessee; provided however, that this provision shall not be deemed to supersede the restrictions on assignment, subletting or licensing imposed by Section Eighteen entitled "Transfer or Pledge of Leasehold Interest". SECTION THIRTY-FIVE HOLDING OVER No holding over and continuation of any business by Lessee after the expiration of the term hereof shall be considered to be a renewal or extension of this lease unless written approval of such holding over and a definite agreement to such effect is signed by Lessor defining the length of such additional term. Any holding over without the consent of Lessor shall be considered to be a day-to-day tenancy at a rental of three times the daily rate of the fixed minimum monthly rental provided herein, computed on the basis of a thirty (30) day month. SECTION THIRTY-SIX NOTICES All notices or demands of any kind which Lessor may be required or may desire to serve on Lessee under the terms of this lease may be served on Lessee (as an alternative to personal service) by leaving a copy of such demand or notice, or by mailing a copy thereof by registered or certified mail, postage prepaid, addressed to Lessee at the demised premises or at such other address or addresses as may from time to time be designated by Lessee in writing to Lessor. Service shall be deemed complete at the time of the leaving of such notice as aforesaid or within two (2) days within mailing of same. All notices and demands from Lessee to Lessor may be similarly served on Lessor at 1909 Fox Drive, Champaign, Illinois, 61820, or at such other address as Lessor may in writing designate to Lessee. SECTION THIRTY-SEVEN STRICT CONSTRUCTION The language used in this lease shall be deemed to be the language approved by all parties to this lease to express their mutual intent, and no rule of strict construction shall be applied against any party. SECTION THIRTY-EIGHT COMMISSION Lessor and Lessee each warrant to the other that no real estate broker or agent has been used or consulted in connection with this lease. Lessor and Lessee respectively (respectively, the "Indemnifying Party") each covenant and agree to defend, indemnify and save the other harmless from and against any actions, damages, real estate commissions, fees, costs or expenses (including reasonable attorney's fees and costs of tribunals at all levels) resulting or arising from any 20 commissions, fees, costs or expenses due any real estate broker or agent because of this lease due to the acts of the Indemnifying Party. SECTION THIRTY-NINE OFFICE BUILDING LEASES Concurrently with the execution of this lease, Lessor and Lessee agree to enter into and execute (i) an Addendum to Lease by and between Lessor and Lessee concerning the real estate commonly known as 2101 Fox Drive, Champaign, Illinois, a copy of which is attached hereto as Exhibit D and incorporated by reference herein; (ii) an Addendum to Lease by and between Lessor and Lessee concerning the real estate commonly known as 2109 Fox Drive, Champaign, Illinois, a copy of which is attached hereto as Exhibit E and incorporated by reference herein; and (iii) an Addendum to Lease by and between Lessor and Lessee concerning the real estate commonly known as 2201 Fox Drive, Champaign, Illinois, a copy of which is attached hereto as Exhibit F and incorporated by reference herein. IN WITNESS WHEREOF, the parties have executed this lease at Champaign, Illinois, the day and year first above written. LESSOR: LESSEE: PAR 3 DEVELOPMENT, L.L.C. ITDS INTELICOM SERVICES, INC. An Illinois Limited Liability Company A Delaware Corporation By: FOX DEVELOPMENT CORPORATION By: /s/ Peter L. Masanotti An Illinois Corporation ------------------------ Its Managing Member By: /s/ Kim B. Fox Its: /s/ E.V.P. -------------------------- ------------------------ KIM B. FOX, Its President 21 EXHIBIT A [Diagram of Corporate Center] 22 EXHIBIT A-1 [Diagram of Corporate Center] 23 EXHIBIT A-2 PROJECT DESCRIPTION INTERNATIONAL TELECOMMUNICATIONS DATA SYSTEMS CHAMPAIGN, ILLINOIS February 1, 1999 1. GENERAL 1.1 Summary of Work 1.1.1 The Scope of Work anticipated includes design and construction of a building as described within this Project description at Par 3 property, Champaign, Illinois. 1.1.2 The building will be comprised of the following areas: ITDS office area..........................25,000 sf Total.....................................25,000 sf 1.2 Building Features 1.2.1 A finish ceiling height of 9' +/- is anticipated for the main office area. 1.3 Drawings & Specifications 1.3.1 Complete "Working Drawings and Specifications" will be prepared from the design documents and will be furnished to the owner. 1.4 Design 1.4.1 All structural design shall be in accordance with BOCA Code requirements unless noted otherwise. 1.4.2 All concrete work is to be completed in accordance with the applicable standards of the American Concrete institute (ACI). 1.4.3 Structural steel beams, columns, and lintels will be designed in accordance with the Steel Construction Manual of the America 1 EXHIBIT A-2 Institute of Steel Construction specifications for the design of hot-formed structural members. 1.4.4 The bar joist framing will be designed in accordance with the requirements and guidelines of the Steel Joist Institute. 1.4.5 Asphalt work is to conform to applicable requirements as established by the Illinois Department of Transportation IDOT. 1.5 Definitions and Terms 1.5.1 Where the work "Client" appears it shall mean International Telecommunications Data Systems. 1.5.2 Where the word "Architect" appears it shall mean Dankert and Associates. 1.5.3 Where the word "Contractor" appears it shall mean Dodds Company and/or an associated subcontractor. 2. SITEWORK 2.1 Earthwork 2.1.1 All trees, stumps, and brush that interfere with new construction are to be removed and properly disposed of off-site. 2.1.2 Topsoil which is stripped to accommodate new construction will be retained on site for use in landscaping or for construction of. 2.1.3 All debris will be removed from site and properly disposed of. 2.1.4 Site areas which are to be occupied by the building or surface improvement will be rough and fine graded as necessary to meet engineered elevations and grades and to provide for proper surface drainage. 2.1.5 All cutting, filling and rough grading is to be completed to proper subgrade elevations for finish floor, pavement and landscaped areas. 2.1.6 The site is anticipated to consist of suitable soils that permit the site to be cut, filled and balanced without a need to import additional fill. 2 EXHIBIT A-2 2.1.7 Site areas which are to be occupied by the new building or pavement will be proof-rolled to compact the existing subbase to 95% maximum density. 2.1.8 A minimum of 2" compacted granular material will be provided under all concrete slabs on grade and will consist of approved material as excavated from sources on-site or obtained from approved, off-site sources. 3" +/- 2.1.9 Fill material will be compacted to 95% maximum density. 2.2 Storm Drainage 2.2.1 Storm water runoff from the roof will be directed to roof sumps which will then carry runoff for discharge through interior roof conductors. 2.2.2 Paved and landscaped areas will be contoured and sloped to permit an engineered rate of storm water runoff into site system. 2.3 Sanitary Sewer 2.3.1 A Sanitary Sewer System will be completed to accommodate the domestic plumbing needs of the facility. 2.3.2 Sanitary drainage piping will be extended from the building to an existing municipal lead. 2.3.3 Sanitary sewer piping inside of the building shall be PVC and/or cast iron. 2.3.4 The proposal provides a 4" sanitary entering the building underground near the office toilet room area. Underground sanitary capacity is available for the sewer system 2.4 Water Main 2.4.1 Watermain work will be completed to satisfy the domestic, process, and fire protection related needs of the facility. 2.4.2 A watermain is to be extended on site and into the building from an existing municipal main. 2.4.3 Watermain work for fire protection shall be sized in accordance with flow test and design requirements by NFPA an insurance regulators. 3 EXHIBIT A-2 2.5 Natural Gas 2.5.1 Service is anticipated to be extended from an existing lead. 2.6 Electrical/Telephone Service 2.6.1 The incoming electrical service will be 1200 amp 277/480 volt utility company pad mounted transformer, positioned adjacent on the drawing. 2.6.2 The incoming telephone service is to be (2) 4" PVC underground conduit with pull string. 2.6.3 Building electrical service to be secondary, metered by the utility company. 2.6.4 TV cable will be available by 1" conduit to building. 2.7 Concrete 2.7.1 Site concrete will consist of those items shown on the drawings. 2.7.2 Sidewalk(s) will be provided as indicated on the drawings and will be 4" thick. 2.7.3 All sidewalks abutting paving will have a 6" raised face. 2.7.4 The concrete mix will be designed to accomplish a strength of 3500 PSI at a 28 day test and will include air entrainment. 2.7.5 Drive approach area(s) will be completed as shown and will be constructed in accordance with the requirements of the governing agencies having jurisdiction. 2.7.6 All exterior flat slabs will be steel troweled and then finished with a broom finish. 2.8 Asphalt Paving and Concrete Drive 2.8.1 Asphalt paving for on-site traffic and parking areas will be provided as shown on the drawings. 2.8.2 Car parking areas and drive will consist of 3" asphalt wearing surface on a 8" thick compacted stone. 4 EXHIBIT A-2 2.8.3 Parking areas will be completed with painted striping as shown on the parking plan. 2.8.4 No asphalt curbs or car bumpers are included. 3. CONCRETE WORK 3.1 Foundations 3.1.1 Reinforced concrete foundation work will be completed in accordance with the applicable codes and will accommodate all building live and dead loads. 3.1.2 Soil bearing pressure at 3' -6" below finish grade will be at least 2000 psf. 3.1.3 Soil is to be of sufficient cohesiveness to permit soil forming where appropriate. 3.1.4 Concrete strength will be 3000 PSI per drawings at 28 days. 3.2 Interior Flatwork 3.2.1 Interior flatwork is included for the completion of all concrete slabs on grade, supported slabs 3.2.2 The Office Area floor slab on grade will be 4" thick, and reinforced with (1) layer of 6 x 6 No. 10 wire mesh with steel troweled finish. 3.2.3 Concrete strength to be 3000 PSI per drawings at 28 days. 3.2.4 Control joints will be provided as required by American Concrete Institute requirements. 3.2.5 Perimeter insulation consisting of 2" thick x 24" wide rigid board insulation will be laid flat below floor slabs at all exterior walls. 4. MASONRY 4.1 Exterior Masonry 4.1.1 The exterior of the building will be 100% 4" thick face brick backed up with 8" concrete block. 5 EXHIBIT A-2 5. METALS 5.1 Structural Steel 5.1.1 The structural framing system will consist of suitably sized beams, columns, bar joists and metal deck to accommodate the loading as previously noted. 5.2 Miscellaneous Metals 5.2.1 Miscellaneous metal items are to be provided where necessary and are to include the following: roof screens. 6. WOOD LAMINATES 6.1 Rough Carpentry and Wood Doors 6.1.1 Wood nailers and pressure treated blocking materials are to be installed for the membrane roof areas. 6.2 Millwork and Laminates 6.2.1 Cabinets, shelving, millwork and laminates are to be provided where shown on the drawings or finish schedule and as described here. Approximately 27' lineal feet of white base and upper cabinets are included by Space Metrics (residential line). Laminate colors are to be the same as existing buildings. 7. THERMAL AND MOISTURE PROTECTION 7.1 Roofing 7.1.1 The roofing system will be a single-ply membrane roof ballasted as installed over rigid insulation. 7.1.2 A standard sheet membrane similar or equal to that as manufactured by Goodyear or Firestone or equal - .45 mil thickness 7.1.3 Roof insulation will be provided as required for an overall R value of 20 using one layer of insulation. 7.1.4 All required cants, flashings, copings and trims will be provided. 7.1.5 Roof area walk pads are not included. 6 EXHIBIT A-2 7.1.6 The roof system will include a manufacturer's and roofing contractor's 10-year written warranty. 8. DOORS, WINDOWS AND GLASS 8.1 Hollow Metal 8.1.1 Hollow metal doors and frames will be provided in all masonry walls. 8.1.2 All frames will be fabricated of 16 gauge, steel welded jambs and head pieces. 8.1.3 All steel doors will be of a 3'-0 x 1 3/4" thick unless noted otherwise, and are to be constructed of 18 gauge steel. 8.1.4 All doors are to be complete with hardware sets appropriate for the use of each door as required. 8.1.5 All exterior doors will be insulated with thresholds and weatherstripping. 8.1.6 All interior office doors will be 3'-0 x 7'0", 1 3/4' thick, solid core, prefinished veneer doors (54). 8.1.7 All wood doors are to be installed in hollow metal door frames. 8.1.8 Hardware to be 80% passages sets, and 20% locksets, lever type. 8.2 Finish Hardware 8.2.1 Finish hardware is included for hollow metal and wood door hardware sets, using aluminum color, Schlage "D" series. 8.3 Aluminum Frames, Doors and Windows 8.3.1 Exterior windows (banding the perimeter of the building) of the Office Area will be the same as Devonshire Corp. Centre I, i.e., bronze tinted. 8.3.2 Aluminum framing for the window system to be a nominal 2" x 4", bronze anodized finish with thermal breaks for maximum energy efficiency. 8.3.3 Glass inserts will be safety glazing where required by local code. 7 EXHIBIT A-2 8.3.4 Aluminum doors and frames will utilize manufacturer's standard surface mounted hardware. 9. FINISHES 9.1 Drywall 9.1.1 Interior partitions of the Office Areas will be constructed of ceiling height metal stud framing at 24" on center and 5/8" thick gypsum drywall approximately 1,648 lineal feet. 9.2 Acoustical Ceiling 9.2.1 Acoustical ceilings to be 2x2 Tegular suspended system ceiling throughout at 9 ft. +/- from finished floor. 9.3 Resilient Flooring 9.3.1 Floor in the storage, printer/copier, mail room and breakroom areas will be finished with a 1/8" thick commercial quality resilient tile flooring (approximately 1,325 sq. fi.) 9.3.2 All areas which are to be finished with resilient tile will be trimmed out and completed with a standard, 4" high, curved base. 9.4 Carpet and Floor Covering 9.4.1 Carpet I - All private offices consisting of approximately 5,091 sq. ft. will receive tufted cut pile 42 oz. carpet. Carpet will be Shaw Commercial Carpets Bay Hill II 50428 direct glue with top set carpet base. 9.4.2 Carpet II - Small conference rooms, open office, library and training will receive Graphic Loop Pile 30 oz. Shaw Commercial Carpets Wild Creek 50639 direct glue with top set carpet base approximately 16,692 sq. ft:. 9.4.3 Ceramic Tile - All restrooms will receive 1" x 1" unglazed floor tile by Dal-Tile approximately 660 sq. ft. 9.4.4 Raised Access Flooring - Data room to receive Tate Access Flooring or equal stringer type one foot above slab with 200 lbs/psf approximately 1,232 sq. ft. 8 EXHIBIT A-2 9.5 Painting 9.5.1 Interior drywall surfaces throughout area to be finished with one (1) application of primer and one (1) finish coat of latex paint, eggshell finish. 9.5.2 Hollow metal doors and exposed miscellaneous steel items will be finish painted with one (1) coat of semi-gloss alkyd enamel paint over shop applied primer. 9.5.3 Interior carpentry items that are not factory finished will be finished with one (1) coat of stain and two (2) finish applications of stain finish polyurethane. 9.5.4 Interior surfaces of exposed structural steel (shop primed grey) and metal deck (manufacturer grey). 9.5.5 Wall covering #1 54" wide fabric by Maharam Tek wall/4 or 5 approximately 936 sq. ft. in meeting room 9.5.6 Wall covering #2 Vinyl wall covering 20 oz./lineal yard by Genon approximately 1,656 sq. ft. in restrooms only. 9.5.7 Wall covering #3 Wall carpet wainscoat (4' high) in print room Vertex 24 oz. (30 lineal foot). 9.5.8 All window openings shall be fitted with horizontal mini blinds, to match mullion color. 10. MISCELLANEOUS SPECIALITIES 10.1 Toilet Partitions 10.1.1 Toilet partitions and urinal screens will be provided as shown or as required by code and where applicable, will conform to the State's Barrier Free Access requirements. 10.1.2 Partitions will be floor mounted and overhead braced urinal screens will be wall hung. 10.1.3 Partition panels will be flush metal type with baked enamel finish. 10.2 Toilet Accessories 10.2.1 36" mirrors are to be provided at each vanity. 9 EXHIBIT A-2 10.2.2 Grab bars are to be provided in each handicap accessible toilet compartment. 10.2.3 Double roll toilet paper dispensers are to be provided within each toilet compartment. 11. MECHANICAL 11.1 Plumbing 11.1.1 The office, break and restroom areas domestic plumbing system is to consist of the following fixtures and accessory type items per drawings. Water closets Wall-hung lavatories with standard faucet code approved One (1) floor level mop basin with utility type faucet Stainless steel kitchen sinks for break room counter-top and coffee area counter (1) water heater with recirculation loop (2) electric water coolers Four (4) toilet area floor drains Domestic, water and sanitary piping system as specified Gas piping system as specified 11.1.2 The plumbing work for the entire facility is to conform to the following per drawings: Plumbing fixtures to be similar or equivalent to those as manufactured by Kohier, American Standard or Eljer. Floor drains to be similar or equivalent to those as manufactured by Wade, Josam or Zurn. Water heater(s) to be similar or equivalent to those as manufactured by Lochinvar or A. O. Smith Water cooler(s) to be similar or equivalent to those as manufactured by Oasis, Coroley or Halsey Taylor 10 EXHIBIT A-2 Gas piping is to be extended from a utility company supplied meter. Work is to be completed in a neat, workmanlike manner. All services are to be made complete and functional with final connections having been made to existing utilities. Miscellaneous piping and other items of work as might be required to complete the plumbing system will be provided. Sanitary sewer system is to be complete with fixtures as noted, underground piping and venting. 11.2 Heating, Ventilating and Air Conditioning 11.2.1 Design parameters for the office area heating, ventilation and air condition (HVAC) systems are as per specs: Heat to 72 degree Fahrenheit (F) dry bulb inside with 0 degree F outside. Cool to 75 degree F dry bulb inside at 95 degree F outside All ventilation to be in accordance with ASHRAE standards. 11.2.2 The description for the heating, ventilation and air conditioning systems is as follows per specs: The office area HVAC equipment will be packaged roof mounted heating (gas fire electronic starters) and air conditioning unit(s) which sit on pre-fabricated roof curbs. The system will be complete with programmable room thermostats, and economizer cycle (on units larger than five (5) ton capacity). The units will supply conditioned air through overhead supply ductwork which will discharge into the office area through ceiling mounted diffusers. The toilet areas will be provided with an air exhaust system to conform to local code requirements. Additionally, conference and lunch rooms will be provided with air exhaust system(s) complete with wall mounted switch(s) to facilitate intermittent use. 11 EXHIBIT A-2 11.2.3 The HVAC equipment and materials will be selected from the following: The packaged roof-top conditioning unit with accessories shall be Trane or equal. 11.3 FIRE PROTECTION 11.3.1 Design parameters for the fire protection system are based on the following: The Office area fire protection system design is based upon use of noncombustible roofing and a Light Hazard Occupancy as specified. There shall be sprinklers throughout the building. The system for the Data Center Area shall be pre-action type. 11.3.2 General notes for clarifying the fire protection system design are as follows: The municipal water supply (flow and pressure) is assumed to be adequate and available. This proposal provides for the fire protection work as outlined per specs. This proposal has no provision for a ground storage tank. This proposal is based on workmanship and methods which conform to N.F.P.A criteria and for system design parameters as noted. Sprinkler heads to be aligned within industry standards but will not necessarily be centered in the ceiling tiles. 11.3.3 The equipment and materials for the fire protection system will consist of the following: Provide a wet type of automatic spray sprinkler system with Distribution piping, sprinkler heads and automatic sprinkler riser riser(s) as required. Provide check valves, fire department connections, flow switch flow switch alarms, inspector test connections as required for a complete and operable system. 12 EXHIBIT A-2 Computer Room to be equipped with independent pre-action Suppression system and shall be a wet system. 12. ELECTRICAL 12.1 Service and Distribution 12.1.1 The incoming secondary electrical service work will include conduit, panel, switchgear and cable work. 12.1.2 One (1) 1200 amp 277/480 volt, three-phase, secondary service switchboard will be provided, installed and energized. 12.1.3 One 750 KW 480V Cumins diesel generator with (1) 400 amp and (1) 600 amp transfer switch. 12.2 Lighting 12.2.1 In the general and private office areas, lighting to be through the use of 2'-0" x 4'-0" recessed, commercial fluorescent fixtures, lay-in type with 3 tube white deep cell lens with electronic ballast. 12.2.2 In the storage, UPS room, copier room, janitor room and breakroom, lighting to be through the use of 2'-0" x 4'-0" recessed, commercial fluorescent fixtures, lay-in type with prismatic lens (25 total). 12.2.3 In the conference and training room areas, lighting to be through the use of 2'-0" x 4'-0" recessed, commercial fluorescent fixtures, lay-in type with paracube lens, to give 75 foot candles. (14) recessed incandescent fixtures 75R20 Lightolier or equal. 12.2.4 Provide and install necessary emergency battery operated (dual lamp) packs for lighting on night light circuits in the office areas as required. 12.2.5 Provide exit lighting as required by code. 12.3 Convenience Outlets 12.3.1 Each private office shall have one (1) quadraplex and two (2) duplex outlets. 13 EXHIBIT A-2 12.3.2 System furniture will have one junction box per four (4) cubicles with the following circuit configuration: 31 connections to cubicles. Whips furnished by ITDS. One 20-amp dedicated circuit per junction box. Three 20-amp circuits per (2) junction boxes. 12.4 Miscellaneous Electrical 12.4.1 Provide power wiring for HVAC equipment as outlined under mechanical trades per drawings. 12.4.2 Provide telephone data outlets and conduit stubs into ceiling area. 12.4.3 Provide (1) 150 KVA UPS system 488/208 and associated wiring for computer room panels. 12.5 Site and Exterior Electrical 12.5.1 Provide lighting for the parking lot similar to previous two buildings. 12.6 General Notes 12.6.1 The electrical work as described is further clarified through the following notes: All the above provisions include labor and material for a complete electrical installation, done in a neat, workmanlike manner. All electrical work shall conform to the current edition of the National Electrical Code and Local Code where applicable. Footcandle figures given are intended to represent approximate average intensities based on the lumen or zonal cavity method of calculation and area based on an open area with no obstructions (machines, equipment, racks, bins, etc.). Each private office, systems cubicle and all other rooms shall have (1) telephone and data outlet per space. All systems furniture will be floor fed through conduits where they are not adjacent to convenient walls or columns. 14 EXHIBIT A-2 Junction boxes and conduit stubs into ceiling areas are to be provided as previously noted for telephone communications data. Telephone incoming cabling, individual telephone sets or wiring telephone communications system is to be provided by the Client. This proposal includes underground conduit from transformer to building. Secondary conduit furnished and installed by utility. This proposal includes provisions for a security system and fire alarm system, with (7) card reader access pads at entrances. 12.7 Equipment and materials 12.7.1 The incoming service equipment will be selected from the following: All materials and installation methods to conform to local utility company standards. The electrical switchgear and panels will be similar or equivalent to those as manufactured by Square "D". The following appliances have been included: (1) Microwave (1) Refrigerator (1) Disposal (1) Dishwasher 13. CLARIFICATIONS, QUALIFICATIONS AND EXCLUSIONS 13.1 Clarifications 13.1.1 The amount to be paid for permits, review fees, inspections fees, tap fees, assessment or other municipal fees is included. 13.1.2 Quality control and testing fees are included in the base proposal. 13.2 Qualifications 13.2.1 Materials will be new unless noted otherwise. 13.2.2 Items and work indicated as being furnished or performed by the Client are not included in the Cost of the Work. 15 EXHIBIT A-2 13.2.3 The Contractor will obtain the building permit. The amounts to be paid for permits, inspection fees, assessments, tap-in charges or other municipal fees are included in the Cost of Work. 13.2.4 The facility will be delivered in a broom-clean condition and all glass will be cleaned. 13.2.5 Client will be assisted by the Contractor in obtaining the Certificate of Occupancy from the municipality. 13.2.6 Should conditions be encountered that differ from the basis of preliminary design and result in a change to the Scope of Work, the Client will be responsible for any subsequent changes as might be necessary to be made to the Cost of Work. 13.2.7 Should a governing body require that changes by made to any phase of the working drawings or specifications as they were prepared from preliminary documents, any additional cost for these changes will be paid for by the Client. 13.2.8 Building Code conformance for the Scope of Work is anticipated to be governed by Building Officials and Code Administration (BOCA) 1990, the National Electric Code (NEC). 13.2.9 The Contractor is to assume responsibility for zoning and regulations governing use of the site and building. 13.2.10 Client to provide and install the systems furniture and its installation. 13.2.11 A telephone/data wiring allowance of $120,000 has been included. 16 EXHlBlT A-3 ITDS COST ABOVE STANDARD AS OF FEBRUARY 4, 1999 2215 Fox Drive/Lot 4 Electric Throughout and Generator 750 KVA, UPS Transfer Switch and All Other Requested Equipment as of 11/16/98 $ 540,880 Enclosures For Generator, Room for UPS, A/C For UPS and Installation 67,887 Computer Floor 24,321 Telephone Equipment As Per Jim 132,000 Lieberts 112,530 Sprinkler 64,130 Counter, Cabinets, Carpet, Ceramic, Wallcovering 38,115 TOTAL COST ABOVE STANDARD $ 979,863 Less $8 per foot buildout allowance -200,000 -------- AMOUNT LESSEE TO PAY DIRECTLY TO PAR 3 DEVELOPMENT, L.L.C. FOR COST ABOVE STANDARD $ 779,863*
*Payments to be made within 30 days after receipt of invoice for work completed: EXHIBIT B [Diagram of property lot] EXHIBIT C (Optional) Change Order No ______ This Change Order is made this ___ day of ________________, 19___, by and between PAR 3 DEVELOPMENT, L.L.C., an Illinois limited liability company, and ____________________. The parties agree that the following (change, addition, deletion) shall be made to the tenant improvements located in Suite in the building at _____________, Champaign, Illinois, 61820: and that the same shall be done for the sum of _________________________ Dollars ($___________), to be (added to, deleted from) the original contract price of ______________________________ Dollars ($___________). LESSOR: LESSEE: PAR 3 DEVELOPMENT, L.L.C. An Illinois Limited Liability Company By: FOX DEVELOPMENT CORPORATION An Illinois Corporation Its Managing Member By: -------------------------------- -------------------------------- KIM B. FOX, Its President EXHIBIT D FIRST ADDENDUM TO LEASE THIS FIRST ADDENDUM TO LEASE is made and entered into this 25th day of February, 1999, by and between PAR 3 DEVELOPMENT, L.L.C., an Illinois limited liability company (hereinafter "Lessor") and ITDS INTELICOM SERVICES, INC., a Delaware corporation, formerly known as CSC INTELICOM, INC. (hereinafter "Lessee"). WHEREAS, the parties entered into a certain Lease dated September 19, 1996, concerning the real estate commonly known as 2101 Fox Drive, Champaign, Illinois (hereinafter the "Lease"); and WHEREAS, the parties desire to make certain amendments to the Lease. NOW, THEREFORE, in consideration of the above premises and the mutual covenants and promises contained herein, the parties hereby agree as follows: 1. Term. Section Five of the Lease is hereby amended by deleting it in its entirety and inserting in its place the following: "SECTION FIVE TERM The commencement date of the term of this Lease is November 22, 1996. It is the intent of Lessor and Lessee that this Lease terminate on the same date as the termination date of that certain Lease dated February 25th, 1999, by and between Lessor and Lessee concerning the real estate commonly known as 2215 Fox Drive, Champaign, Illinois (hereinafter referred to as the "2215 Fox Drive Lease"). The termination date of the 2215 Fox Drive Lease is seven (7) years from the Commencement Date of the 2215 Fox Drive Lease, as that term is defined in the 2215 Fox Drive Lease. In the event Lessee shall have faithfully performed all covenants of this Lease and Lessee has exercised Lessee's right to renew the 2215 Fox Drive Lease for an additional three (3) year term, Lessor hereby grants Lessee the right and option to renew this Lease for thirty-six (36) months, it being the intention of Lessor and Lessee that the renewal term under this Lease terminate on the same date as the renewal term under the 2215 Fox Drive Lease. In the event Lessee desires to renew and extend this Lease it shall give Lessor written notice, at least one hundred eighty (180) days prior to the expiration of the initial term, of its intent Page 1 of 2 to renew and extend; provided, however, that the following terms and conditions shall be applicable to the additional term. A. The provisions of this Lease during said extension period shall be the same as provided in this Lease." 2. No Other Changes. Except as set forth above, no other amendments are made to the Lease and the parties hereby acknowledge and agree that the Lease remains in full force and effect. 3. Counterparts. To facilitate execution, this First Addendum to Lease may be executed in as many counterparts as may be required; and it shall not be necessary that the signature of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart; but it shall be sufficient that the signature of, or on behalf of, each party, or that the signatures of the persons required to bind any party, appear on one or more of such counterparts. All counterparts shall collectively constitute a single document. 4. Facsimile Signatures. The parties acknowledge that photocopies of this First Addendum to Lease which have been executed by the parties hereto or their respective agents shall be binding upon the parties as if such photocopies were originals regardless of whether such photocopies of this First Addendum to Lease have been delivered by personal service, regular mail, facsimile transmission or otherwise. Upon request from any party hereto, all other parties agree to execute an original of this First Addendum to Lease upon presentation thereof if said document has previously been executed and delivered in photocopy form by personal delivery, facsimile transmission, regular mail or otherwise. IN WITNESS WHEREOF, the parties have executed this First Addendum to Lease on the day and year first above written. LESSOR: LESSEE: PAR 3 DEVELOPMENT, L.L.C. ITDS INTELICOM SERVICES, INC. An Illinois Limited Liability Company A Delaware Corporation By: Fox Development Corporation An Illinois Corporation Its Managing Member By: /s/ Kim B. Fox By: /s/ Peter L. Masanotti -------------------------- ------------------------------ Kim B. Fox, Its President Peter L. Masanotti, Its E.V.P. Page 2 of 2 EXHIBIT E FIRST ADDENDUM TO LEASE THIS FIRST ADDENDUM TO LEASE is made and entered into this 25th day of February, 1999, by and between PAR 3 DEVELOPMENT, L.L.C., an Illinois limited liability company (hereinafter "Lessor") and ITDS INTELICOM SERVICES, INC., a Delaware corporation, formerly known as CSC INTELICOM, INC. (hereinafter "Lessee"). WHEREAS, the parties entered into a certain Lease dated January 29, 1996, concerning the real estate commonly known as 2109 Fox Drive, Champaign, Illinois (hereinafter the "Lease"); and WHEREAS, the parties desire to make certain amendments to the Lease. NOW, THEREFORE, in consideration of the above premises and the mutual covenants and promises contained herein, the parties hereby agree as follows: 1. Term. Section Five of the Lease is hereby amended by deleting it in its entirety and inserting in its place the following: "SECTION FIVE TERM The commencement date of the term of this Lease is October 4, 1996. It is the intent of Lessor and Lessee that this Lease terminate on the same date as the termination date of that certain Lease dated February 25th 1999, by and between Lessor and Lessee concerning the real estate commonly known as 2215 Fox Drive, Champaign, Illinois (hereinafter referred to as the "2215 Fox Drive Lease"). The termination date of the 2215 Fox Drive Lease is seven (7) years from the Commencement Date of the 2215 Fox Drive Lease, as that term is defined in the 2215 Fox Drive Lease. In the event Lessee shall have faithfully performed all covenants of this Lease and Lessee has exercised Lessee's right to renew the 2215 Fox Drive Lease for an additional three (3) year term, Lessor hereby grants Lessee the right and option to renew this Lease for an additional period of three (3) years, it being the intention of Lessor and Lessee that the renewal term under this Lease terminate on the same date as the renewal term under the 2215 Fox Drive Lease. In the event Lessee desires to renew and extend this Lease, it shall give Lessor written notice, at least one hundred eighty (180) days prior to the expiration of the Page 1 of 2 initial term, of its intent to renew and extend; provided, however, that the following terms and conditions shall be applicable to the additional term. A. The provisions of this Lease during said three (3) year extension period shall be the same as provided in this Lease." 2. No Other Changes. Except as set forth above, no other amendments are made to the Lease and the parties hereby acknowledge and agree that the Lease remains in full force and effect. 3. Counterparts. To facilitate execution, this First Addendum to Lease may be executed in as many counterparts as may be required; and it shall not be necessary that the signature of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart; but it shall be sufficient that the signature of, or on behalf of, each party, or that the signatures of the persons required to bind any party, appear on one or more of such counterparts. All counterparts shall collectively constitute a single document. 4. Facsimile Signatures. The parties acknowledge that photocopies of this First Addendum to Lease which have been executed by the parties hereto or their respective agents shall be binding upon the parties as if such photocopies were originals regardless of whether such photocopies of this First Addendum to Lease have been delivered by personal service, regular mail, facsimile transmission or otherwise. Upon request from any party hereto, all other parties agree to execute an original of this First Addendum to Lease upon presentation thereof if said document has previously been executed and delivered in photocopy form by personal delivery, facsimile transmission, regular mail or otherwise. IN WITNESS WHEREOF, the parties have executed this First Addendum to Lease on the day and year first above written. LESSOR: LESSEE: PAR 3 DEVELOPMENT, L.L.C. ITDS INTELICOM SERVICES, INC. An Illinois Limited Liability A Delaware Corporation Company By: Fox Development Corporation An Illinois Corporation Its Managing Member By: /s/ Kim B. Fox By /s/ Peter L. Masanotti --------------------------- ------------------------------- Kim B. Fox, Its President Peter L. Masanotti, Its E.V.P. Page 2 of 2 EXHIBIT F FIRST ADDENDUM TO LEASE THIS FIRST ADDENDUM TO LEASE is made and entered into this 25th day of February, 1999, by and between PAR 3 DEVELOPMENT, L.L.C., an Illinois limited liability company (hereinafter "Lessor") and ITDS INTELICOM SERVICES, INC., a Delaware corporation, formerly known as CSC INTERCOM, INC. (hereinafter "Lessee"). WHEREAS, the parties entered into a certain Lease dated September 19, 1996, concerning the real estate commonly known as 2201 Fox Drive, Champaign, Illinois (hereinafter the "Lease"); and WHEREAS, the parties desire to make certain amendments to the Lease. NOW, THEREFORE, in consideration of the above premises and the mutual covenants and promises contained herein, the parties hereby agree as follows: 1. Term. Section Five of the Lease is hereby amended by deleting it in its entirety and inserting in its place the following: "SECTION FIVE TERM The commencement date of the term of this Lease is October 4, 1996. It is the intent of Lessor and Lessee that this Lease terminate on the same date as the termination date of that certain Lease dated February 25th, 1999, by and between Lessor and Lessee concerning the real estate commonly known as 2215 Fox Drive, Champaign, Illinois (hereinafter referred to as the "2215 Fox Drive Lease"). The termination date of the 2215 Fox Drive Lease is seven (7) years from the Commencement date of the 2215 Fox Drive Lease, as that term is defined in the 2215 Fox Drive Lease. In the event Lessee shall have faithfully performed all covenants of this Lease and Lessee as exercised Lessee's right to renew the 2215 Fox Drive Lease for an additional three (3) year term, Lessor hereby grants Lessee the right and option to renew this Lease for thirty-six (36) months, it being the intention of Lessor and Lessee that the renewal term under this Lease terminate on the same date as the renewal term under the 2215 Fox Drive Lease. In the event Lessee desires to renew and extend this Lease it shall give Lessor written notice, at least one hundred eighty (180) days prior to the expiration of the initial term, of its intent to renew and extend; provided, however, that the following terms and conditions shall be applicable to the additional term. Page 1 of 2 A. The provisions of this Lease during said extension period shall be the same as provided in this Lease." 2. No Other Changes. Except as set forth above, no other amendments are made to the Lease and the parties hereby acknowledge and agree that the Lease remains in full force and effect. 3. Counterparts. To facilitate execution, this First Addendum to Lease may be executed in as many counterparts as may be required; and it shall not be necessary that the signature of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart; but it shall be sufficient that the signature of, or on behalf of, each party, or that the signatures of the persons required to bind any party, appear on one or more of such counterparts. All counterparts shall collectively constitute a single document. 4. Facsimile Signatures. The parties acknowledge that photocopies of this First Addendum to Lease which have been executed by the parties hereto or their respective agents shall be binding upon the parties as if such photocopies were originals regardless of whether such photocopies of this First Addendum to Lease have been delivered by personal service, regular mail, facsimile transmission or otherwise. Upon request from any party hereto, all other parties agree to execute an original of this First Addendum to Lease upon presentation thereof if said document has previously been executed and delivered in photocopy form by personal delivery, facsimile transmission, regular mail or otherwise. IN WITNESS WHEREOF, the parties have executed this First Addendum to Lease on the day and year first above written. LESSOR: LESSEE: PAR 3 DEVELOPMENT, L.L.C. ITDS INTELICOM SERVICES, INC. An Illinois Limited Liability A Delaware Corporation Company By: Fox Development Corporation An Illinois Corporation Its Managing Member By: /s/ Kim B. Fox By: /s/ Peter L. Masanotti ------------------------- ------------------------ Kim B. Fox, Its President Peter L. Masanotti, Its E.V.P. Page 2 of 2 EX-21 7 SUBSIDIARY LISTING EXHIBIT 21 Name of Subsidiary Jurisdiction of Incorporation - ------------------------------ ----------------------------- ITDS Acquisition Corp. Delaware ITDS Holding Company LLC Delaware ITDS Intelicom Services, Inc. Delaware ITDS LTDA Brazil MDS, Inc. Delaware EX-23 8 CONSENT OF INDEPENDENT AUDITORS Exhibit 23 Consent of Independent Auditors We consent to the incorporation by reference in the following Registration Statements: (i) Form S-8 (No. 333-21287) pertaining to the 1996 Stock Incentive Plan of International Telecommunication Data Systems, Inc., (ii) Form S-8 (No. 333-21283) pertaining to the 1996 Employee Stock Purchase Plan of International Telecommunication Data Systems, Inc., (iii) Form S-8 (No. 333-47865) pertaining to the 1997 Stock Incentive Plan of International Telecommunication Data Systems, Inc., (iv) Form S-8 (No. 333-57093) pertaining to the 1998 Stock Incentive Plan of International Telecommunication Data Systems, Inc. and (v) Post-Effective Amendment No. 1 on Form S-3 (No. 333-60223) pertaining to the registration of 606,673 shares of Common Stock issued in connection with the acquisition of the TRIS Division of Computer Sciences Corporation of our report dated February 16, 1999 with respect to the consolidated financial statements of International Telecommunication Data Systems, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1998. /s/ Ernst & Young LLP Stamford, Connecticut March 29, 1999 EX-27 9 FDS --
5 This schedule contains summary financial information extracted from the audited balance sheets for the year ended December 31, 1998 and is qualified in its entirety by reference to such financial statements. 0000867889 INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS 1,000 USD 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 1 40,735 0 34,713 2,362 0 78,131 13,187 5,450 155,156 21,306 0 0 0 173 133,652 155,156 115,460 115,460 0 44,334 74,131 0 2,740 (4,195) (1,095) (3,100) 0 (826) 0 (3,926) (.25) (.25)
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